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Home Improvement FAQ's

Is the loan restricted to single-family dwellings?

Can the loan be used to improve a condominium unit?

Can a six (or more) unit building be financed?

Is nonresidential (storefront) property eligible?

Can an investor use the loan program?

Can a local government agency or a nonprofit organization use the program?

What is the definition of a First-Time Homebuyer?

Is there a limitation on how many properties a person or organization can have in any area of the community?

Can the loan be used to convert a one family dwelling to a two-, three-, or four-family dwelling (or vice versa)?

Can the loan be used to move an existing house onto another site?

Can a detached garage or another dwelling be placed on the mortgaged property?

Can a dwelling be converted to provide access for a disabled person?

What is the minimum amount of rehabilitation required for Streamline Program?

What is the minimum amount of rehabilitation required for the non-streamlined Standard Program?

Is there a time period on the rehabilitation construction period?

What happens if the borrower fails to perform under the terms of the Agreement?

Do we always require a contingency reserve to cover unexpected cost increases?

Can the architectural exhibits, including the cost estimate, be modified after the mortgage loan is closed?

What happens if the cost of the rehabilitation increases during the rehabilitation period?

Can mortgage payments (PITI) be included in the mortgage while work is being done?

Is a contractor required to do the work?

Can cost savings on the rehabilitation be given back to the borrower?

Can the borrower do their own work write up and cost estimate?

Is only one appraisal required to establish the "after-rehab" value of the property?

Can an Energy Efficient Mortgage (EEM) be allowed using these programs?


 

Is the program restricted to single-family dwellings?

No. The program can be used for one-to-four unit dwellings.

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Can the loan 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. The loan 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. Likewise, a project could contain a row of more than four attached townhouses and be eligible because each townhouse is considered 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.

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Can a six (or more) unit building be financed?

No. However, the building could be renovated and reduced to a four unit building.

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Is nonresidential (storefront) property eligible?

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.

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Can an investor use the loan program?

No. The loan program is only available for owner occupied properties.

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Can a local government agency or a nonprofit organization use the program?

Yes. The same qualification requirements will be used as for an owner-occupant of the property.

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What is the definition of a First-Time Homebuyer?

A single person or an individual and his or her spouse who have not owned a home (as a tenant in common or as a joint tenant by the entirety) during the three years immediately preceding the date of application for the loan. Any individual who is legally separated or divorced cannot be excluded from consideration, because the three-year waiting period does not apply, provided the individual no longer has an interest in the home.

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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.

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Can the loan be used to convert a one family dwelling to a two-, three-, or four-family dwelling (or vice versa)?

Yes, under the Standard Program.

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Can the loan be used to move an existing house onto another site?

Yes, under the Standard Program, 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.

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Can a detached garage or another dwelling be placed on the mortgaged property?

Yes, under the Standard Program, however, a new addition must be attached to the existing dwelling, and must comply all local codes and ordinances.

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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.

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What is the minimum amount of rehabilitation required for Streamline Program?

Under the Streamlined Program, a minimum repair/improvement cost requirement is not applicable.

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What is the minimum amount of rehabilitation required for the non-streamlined Standard Program?

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 Program, a minimum repair/improvement cost requirement is not applicable.

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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).

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What happens if the borrower fails to perform under the terms of the Agreement?

The lender may refuse to make further releases from the Rehabilitation Escrow Account. The funds remaining in the account can be applied to reduce the mortgage principal.

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Does HUD always require a contingency reserve to cover unexpected cost increases?

Typically, yes. On properties older than 30 years and over $7,500 in rehabilitation costs, the cost estimate must include a contingency reserve. The reserve must be a minimum of ten (10) percent of the cost of rehabilitation; however, the contingency reserve may not exceed twenty (20) percent where major remodeling is contemplated. If utilities were not turned on for inspection, a minimum fifteen (15) percent is required.

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Can the architectural exhibits, including the cost estimate, be modified after the mortgage loan is closed?

Yes. The changes must be approved by 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.

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What happens if the cost of the rehabilitation increases during the rehabilitation period?

Can the 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. <back to top>

 

Can mortgage payments (PITI) be included in the mortgage while work is being done?

Yes, under the Standard Program. Up to six months of payments may be included in the mortgage if the property is not able to be habitable due to condition of the property during the rehabilitation period.

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Is a contractor required to do the work?

No. However, if you want to do any work or be the general contractor, you 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). A borrower doing their own work can only be paid for the cost of the materials. Monies saved can be allocated to cost overruns or additional improvements.

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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.

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Can the borrower do their own work write up and cost estimate?

Yes, but only under the Streamline Program.

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Is only one appraisal required to establish the "after-rehab" value of the property?

Yes, provided the lender can be assured that the contract sales price is reasonable for purchase transactions or the existing debt on the property is low enough to assure a good equity position of the homeowner.

For HUD-owned - REO Acquisitions, the lenders must order, and the purchaser(s) may be charged for, an as-repaired appraisal on all transactions. If the M&M contractor's as-is appraisal is more than six months old mortgagees also have the option of ordering an updated as-is appraisal. However, an as-is appraisal is not mandatory if the underwriter believes the sales price is equal to the as-is value.

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Can an Energy Efficient Mortgage (EEM) be allowed using these programs?

Yes. You can finance into the mortgage 100 percent of the cost of eligible energy efficient improvements, subject to certain dollar limitations, without an appraisal of the energy improvements and without further credit qualification of the borrower.

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