Long-awaited updates to the U.S. Department of Housing and Urban Development’s (HUD) 203(k) program have been announced.
Not only will home-rehabbers have more money to work with to make upgrades, but the changes also include extended timeframes for construction.
“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,” Federal Housing Commissioner Julia Gordon said. “Increased use of 203(k) mortgages will help modernize and revitalize homes, which supports affordable housing supply and strengthens neighborhoods.”
Gordon and her FHA colleagues joined Philadelphia Mayor Cherelle Parker in announcing the changes Tuesday, at the home of a local borrower who used the FHA 203(k) program to finance renovations to his home.
“HUD has programs not only to help families purchase a house, but to help them repair their homes,” HUD Acting Secretary Adrianne Todman said. “Today, we are modernizing and expanding this program, helping both homebuyers and homeowners fix up their homes. This is one more action the HUD and the Biden-Harris Administration is taking to improve our country’s housing supply.”
Although the Federal Housing Administration’s (FHA) 203(k) program is widely lauded, it has not been used to the extent that it was intended due to being outdated.
According to the most recent data available, 4,478 203(k) loans were issued in 2022, representing just 0.5% of total FHA originations. The Urban Institute reported that program use has declined in recent years, with 299 loans made in January 2023, compared to an average of 1,330 loans originated per month, on average, between 2015 and 2017.
Individuals and families who do utilize the program can renovate or rehabilitate a single-family home through a purchase or a refinance. The program covers structural repairs including the replacement of home foundations and roofs, the modernization of kitchens and bathrooms, and projects to increase energy efficiency and climate resilience.
The update is part of the Biden-Harris Administration’s efforts to address the nation’s housing supply challenges.
Modifications were made to both the Standard 203(k) and the Limited 203(k) programs, increasing the allowable total rehabilitation costs a borrower can finance under the Limited program from $35,000 to $75,000 and reviewing this limit annually to ensure it continues to keep pace with market conditions. In addition, the rehabilitation period has been extended to nine months. For the Standard program, the extension is 12 months.
Borrowers have also been afforded the liberty of including the fee for their 203(k) Consultant within the total mortgage amount for the Limited program, with an added increase to allowable fees charged, a component that has not been updated since 1995.
The update was welcomed by industry stakeholders, including the Community Home Lenders of America (CHLA).
“CHLA is pleased with HUD’s announcement to expand the 203(k) Program as it will greatly strengthen housing affordability measures, especially among first-time and low to moderate income borrowers,” Executive Director Scott Olson said in a statement. “CHLA has been a strong advocate for expanding the FHA program’s scope to take into account cost advances. We are encouraged to see such enhancement initiatives, which make the program more attractive for homebuyers using FHA loans and contractors."
