On July 9th, HUD rolled out its much-anticipated changes to the FHA 203(k) Rehabilitation program, aiming to break down barriers for homeowners and home buyers. These changes kick in with FHA Case numbers assigned on or after November 4, 2024.

• Before we dive into the changes, let's review the two types of FHA 203(k) Rehabilitation loans: FHA 203(k) Standard and FHA 203(k) Limited.FHA 203(k) Standard: This program helps homeowners and home buyers finance major remodeling work, which may include structural repairs.

• FHA 203(k) Limited: This program allows for cosmetic changes and non-structural work.

These loans are invaluable tools, especially when addressing affordability and low housing inventory issues in underserved communities. They enable the purchase and renovation of homes in disrepair or outdated condition, expanding the number of homes available for purchase. Additionally, they can finance renovations for families outgrowing their homes, wanting to make improvements, or preparing to age in place.

Now You Can Borrow More

One of the most significant changes is the increased limit on repair costs for FHA 203(k) Limited loans. Currently, these loans allow for up to $35,000 in total renovation costs. Starting in November, homeowners and homebuyers can finance up to $75,000. This change, coupled with the absence of a requirement for a HUD-approved 203(k) Consultant, makes securing renovation financing easier and less expensive. Win!

A Longer Runway for Repairs

Currently, all FHA 203(k) projects must be completed within six months of closing. Under the new rules:

• FHA 203(k) Limited loans will have nine months for project completion.
• FHA 203(k) Standard loans will have twelve months for project completion.

These extended timelines are much needed as delays in material delivery and labor shortages continue to challenge remodelers. Another win! Furthermore, the FHA 203(k) Limited program will now provide a thirty-day window to move into homes after loan closing, compared to the current fifteen-day window. All good things.

Changes Benefitting 203(K) Consultants

Another significant change revolves around Consultant fees. HUD will now allow Consultant Fees to be financed on FHA 203(k) Limited loans - which is helpful.

But the announced increases in fees might impact the affordability of any renovation project being financed by an FHA 203(k) loan. Where Consultants previously charged $100 for an optional Feasibility Study, they can now charge as much as $375. Base fees for preparing a Work Write-Up and reviewing architectural exhibits, which currently range from $400 to $1,000, will increase to $1,000 to $2,000, depending on the scope of the renovation project. Draw inspection fees—which were at $350 each—will be increased by $25 to $375 a pop. Change Order fees will increase from $100 to $120, and inspection fees will increase from $50 to $225. Consultants may continue to charge additional fees for multi-unit properties and mileage (conditions apply). To put this in perspective, a $200,000 renovation project with five (5) draws would cost a homeowner or home buyer roughly $3,875 in base Consultant fees. Since the population of HUD-approved 203(k) Consultants isn’t very large, mileage fees are more likely than not. And if a Consultant arbitrarily tosses in a Feasibility Study, add another $375 to the tally. These costs can add up quickly!

When a 203(k) Consultant is involved—whether required or requested by a homeowner or home buyer—the mortgage lender must identify and engage a qualified 203(k) Consultant. This has always been the lender’s responsibility, and at Diamond Residential Mortgage Corporation, we take this responsibility very seriously. But we don't just aim to identify and engage a Consultant; we also strive to find the most affordable options for our clients.

A more affordable option for larger projects might be Fannie Mae’s HomeStyle® Renovation program, which does not require a Consultant. Before starting any renovation project, we encourage you to consult with a Diamond Residential Mortgage Corporation loan officer experienced in renovation lending to explore more affordable options. With a little coaching, you may reach your goals sooner than you think. The changes to the FHA 203(k) program bring both opportunities and challenges for homeowners and home buyers looking to finance renovations, and our renovation lending experts are ready to help you make the most of these updates and find the best solutions for your needs.

If you’re considering a renovation project, don’t navigate these changes alone. Contact a Diamond Residential Mortgage Corporation loan officer today to explore your options and find the most affordable path to your dream home renovations. Our experts are here to guide you every step of the way.

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Jennifer "The Reno Gal®" Goldsby, NMLS 591226, is the VP of Renovation Lending at Diamond Residential Mortgage Corporation. This is not a commitment to make a loan. Programs, approvals, rates, fees, and loan terms are subject to loan applications, credit risk, appraisal evaluation, underwriting guidelines, and other lending or qualification criteria and limitations and are subject to change without notice. Not all products are available in all states. Prequalifications and streamline pre-approvals have not been reviewed by an underwriter. Not all borrowers will qualify. Diamond Residential Mortgage Corporation, 582 Oakwood Ave, Lake Forest, IL 60045, (847) 244-9301. NMLS# 186805. For licensing information, go to: www.nmlsconsumeraccess.org/EntityDetails.aspx/COMPANY/186805. Diamond Residential Mortgage Corporation is not affiliated with or acting on behalf of or at the direction of FHA, VA, USDA, Fannie Mae, Freddie Mac, or any governmental body or agency. Equal Housing Opportunity. Licensed by the Arizona Department of Financial Institutions under Mortgage Banker License #1025098. Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act, Lic. # 4131348.