FHA Proposes Improvements to Rehab Loan Program

December 3, 2023

FHA 203(k) rehabilitation loan limits and the deadlines for project completion could be changed thanks to a proposal from the Federal Housing Administration.

The FHA 203(k) rehab loan program is offered to borrowers to help them buy or refinance a home and include the cost of renovations or repairs in the loan amount. This is how house hunters are able to purchase fixer-uppers with an FHA loan. It’s also how current homeowners can refinance and renovate at the same time.

There are FHA rehab loans for typical purposes, and there is a special FHA rehab loan for those recovering from natural disasters in federally declared disaster areas. That loan is known as a 203(h) rehabilitation mortgage.

Standard or Limited?

The non-disaster FHA rehab loan option, the 203(k), comes in two varieties. One is the “standard” 203(k), and the other is a “limited” 203(k) rehab loan for smaller projects. You can use a limited 203(k) for projects that don’t involve load-bearing walls or other major renovations.

If you need money for a more ambitious repair job, the standard 203(k) is the option you should apply for.

Proposed Changes to FHA Rehab Loans

Under the current system, the maximum cost for a limited 203(k) is capped at $35 thousand. The new rules, if passed, would increase that amount to $50 thousand.

There are other proposed changes, which include but are not limited to:
 

• Updating the 203(k) Consultant Fee schedule, including streamlined increases for work write-up and architectural exhibit fees. 
• Allowing 203(k) Consultant Fees to be financed for the Limited 203(k) program (they are not currently, unlike the standard FHA 203(k) program.)
• Increasing the allowable rehabilitation period for the Standard 203(k) program from six months to 10 months.
• Increasing the rehab period for the Limited 203(k) program from six months to seven months.
• Increasing the allowable initial draw amount to include up to 75 percent of material costs (currently limited to 50 percent.

Those proposed changes are currently subject to a public comment period before the FHA and HUD decide what to do next.

FHA Public Comment Period

FHA will take feedback on the above proposed changes to the 203(k) program until January 5, 2024. 

You can review the public comment guidelines or submit your comment at the FHA.gov Drafting Table official page. Keep in mind that the changes mentioned above are not yet official, and the public review period must end before the FHA and HUD issue a final rule.