On July 9, 2024, the Federal Housing Administration (“FHA”) published Mortgagee Letter (ML) 2024-13, Revisions to the 203(k) Rehabilitation Mortgage Insurance Program including updates to the 203(k) Consultant Requirements and Fees. As previously discussed here, ML 2024-13 announced updates to the FHA 203(k) program guidelines, that would be incorporated into the FHA Connection (“FHAC”) portal.
The FHAC system provides FHA-approved lenders secured access to the U.S. Department of Housing and Urban Development (“HUD”) loan production system. FHA has now confirmed that system updates will be available for implementation of ML 2024-13 updates. The FHAC Guide has also been updated to reflect the system updates and is available on the FHAC portal homepage.
The 203(k) program provides mortgage insurance for loans used to purchase a home or refinance an existing loan that includes funds for repair or rehabilitation of the property. There are two types of 203(k) programs. The Limited 203(k) program is for a property that needs minor remodeling and nonstructural repairs. The Standard 203(k) program covers major rehabilitation and renovations, including structural additions. To support the implementation of updates to both variations of the program announced in ML 2024-13, FHA will make the following system updates for forward mortgages with an FHA case number assigned on or after November 4, 2024, in the FHAC portal:
- Increase the maximum total rehabilitation cost for Limited 203(k) from $35,000 to $75,000.
- Increase the allowable financed mortgage payment reserves from six months to 12 months for a Standard 203(k) loan.
- Add a Notice of Return (NOR) edit on the insurance application to ensure the financed amount does not exceed 12 months of Principal, Interest, Taxes, and Insurance (PITI)
- Allow 203(k) Consultant fees to be financed for a Limited 203(k) loan.
- Extend the maximum rehabilitation period to nine months for the Limited 203(k) and twelve months for the Standard 203(k).
In support of the 203(k) program updates, Federal Housing Commissioner Julia Gordon stated that the changes “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.”
