Only 203K eligible home improvements, repair and rehabilitation work can be financed under the FHA guidelines. A number of items considered to be luxury or discretionary are excluded from being eligible from financing by the FHA section 203(K). Before arriving at the decision to apply for a 203K loan for your home improvement financing, attention must be paid to the allowable and non-allowable items under the FHA 203K loan requirements.
Anything that may be deemed to not be a luxury improvement may be given due consideration by the 203k consultant. Items that are on the borderline such as painting, extra room additions, adding a new deck or porch may also be financed through 203(K) loan program. These improvements are allowed even if there are no other items that may be need to be renovated as they are considered to be 203K eligible.
Given its objective, first priority and precedence for 203K funds is mostly given towards improvements that address the health, safety, and energy conservation issues of a residential owner-occupied property. Only after satisfactorily addressing such primary needs will consideration be given to other general home improvements in 203k purchase or refinance financing.
203K Eligible Repairs
The loan proceeds from a FHA 203(K) can be used to make a number of improvements, repairs and modifications to a residential real estate property. Depending on the type of rehab work involved, a number of required and mandatory standards must be maintained and followed based on 203(K) work and rehabilitation guidelines.
When a new addition is to be made to any existing structure or dwelling, the construction work has to conform to all the local codes. All properties financed with the insurance backing from FHA have to conform to the minimum property standards prescribed by the Department of Housing and Urban Development (HUD). These standards and other requirements can be found in 24 CFR 200.926d.
Energy Efficiency & Conservation Standards
If the 203(K) rehabilitation loan proceeds are intended for the improvement of thermal efficiency of a residential home, a number of basic requirements must be completed on such projects.
All doors, windows and other outlets that facilitate the flow of air into the building must have proper and adequate weather stripping. If cracks are found on the walls, they must be properly sealed.
Insulation must be done on all openings found on the exterior walls and the ceiling.
In rehab projects that involve the replacement of heating systems, air conditioning or burners, the size of the systems not be oversized beyond 15% based on the design. When the cooling or heating ducts pass through unconditioned spaces, they must be insulated.
These steps required by 203k FHA loans can effectively improve the energy efficiency of the structure and provide cost savings on energy bills. If the property has an attic or crawl spaces, they should be properly ventilated.
All sleeping areas must have a minimum of one smoke detector that meets all necessary standards. It must be installed adjacent to the sleeping area.