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FHA Seeking Input on Financing for Rehab Homes

The Federal Housing Administration (FHA) has published a Request for Information in the Federal Register [1] seeking public comments on ways it can enhance its Single Family 203(k) Rehabilitation Mortgage Insurance Program.

The 203(k) program enables those purchasing or refinancing a home to obtain FHA insurance on a mortgage that will cover the current value of the home plus rehabilitation costs. Consistent with the Biden-Harris Administration’s goals to increase the supply of quality affordable housing, FHA aims to update the program so that it can more effectively serve as a tool to restore single family homes in need of renovation to productive use.

The FHA’s Section 203(k) [2] insures mortgages covering the purchase or refinancing and rehabilitation of a home that is at least a year old. A portion of the loan proceeds is used to pay the seller, or, if a refinance, to pay off the existing mortgage, and the remaining funds are placed in an escrow account and released as rehabilitation is completed. The cost of the rehabilitation must be at least $5,000, but the total value of the property must still fall within the FHA mortgage limit for the area. The value of the property is determined by either (1) the value of the property before rehabilitation plus the cost of rehabilitation, or (2) 110% of the appraised value of the property after rehabilitation, whichever is less.

“FHA would like to offer improved options to finance the purchase or refinance of a home that needs significant rehabilitation,” said Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon [3]. “Feedback from today’s RFI will help us advance our goals to increase housing supply, reduce vacancy and blight, and expand homeownership opportunities in all communities.”

The FHA’s 203(k) program currently offers two options:

FHA encourages all interested parties to submit comments by the April 17, 2023, deadline.