FHA updates portal to accommodate expansion of 203(k) loan program

The Federal Housing Administration (FHA) announced late last week that the previously detailed updates and expansions to its 203(k) Rehabilitation Mortgage Insurance Program will be incorporated into updates for the FHA Connection (FHAC) portal. This system provides FHA-approved lenders and business partners with secure online access to computer systems at the U.S. Department of Housing and Urban Development (HUD).

The 203(k) program allows for the inclusion of repair or renovation costs within a single mortgage to purchase or refinance a home. It covers structural repairs (such as foundations and new roofs), modernization of kitchens and bathrooms, and energy-efficiency and climate-resiliency projects.

The 203(k) offering has two separate programs. The “standard” option is for substantial repairs, while the “limited” option is for more minor repairs or renovations. Updates have been made to both variations. Several revisions to FHAC will be included in the update package, which is scheduled to go into effect for all FHA case numbers assigned on or after Nov. 4, 2024.

These include an increase to the maximum total rehabilitation cost for the limited 203(k) option, which rises from $35,000 to $75,000; an increase in the allowable financed mortgage payment reserves from six months to 12 months for a standard 203(k) loan; and the addition of a Notice of Return (NOR) edit on an associated insurance application to ensure that the loan amount does not exceed 12 months of principal, interest taxes and insurance.

The update will also now allow 203(k) consultant fees to be financed for a limited 203(k) loan, and rehabilitation periods will be extended for both limited 203(k) loans (to nine months) and for standard 203(k) loans (to 12 months).

FHA has also updated its FHAC guide to provide details for these changes.

Last month, FHA officials and a 203(k) loan beneficiary announced updated policies for the 203(k) Rehabilitation Mortgage Insurance Program in an effort to “modernize the program and enhance its usefulness for individuals and families seeking affordable financing for renovating or rehabilitating a single-family home when purchasing or refinancing it.”

The updates were long-awaited as indicated last month by FHA Commissioner Julia Gordon.

“The changes we are announcing today for the 203(k) program are long overdue and will support greater use of this program where it is needed most — in neighborhoods where homes are affordable but need repair,” Gordon said in July. “Increased use of 203(k) mortgages will help modernize and revitalize homes, which supports affordable housing supply and strengthens neighborhoods.”

Housing groups including the Mortgage Bankers Association (MBA) and the Community Home Lenders of America (CHLA) lauded the move.

“These changes will help return older, dilapidated homes into owner-occupied housing stock, and help first-time buyers compete with fix-and-flip investors,” Pete Mills, the MBA’s senior vice president of residential policy, told HousingWire.