FHA Standard 203K

Revised 04/30/18
 FHA Standard 203K

Disclaimer
While every effort has been made to ensure the reliability of the webinar
content, PRMG’s product profiles and their updates, are the official
statements of PRMG and in the event of discrepancies between the
information in this webinar and the product profiles, the product profiles
will always supersede the information provided here.
 FHA Standard 203K

FHA Standard 203K Loans

The FHA Standard 203K

Renovation loan enables
borrowers to finance either
the purchase or refinance of
a home AND the cost of its
renovation through a single
mortgage.

STANDARD 203K LOANS FOLLOW FHA GUIDELINES UNLESS OTHERWISE INDICATED

IN THE PRODUCT PROFILE OR THE 4000.1 HANDBOOK.
 FHA Standard 203K

FHA Standard 203K Loans

Launch Date
Wednesday
January 18, 2017

Available for Retail

Channel Only
 FHA Standard 203K

Standard 203K versus Limited 203K

Standard 203K
• Standard 203K loans are for larger more
complex home improvement projects.
• Projects will generally require
architectural plans and/or designs.
• Work can begin as soon as the loan is
closed
• Contractor can receive payments as
work is completed throughout the scope
of the project.
• No maximum limit to the size of the
project as long as the total loan amount
is within the loan limits of the program for
the area.
 FHA Standard 203K

Standard 203K versus Limited 203K

Limited 203K
• Limited 203K loans are designed for
simpler, specific projects.
• Projects generally require specialized
contractors, (though general contractors
may be used for handyman-type work).
• Each contractor may receive 50% of his
contract amount at an initial disbursement
and 50% when all the contractor’s work is
completed.
• Up to 3 separate contractors can be used.
• The maximum amount that can be
financed into the loan, including all
renovation fees is $35,000.
 FHA Standard 203K

FHA Standard 203K Loan Benefits

• No maximum rehabilitation
amount
• 203K loans are designed for
“fixer-upper” properties and
may allow borrowers to
purchase a property that
might not qualify on other
loan programs.
• 203K loans also allow
borrowers to make necessary
repairs to their house without
depleting their savings by
refinancing and paying for
the repairs with the
transaction.
 FHA Standard 203K

Program Highlights
Standard Balance:
Offered with Standard and 15, 20, and 30 Year Fixed
High Balance Fixed, ARM, and 5/1 ARM
Good Neighbor Next Door High Balance:
20 and 30 Year Fixed

Property eligibility includes:

Purchase and Rate and Term SFRs, 1-4 Unit HUD REOs
Refinance allowed allowed, 1-4 Units, Condos,
and PUDs
 FHA Standard 203K

Loan Parameter Overview

30 Year, 20 Year, and 15 Year Fixed
5/1 ARM
LTV CLTV Purpose Units Occupancy Credit Score
620 - Standard Balance
96.50 96.50 Purchase 1-4 O/O
640 - High Balance
620 - Standard Balance
97.75 97.75 Rate/Term 1-4 O/O
640 - High Balance

• Note: 15 year fixed and 5/1 ARM are not available with the High
Balance option
• There is no minimum loan amount; however, loan amounts under
$30,000 will require special pricing by Secondary Marketing.
 FHA Standard 203K

Good Neighbor Next Door Sales Program

Borrowers in selected professions are eligible
to purchase designated HUD owned
properties, in revitalization/exception-criteria
areas, at up to 50% off the sales price, as
specified by HUD.

The following borrowers are eligible for the

Good Neighbor Next Door Sales Program:
• Law Enforcement Officers
• Firefighters
• Emergency Medical Technicians (EMTs)
• Private and Public School Teachers

15 and 30-year fixed rate terms only.

