HUD RENOVATION & 203K HOMES - CONTENTS: Basic information about HUD Loans for Home Renovations - information provided by a mortgage & financial information service company. The Renovation, Repair and Painting Rule - links to HUD resources. FHA 203(k) Home Rehabilitation Financing.
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This article describes buying a "HUD Renovation Home" and includes advice from a company providing mortgage and financing advice and funding. The true cost of buying any home is not just the initial purchase price. Rather, the true cost of buying a home is the sum of the initial purchase costs plus the costs of repairs that are required to make the home safe and habitable.
Lily Spencer - Ms. Spencer is employed by MortgageLoan.com, news and information & financial service for consumers seeking information about mortgages and related financial matters.. InspectAPedia has no business nor financial connection with any manufacturer or service provider discussed at our website.
A HUD home renovation may be a wise choice if you are in the market to buy a house. Many
factors weigh in when making the decision to renovate a HUD home. The condition in which
the property is bought, programs available through HUD and repairs that will be needed
contribute to deciding if a renovation is a considerable option.
A Home's Condition at the Time of Purchase
When buying a HUD home, the price is set by HUD based off fair market value and the
necessity of repairs for the property. The more repairs the home needs, the lower the price
will be. Since HUD homes are sold as-is and are previous foreclosures, expect the condition
to usually be less than satisfactory.
Appliances and fixtures can be missing, carpet and
flooring could be destroyed, there could even be gaping holes in the walls.
If it is an older
home, it may not be the slightest bit energy efficient. It is beneficial and highly suggested to
perform a home inspection by a seasoned contractor before placing a bid on the property so
that all repairs can be factored into the bidding price.
HUD's Rehabilitation and Repair Home Loan
Although HUD does not directly supply loans, through the Section 203(k) program, they
partner with local agencies to provide lending for rehabilitating HUD properties. The loan
can be used for room additions, painting and decks if other repairs are not needed. The loan
is based off the value of the home once the work is completed, and includes the cost of the
This program came about due to borrowers having to obtain an interim loan to
purchase the house, and then another high interest rate loan to take care of remodeling,
followed by a third and permanent loan once work was finished.
An important factor to
remember about this rehabilitation loan is that once the loan is closed, the amount cannot
be adjusted. Therefore, it is crucial to use an experienced contractor throughout your HUD
home buying process from before the initial bid to the completion of the renovation.
The Usual Repairs for a HUD Renovation Home
Watch out: The true cost of buying any home is not just the initial purchase price. Rather, the true cost of buying a home is the sum of the initial purchase costs plus the costs of repairs that are required to make the home safe and habitable.
Unless you have a thorough home inspection performed by a qualified expert, a Hud Renovation Home or any other home that is in disrepair may sadle you wiith any of a variety of costly or dangerous defects that need attention before the home can be safely occupied. In other words, caveat emptor - buyer beware..
Not all HUD homes need extensive repairs, but when they do, the most basic repair costs typically include at least ensuring the home is
energy efficient, replacing flooring, interior painting, and installing appliances. Notably,
homes built before 1978 when lead paint was still used will require a special removal
Un-recognized hazards as basic as lead paint can mean extra costs that you have not anticipated. On older homes where lead paint may be a hazard, be sure to review HUD's "Renovation, Repair and Painting Rule".  Excerpting from that rule:
Common renovation activities like sanding, cutting, and demolition can create hazardous lead dust and chips by disturbing lead-based paint, which can be harmful to adults and children.
On April 22, 2008, EPA issued a rule requiring the use of lead-safe practices and other actions aimed at preventing lead poisoning. Under the rule, beginning in April 2010, contractors performing renovation, repair and painting projects that disturb lead-based paint in homes, child care facilities, and schools built before 1978 must be certified and must follow specific work practices to prevent lead contamination.
Until that time, HUD and EPA recommend that anyone performing renovation, repair, and painting projects that disturb lead-based paint in pre-1978 homes, child care facilities and schools follow lead-safe work practices.
... Starting on April 22, 2010, the rule will affect paid renovators who work in pre-1978 housing and child-occupied facilities, including:
Contain the work area.
Clean up thoroughly [2
All air conditioning, heating and ventilation pipes and ducts must be insulated if
they are in unconditioned spaces. Smoke detectors are also required to be placed in the
homes sleeping area. Heating and air conditioning units must not be over sized for the
space. HUD requires homes to meet their Minimum Property Standards and several energy
Why Consider a Renovation?
When a HUD home requires a vast amount of repairs, its price reflects accordingly. HUD
takes the price of repairs into account before setting the selling price. Even with having to
completely renovate a HUD home, you are still getting a fantastic deal. Especially when
considering their home rehabilitation and repair home loan option that will assist with the
financing of the property's renovation.
