All home improvements, repair work or rehabilitation work to be undertaken must be eligible for 203k financing. A large number of items considered to be luxury or discretionary are excluded by FHA section 203(K). Before considering the loan for financing your home improvement, attention must be paid to the allowable and non-allowable items.
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 can be financed through 203(K) loan program. These improvements are allowed even if there are no other items that may be needed for the property.
Given its objective, 203k which is a federally insured rehab loan program, first priority and precedence for funds is mostly given to improvements that address the health, safety, and energy conservation issues. Only after satisfactorily addressing such primary needs will consideration be given to other general home improvements in 203k purchase or refinance financing.
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, 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.