Owner Occupied SFRs, PUDs, Modular Homes

and Condos are eligible for this program.
 FHA Standard 203K

Renovation Basics

• Minimum rehabilitation
amount = $5,000
• No maximum
rehabilitation amount

Upon completion of repairs, all applicable

fields on the Escrow Closeout Certification
screen in FHAC must be completed.
 FHA Standard 203K

Eligible Improvements
Modernization

Elimination of health and safety hazards

Changes to improve appearance and eliminate

obsolescence

Foundation Repair/Construction

Site improvements

Plumbing, heating, AC, and electrical systems

repair

Energy conservation improvements

And more! (Refer to Standard 203K Product Profile.)

 FHA Standard 203K

Ineligible Improvements
Swimming pools (unless existing, in need of
repair), hot tubs, saunas

Barbecue pits, outdoor fireplaces

Bath houses, tennis courts

Satellite dishes

Tree surgery, (except when eliminating an

endangerment to existing improvements)

Gazebos

Additions to a property or equipping/refurbishing

property for commercial use

No recreational or luxury items

 FHA Standard 203K
FHA Standard 203K Process Flow

1. Loan Officer discusses concept 2. Borrower decides on

of “as completed” value and remodeling project, determines 3. Borrower selects the General
renovation, estimates maximum sales price, negotiates purchase Contractor and both execute
mortgage amount and performs contract and applies for the Homeowner/Contractor
credit pre-qualification mortgage Agreement

4. Consultant completes Work

5. Appraiser completes appraisal 6. Process, underwrite & approve
Write-Up based on the scope of
to determine “as completed” the loan with appropriate credit
work on the Contractor’s
value guidelines
Bid/Estimate

9. Inspections and Draw Requests

8. Renovation Escrow Account
are processed and funds
7. Close the Loan for Draw Management is set up
disbursed as renovation is
with Investor
completed
 FHA Standard 203K

FHA Initial Disbursement May Only Include:

Permit fees (the permit must be obtained before work commences)
Note: Only the true cost of the permit can be reimbursed if done as a fee reimbursement.
For example, if a contractor states $800 for permits but the fee comes in at $600 at the
municipality, then $200 too much has been released for that fee at closing.

Prepaid architectural or engineering fees

Prepaid Consultant fees

Origination fees and Discount points

Material costs for items, prepaid by the Borrower in cash or by the contractor, where a
contract is established with the supplier and an order is placed with the manufacturer
for delivery at a later date
 FHA Standard 203K

Renovation Workflow
1. Loan officer meets with the
borrowers to explain program and
qualify them
2. PRMG will select an FHA 203K
Consultant and have them meet
with the borrowers to discuss their
project and inspect the home
3. The Consultant will provide a
Specification of Repairs and work
write up that includes all necessary
work required
4. Borrower interviews contractors and
receives estimates for work to be
completed
 FHA Standard 203K

Renovation Workflow
Contractor
1. Produces detailed estimate of
work
2. Delivers documentation
required for contractor
acceptance
3. Once all work is agreed upon,
the appraisal is ordered and
completed “subject to” the
work provided in the
Consultant’s Specification of
Repairs for a Standard 203K.
 FHA Standard 203K

Renovation Workflow
1. Loan is processed as any other
FHA loan while appraisal and
renovation information is
gathered
2. Loan is underwritten to standard
FHA guidelines
3. Loan closes and the Renovation
Escrow is held by PRMG until sale
to investor
4. Once loan is sold, the renovation
escrow is netted from the
purchase and the renovation
escrow account is established.
 FHA Standard 203K

Renovation Workflow

Draw Disbursements
1. Draws are processed as
work is completed and
inspected at regular
intervals
2. Project must be completed
within 6 months
Note: Copies of all permits are needed
before any disbursements can be
made
 FHA Standard 203K

What is a 203K Consultant?

