Christopher D. Colvin
Housing Rehabilitation Consultant
400 Lawrence Street Marietta GA   30060
Christopher D. Colvin
Housing Rehabilitation Consultant
400 Lawrence Street Marietta GA   30060
400 Lawrence Street Marietta GA   30060
HUD 203(k) Q&A:
Christopher Colvin is a HUD/FHA 203(k) Consultant & Inspector for the State of Georgia.  Please call 404.680.5773 with any
questions or to schedule a Consultation.
Christopher Colvin
HUD Approved 203(k) Consultant, FLA. & GA. FHA Compliance Inspector
Does the rehabilitation construction have to comply with HUD's Minimum Property Standards?
Yes. The improvements must comply with HUD's Minimum Property Standards, all local codes and zoning regulations.

What is the minimum amount of rehabilitation required for a Full Section 203(k) mortgage?
There is a minimum $5,000 requirement for the eligible improvements on the existing structure on the property. Minor or cosmetic
repairs by themselves are unacceptable; however, they may be added to the minimum requirement. Under the Streamlined 203(k)
program, a minimum repair/improvement cost requirement is not applicable.

Is the 203(k) program restricted to single-family dwellings?
No. The program can be used for one-to-four unit dwellings. Maximum mortgage limitations are the same as for properties under
Section 203(b). The borrower must reside in one of the units.

Can 203(k) be used to improve a condominium unit?
Yes, however, condominium rehabilitation is subject to the following conditions:
A. Owner/occupant and qualified nonprofit borrowers only;
B. Rehabilitation is limited only to the interior of the unit. Mortgage proceeds are not to be used for the rehabilitation of exteriors or
other areas which are the responsibility of the condominium association, except for the installation of firewalls in the attic for the unit;
C. Only the lesser of five units per condominium association, or 25 percent of the total number of units, can be undergoing
rehabilitation at any one time;    
D. The maximum mortgage amount cannot exceed 100 percent of the after-improved value. After rehabilitation is complete, the
individual buildings within the condominium must not contain more than four units. By law, Section 203(k) can only be used to
rehabilitate units in one-to-four unit structures. However, this does not mean that the condominium project, as a whole, can only have
four units or that all individual structures must be detached. Example: A project might consist of six buildings each containing four units,
for a total of 24 units in the project and, thus, be eligible for Section 203(k). Likewise, a project could contain a row of more than four
attached townhouses and be eligible for Section 203(k) because HUD considers each townhouse as one structure, provided each unit
is separated by a 1 1/2 hour firewall (from foundation up to the roof). Similar to a project with a condominium unit with a mortgage
insured under Section 234(c) of the National Housing Act, the condominium project must be approved by HUD prior to the closing of
any individual mortgages on the condominium units.

Can a six (or more) unit building be done using the 203(k) program?
No. However, the building could be renovated and reduced to a four unit building.

Can nonresidential (storefront) property be eligible for a 203(k) insured loan?
Yes. Mixed-use residential property is acceptable provided the property has no greater than 25% (for a one story building); 33% (for a
three story building); and 49% (for a two story building) of its floor area used for commercial (storefront) purposes. The rehab funds
can only be used for the residential functions of the dwelling and areas used to access the residential part of the property.

Can HUD-owned properties be purchased using the 203(k) loan?
Yes. However, the property must be advertised that it is eligible for financing with a 203(k) loan. If the HUD-owned property is
purchased with other funds, a 203(k) loan can be made after the property is in the buyers name. In this case, cash back will be allowed
to the borrower for a period of six months from purchasing the HUD-owned property.


Can an investor use the 203(k) program?
No. In October, 1996, the Department placed a moratorium on investor participation in the 203(k).

Can a local government agency or a nonprofit organization use the 203(k) program?
Yes. The same qualification requirements will be used as for an owner-occupant of the property.

Is there a limitation on how many properties a person or organization can have in any area of the community?
Yes. A borrower can have not more than seven (7) units within a two block radius of the property they want to purchase. However, if
the property is in a local community area that has been designated for redevelopment or revitalization, then this seven unit limitation
does not apply.


Can Full Section 203(k) be used to move an existing house onto another site?
Yes, however, release of loan proceeds for the existing structure on the non-mortgaged property is not allowed until the new
foundation has been properly inspected and the dwelling has been properly placed and secured to the new foundation. At closing,
funds would be released to purchase the site and the rest of the mortgage proceeds would be placed in the Rehabilitation Escrow
Account. The borrower would have the site prepared to accept the dwelling. The first release would be based on the improvements
made to the site, including the installation of the existing structure on the new foundation.  
But seriously, who does this?

