MBA-Recommended 203(k) Program Changes Adopted by HUD

HUD released an updated set of policies for its 203(k) Rehabilitation Mortgage Insurance Program, including a number of recommendations the Mortgage Bankers Association had suggested in a Jan. 3 letter.

“We support FHA’s enhancements to its 203(k) program and commend them for including many of the recommendations we highlighted in our January 2024 letter, including increasing the rehabilitation disbursement cap to $75,000 on a nationwide basis for the Limited program, and extending completion timelines to better reflect current market conditions and ensure projects are completed,” said MBA Senior Vice President of Residential Policy Pete Mills.

Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon and Philadelphia Mayor Cherelle Parker announced the newly updated set of policies in Philadelphia on July 9.

There are currently two variations of the 203(k) program–the Standard 203(k) for substantial remodeling and repairs and the Limited 203(k), for minor remodeling and nonstructural repairs. The updates concern both.

Specifically, the updates include:

• Increasing the allowable total rehabilitation costs a borrower can finance under the Limited 203(k) program from $35,000 to $75,000 and reviewing this limit annually to ensure it continues to keep pace with market conditions.
• Providing more time for rehabilitation and repair work to be completed by extending the rehabilitation period to 12 months for the Standard 203(k) and nine months for the Limited 203(k).
• Allowing the financing of the 203(k) Consultant Fee in the total mortgage amount for the Limited 203(k) if a borrower chooses to use a 203(k) Consultant.
• Increasing the allowable fees that a 203(k) Consultant can charge for various activities, which have not been updated since 1995. The new fee structure is designed to appropriately compensate Consultants for their role and encourage more Consultants to participate in the program.

“These changes will help return older, dilapidated homes into owner-occupied housing stock, and help first-time buyers compete with fix-and-flip investors,” Mills noted.   

“The changes we are announcing today for the 203(k) program 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,” said Gordon in a release. “Increased use of 203(k) mortgages will help modernize and revitalize homes, which supports affordable housing supply and strengthens neighborhoods.”