Whether HUD or not, a remodel will ensure a home is uniquely yours, and gives you the say
so in the cosmetic aspect of decisions that will make the home aesthetically pleasing to you
and your family.
Many choices are made by you, the homeowner, and are not just builder
grade; economic picks that are mass produced exactly the same in every house in your
neighborhood. The luxury of all these choices is usually reserved for those who custom
design their home from the ground up, or those who remodel after developing quite a bit of
equity in their residence.
The HUD home buyer gets to enjoy the benefits of a custom home
with a fraction of the cost, since they are getting the property at a comparatively low initial
FHA 203(k) Home Rehabilitation Financing
Traditionally, you had to pay out-of-pocket to do remodeling and then
inquire about FHA loans, due to FHA's strict requirements on up-to-date
conditions. The FHA 203(k Rehab loan bridges this gap by allowing you to
create one lump mortgage that provides funds to remodel the home.
203(k) mortgage is recommended for any HUD home in a state of repair
because it allows the potential homeowner to acquire draws of immediate
funds, create escrow for contracted repair work to ensure compliance in
errors, and bring the assurance of knowing repairs and the remodel are kept
up to code. 
The application process is the same as an FHA loan; First-time homebuyers are
eligible for specific tax credit benefits. First, you have to determine if
your HUD home is "insured" or "un-insured". You might be eligible for a
203k loan that includes rehab funds if HUD home is "un-insured". . There
are three major areas of the 203(k) that need to be considered:
Minimum safety standards for FHA 203(k) Financed Projects
The mortgage must conform to the minimum safety standards by HUD. These
include inspections as well as code-regulated remodeling.
Maximum mortgage amounts for FHA 203(k) Financed Projects
No more than 100% of the projected value of the home can be included for
the mortgage. Values are based on a professional appraisal. A minimum of
$5,000 is required for existing structures and improvement on the property.
Construction periods must begin within thirty days of an agreement. A
contingency reserve will also be required on any property that is older
than thirty years and over $7,500 in rehab costs.
Rehabilitation is strictly limited to the interior of the dwelling and
cannot allow for "luxury" renovation. A homeowner can, however, use funds
for room additions, paint, energy efficiency, and improvements.
FAQs below discusses field reports of problems & solutions for this topic
Frequently Asked Questions (FAQs) about HUD Loans for Home Renovations
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 Lily Spencer, MortgageLoan.com, Email:firstname.lastname@example.org, Quoting from the company's website: MortgageLoan.com is a... news and information service for consumers seeking information about mortgages and related financial matters.
 "The Renovation, Repair and Painting Rule", HUD, the U.S. Department of Housing & Urban Development, retrieved 1/17/2012, original source http://portal.hud.gov/ hudportal/HUD?src=/program_ offices/healthy_homes/training/rrp/rrp
 Renovate Right: Important Lead Hazard Information for Families, Child Care Providers, and Schools (PDF), HUD, the U.S. Department of Housing & Urban Development, retrieved 1/17/2013, original source http://portal.hud.gov/hudportal/documents/ huddoc?id=DOC_12531.pdf
 "Rehab a Home W/Hud's 203k Rehab Program", HUD, the U.S. Department of Housing & Urban Development, retrieved 1/17/2013, original source http://portal.hud.gov/hudportal/HUD?src=/program_ offices/housing/sfh/203k/203kabou - Quoting:
The Section 203(k) program is the Department's primary program for the rehabilitation and repair of single family properties. As such, it is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities. Since these are the primary goals of HUD, the Department believes that Section 203(k) is an important program and we intend to continue to strongly support the program and the lenders that participate in it.
Many lenders have successfully used the Section 203(k) program in partnership with state and local housing agencies and nonprofit organizations to rehabilitate properties. These lenders, along with state and local government agencies, have found ways to combine Section 203(k) with other financial resources, such as HUD's HOME, HOPE, and Community Development Block Grant Programs, to assist borrowers. Several state housing finance agencies have designed programs, specifically for use with Section 203(k) and some lenders have also used the expertise of local housing agencies and nonprofit organizations to help manage the rehabilitation processing.
 Arlene Puentes, an ASHI member and a licensed home inspector in Kingston, NY, and has served on ASHI national committees as well as HVASHI Chapter President. Ms. Puentes can be contacted at email@example.com
 "HUD Homes and the FHA 203k Loan", retrieved 1/17/2012, original
 HUD Dictionary of Deficiency Definitions, (PASS) www.hud.gov/offices/reac/pdf/pass_dict2.3.pdf retrieved 4/4/2013 excerpt from description:
HUD and its partners have completed a comprehensive review of the REAC Physical Inspection definitions. For purposes of illustration, the document presents the original definition at the top of each page with the modified definition at the bottom, where applicable.
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