What eligible improvements are acceptable in a Full 203(k)?
Structural alterations and reconstruction (e.g., repair or replacement of structural damage, chimney repair, installation of an
additional bath(s), skylights, finished attics and/or basements, mold remediation, repair of termite damage and the treatment against
termites or other insect infestation, etc.).
B. Changes for improved functions and modernization (e.g., remodeled bathrooms and kitchens, including permanently installed
appliances, i.e., built-in range and/or oven, range hood, microwave, dishwasher).
C. Elimination of health and safety hazards (including the resolution of defective paint surfaces or lead-based paint problems on homes
built prior to 1978).
D. Changes for aesthetic appeal and elimination of obsolescence (e.g., new exterior siding, adding a second story to the home,
covered porch, stair railings, attached carport).
E. Reconditioning or replacement of plumbing (including connecting to public water and/or sewer system), heating, air conditioning and
electrical systems. Installation of new plumbing fixtures is acceptable, including interior whirlpool bathtubs.
F. Installation of well and/or septic system. The well or septic system must be installed or repaired prior to beginning any other repairs
to the property. A property less than 1/2 acre with a separate well or septic system is not acceptable; also, a property less than 1 acre
with both a well and a septic system is unacceptable. Lots smaller than these sizes, usually have problems in the future; however, the
local HUD Field Office can approve smaller lot size requirements where the local health authority can justify smaller lots. The
installation of a new well or the repair of an existing well (used for the primary water source to the property) can be allowed provided
there is adequate documentation to show there is reason to believe the well will produce a sufficient amount of potable water for the
occupants. (A well log of surrounding properties from the local health authority is acceptable documentation.) Refer to HUD Handbook
4910.1, Appendix K, for additional information.
G. Roofing, gutters and down spouts.
H. Flooring, tiling and carpeting.
I. Energy conservation improvements (e.g., new double pane windows, steel insulated exterior doors, insulation, solar domestic hot
water systems, caulking and weather stripping, etc.).
J. Major landscape work and site improvement (e.g., patios, decks and terraces that improve the value of the property equal to the
dollar amount spent on the improvements or required to preserve the property from erosion). The correction of grading and drainage
problems is also acceptable. Tree removal is acceptable if the tree is a safety hazard to the property. Repair of existing walks and
driveway is acceptable if it may affect the safety of the property. (Fencing, new walks and driveways, and general landscape work (i.e.,
trees, shrubs, seeding or sodding) cannot be in the first $5000 requirement.)
K. Improvements for accessibility to a disabled person (e.g., remodeling kitchens and baths for wheelchair access, lowering kitchen
cabinets, installing wider doors and exterior ramps, etc.). Related fixtures such as new cooking ranges, refrigerators, and other
appurtenances, as well as general painting are also eligible.
L. Geothermal and residential elevator systems.
M. Architectural & engineering services to prepare the permit drawings for the project.
As long as it directly improves the property value... discuss it with the 203(k) Consultant when on site.**

Can a detached garage or another dwelling be placed on the mortgaged property?
Yes, however, a new addition must be attached to the existing dwelling, and must comply with HUD's Minimum Property Standards in 24
CFR 200.926d and all local codes and ordinances, including Zoning and any Historic District requirements.

Can a dwelling be converted to provide access for a disabled person?
Yes. A dwelling can be remodeled to improve the kitchen and bath to accommodate a wheelchair access. Wider doors and handicap
ramps can also be included in the cost of rehabilitation.


What is the minimum amount of rehabilitation required for a Full Section 203(k) mortgage?
There is a minimum $5,000 requirement for the eligible improvements on the existing structure on the property. Minor or cosmetic
repairs by themselves are unacceptable; however, they may be added to the minimum requirement. Under the Streamlined 203(k)
program, a minimum repair/improvement cost requirement is not applicable.

Should I give the contractor a deposit?
Absolutely NOT.  If you are asked for this, notify the HUD Consultant and the Lender immediately.

What is a Contingency Reserve Fund?
Every Full 203(k) has one of these...Typically it is 10% of the total renovation funds, NOT the total purchase price.  If the electricity is
off, then the CRF is bumped to 15% - or if the property is in extremely poor condition it can go as high as 20%.  This fund is dedicated
for change order issues, such as a change from vinyl to tile or laminate to hardwoods - or construction discoveries that require
additional time or materials to correct.

