1. HUD’S FHA
203K LOAN
Kevin Shea
Mortgage Banker
USA Mortgage
a division of DAS Acquisition Company LLC
1000 Executive Parkway, Suite 105
St Louis, Mo. 63141
(314) 288-0072 direct
kshea@applywithkevin.com
NMLS: 183935, MO: 1204-MLO
Company NMLS: 227262 Missouri Residential Mortgage Licensee

3. WHAT IS A 203 K LOAN
 The Section 203(k) program is HUD's primary
program for the rehabilitation and repair of a
primary residence
 This loan is a FHA loan that allows the borrower to
purchase the home and repair the home
 Standard FHA Underwriting Guidelines Apply
(Minimum Credit Score 640)

4. ELIGIBLE PROPERTIES/LOAN AMOUNT
 Eligible properties-attached and detached SFR
 2-4 unit properties
 Condominium units in FHA-approved projects
 No ratio requirement of purchase price to rehab cost

5. ELIGIBLE IMPROVEMENTS
 Virtually any kind of improvement is eligible provided it
becomes a permanent part of the real property and adds
value:
 Additions and repairs to the structure
 Kitchen or bath remodels
 Finished basement or attic
 Patios, decks or terraces
 Roofing and landscaping
 Safety, energy efficiency and electrical upgrades
 Handicapped accessibility improvements
 Luxury items are not eligible
 Swimming pools, hot tubs, tennis courts, gazebos,
barbecue pits, saunas or alterations to support
commercial use

6. DETERMINING THE VALUE AND REHAB COSTS
 The loan-to-value is based on the lesser of
 The sales price or "as is" appraised value plus cost of
rehabilitation times 96.5%
 110% of “as completed” appraised value (on a
refinance)

7. APPLICATION PROCESS
 Borrower locates property in need of repairs or determines
that their current home needs improvements
 Borrower determines improvements needed and schedules an
inspection with contractor(s) and hud consultant
 HUD consultant completes the work write-up and consults
with contractor to obtain cost estimates
 Appraiser uses work write-up to determine “as-is” and
“improved value (should already have an idea of subject to
completion value)
 Loan closes
 Construction begins within 30 days of loan closing—must be
completed in six months or less

8. STANDARD FHA 203(K) DRAW PROCESS
 After the loan is purchased
 Welcome package is sent to the borrower
 Disbursements are made as each phase of the
project is completed based on the draw
paperwork provided by the cost consultant
 Inspections are required prior to each
disbursement
 A maximum of five draws allowed
 Draw amounts may vary and are based on the
work performed
 A 10% reserve is withheld on each draw—a
“holdback”
 “Holdback” funds are disbursed upon
completion of all work

9. CONTINGENCY RESERVE
 Used to cover health, safety and unplanned issues that
arise during construction
 A minimum of 10% of the cost of rehabilitation and
maximum of 20%- (15% is required if the utilities are not
on)
 If not used (after all construction is complete) the
remaining amount can be
 Applied to principal
 Used to make other improvements (certain
restrictions apply and additional approval of proposed
work is required)

10. HOLDBACK FUNDS
 Required on FHA 203(k)
 Used as an incentive to insure all work is completed
 10% of the cost is withheld from each draw
 All payments are impacted by this requirement
 Disbursed after all work has been completed and
inspected
 Make sure all parties involved in the rehabilitation
understand the holdback requirement

11. TIPS AND TOOLS
 When pre-approving your borrower remember that the 6%
seller concession is on the sales price, not the total loan
amount
 Borrower will pay anywhere from 3.5-6%, prepare your
borrower
 Make sure all parties understand the draw process
 When the first and all subsequent draws are made
 How many draws are allowed—maximum five
 Meet the client, HUD consultant, contractor and agent at the
property to set realistic expectations
 Contractors must be licensed and insured and show the ability
to financially carry the rehab
 This is still an FHA loan-your borrower must meet standard
FHA guidelines