Is there a time period on the rehabilitation construction period?
Yes, the Rehabilitation Loan Agreement contains three provisions concerning the timeliness of the work. The work must begin within 30
days of execution of the Agreement. The work must not cease prior to completion for more than 30 consecutive days. The work is to be
completed within the time period shown in the Agreement (not to exceed six months).  Often extensions are granted due to weather
delays or change order

What happens if the borrower OR CONTRACTOR fails to perform under the terms of the Agreement?
The lender may refuse to make further releases from the Rehabilitation Escrow Account in order to determine what is going on with the
loan.  Particularly if issues are becoming apparent with the Contractor - often the 203(k) Consultant is the one who flags the problem
and alerts the Borrower and Lender.  The funds remaining in the account can be applied to reduce the mortgage principal. Also, the
lender has the option to call the mortgage loan due and payable.

Can the Contractor be removed from the 203(k) loan during construction?
Yes.  The 203(k) Consultant will advise on how this happens - and when it is appropriate to remove them.  Another licensed contractor
MUST be selected and validated with the Lender, as the loan is temporarily frozen and NO construction can occur during this period.

How many draw releases can be scheduled during the rehabilitation period on a Full 203(K)?
As many as five releases (four plus a final) can be scheduled. The number of releases is normally dictated by the cash-flow
requirements of the contractor. An inspection is always required with a scheduled release; however, inspections may be scheduled
more often than releases if necessary to ensure compliance with the architectural exhibits, HUD's Minimum Property Standards and all
local codes and zoning requirements. Additional draw inspections may be authorized under certain circumstances- with the
Consultant's draw fee being billed to the Borrower or Contractor.

Can the architectural exhibits, including the cost estimate, be modified after the mortgage loan is closed?
Yes. The changes must be approved by HUD or a DE lender prior to beginning the work. If the change affects the health, safety or
necessity of the dwelling, the contingency reserve can be used to pay for the change. However, if the health, safety or necessity of the
dwelling is not affected and an increase in cost occurs, the borrower must apply monies into the contingency reserve fund to pay for
the change. Should the change result in a reduced cost of rehabilitation, the difference will be placed in the contingency reserve fund;
if unused, it will be applied as a mortgage prepayment after completion of construction.

What happens if the cost of the rehabilitation increases during the rehabilitation period?
Can the 203(k) mortgage amount be increased to cover the additional expenses? No. This emphasizes the importance of carefully
selecting a contractor who will accurately estimate the cost of the improvements and satisfactorily complete the rehabilitation at or
below the estimate.  However, the Contingency Reserve Fund (10%-20% of renovation costs) can be used to pay for legitimate change
order issues that directly improve the property value - which must be approved by the HUD Consultant.

Can mortgage payments (PITI) be included in the mortgage on a Full 203(k)?
Yes. Up to six months of payments may be included in the mortgage if the property is not occupied during the rehabilitation period.

Is a contractor required to do the work?
No.  But good luck finding a Lender who actually allows this to happen.  If the borrower wants to do any work or be the general
contractor, they must be qualified to do the work, and do it in a timely and workmanlike manner. It is very important that the work be
done in a time frame that will assure the completion of the work that will be agreed upon in the Rehabilitation Loan Agreement (signed
at closing).

If the borrower does the work, how is the cost for work estimated?
The cost estimate must be the same as if a contractor is doing the work, in case the borrower cannot (for some reason) complete the
work.  But honestly, not many lenders allow Borrowers to do their own work.

Can cost savings on the rehabilitation be given back to the borrower?
No. However, the savings can be transferred to cost overruns in other work items or can be used to make additional improvements to
the property If the cost savings are not used, the money must be applied to the mortgage principal, but the mortgage payments will
remain the same, because the loan has already closed. To use the cost savings, it will be necessary for a Change Order to be
completed and approved by the lender.  The HUD 203(K) Consultant will guide you on this issues.

On Full 203(K)'s can any rehabilitation money be paid upfront to offset the startup costs for the contractor?
No. However, an exception can be allowed for kitchen and bath cabinetry, or floor covering, where a contract is established with the
supplier and an order is placed with the manufacturer for delivery at a later date.

Is there anyone available who can prepare the Work Write-up and cost estimates?
Yes. HUD Requires the "HUD 203(K) Consultant" to prepare this document for you - as will the underwriter of your loan.

Is only one appraisal required to establish the "after-rehab" value of the property?
Basically, yes, provided the lender can be assured that the contract sales price is reasonable or the existing debt on the property is low
enough to assure a good equity position by the homeowner. On a HUD-owned property, the lender can use HUD's appraisal for the
after-rehab value.