• The Consultant is an independent
third party selected by PRMG and
is required for obtaining a
Standard 203K mortgage.
• The Consultant provides valuable
services throughout the process of
planning and completing the
improvements that will be made
to the home.
• While specific duties may vary, all
Consultants are required to
provide the following services that
are shown in the next slides.
 FHA Standard 203K

Role of the 203K Consultant

• Provide cost estimates for any
required or desired repairs and
improvements to the home
• Prepare these cost estimates in the
form of an original Work Write-Up
which will be given to the appraiser
to assist in determining the “as
completed” value of the home
• Ensure that the home meets
minimum property standards and
addresses health and safety
standards as established by HUD
 FHA Standard 203K

Role of the 203K Consultant

• Advise on building code and permit
requirements to ensure that the project
meets local ordinances.
• Inspect completed work and submit
inspection reports to PRMG with any
supporting documentation
• Make any changes to the original work
write up (if applicable) and submit
those changes to PRMG for approval.
• Perform the final inspection upon
completion of the project. Submit all
the necessary documentation required
by PRMG to close out the renovation
escrow account.
 FHA Standard 203K

Other Services Consultants May Provide

• Conduct a Feasibility Study to

determine if required or desired
improvements can be supported
by the market (at the request of
PRMG or the borrower)
• Provide a Work Write Up without
dollar amounts but with
complete work descriptions for
use in obtaining estimates and
proposals from contractors
 FHA Standard 203K

Contractor Requirements
• On Standard 203K loans, there is
generally one General Contractor
overseeing the project. Borrowers
cannot hire multiple contractors
and oversee the project themselves.
• Must hire one General Contractor to
oversee the work.
• One General Contractor and 1-2
large specialty contractors, (such as
a well and septic or paving
contractor)are also allowed for large
cost items that the General
Contractor may not want to put on
his/her contract to be reimbursed
later.
 FHA Standard 203K

Contractor Requirements
• All rehab work must be
performed by a qualified and
experienced contractor chosen
by the borrower. Work must
show estimates for the work to
be done and be completed in
a workmanlike manner.
• Estimates will be reviewed by
PRMG/Investor to ensure that
the planned work meets all
program and repair
recommendations as noted on
the appraisal report.
 FHA Standard 203K

Contractor Requirements
• The borrower must provide a
written cost estimate(s) and
references from a qualified and
experienced contractor(s) for
each specialized repair or
improvement. Borrower must
sign and date each estimate.
• Borrowers may not use
relatives/employers as their
contactors.
• The borrower may not act as
the General Contractor. “Self-
Help” loans are not permitted.
 FHA Standard 203K

What’s Included in the Renovation Escrow Account?

Inspections and Title

Cost of Repairs Contingency Reserve
Update Fees

Mortgage Payments
financed (when
Architectural and
circumstances permit and Consultant Fees
Engineering Fees
borrower chooses this
option)

Supplemental Origination Discount points attributed

Permits and other fees
Fee to the renovation
 FHA Standard 203K

What are Contingency and Mortgage Payment

Reserves?

A Contingency Reserve is required to cover

unexpected expenses.

• 10% minimum, 20% maximum required

• 15% minimum, 20% maximum required
when utilities are not operable as
referenced in Work Write-Up

The Mortgage Payment Reserve refers to an amount set aside to make mortgage
payments when the property cannot be occupied during rehabilitation and is not to
exceed six months of mortgage payments.
 FHA Standard 203K

203K Standard Fees

THE FEES FOR THE STANDARD 203K ARE AS
FOLLOWS:

GFE Block 1 (HUD Line Series 801 – Include in

APR)
Supplemental Origination Fee: 1.50% of the
renovation amount

GFE Block 4 (HUD Line Series 1100 – Do Not

Include in APR)
Title Update Fees: Title Update Fees at $150
each
(Only 1 update is allowed on the Standard 203K unless the
loan is located in the states of VA or OH. These states will
require title updates with each draw and should match the
inspections, as inspections will be completed with each
draw.)
 FHA Standard 203K

203K Standard Fees

GFE Block 3 (HUD Line Series 1300 – Include in APR)
Inspection Fees: Inspections up to $350 each, plus
mileage
(recommend disclosing five inspections, 4 intermediate and
1 final)

GFE Block 6 (HUD Line Series 1300 – Do Not Include

in APR)
• Architectural and Engineering Fees (if
applicable)
• Pest/Well/Septic/Water Purity Certifications (if
applicable)
• Survey Fees (if applicable)

DOES NOT GO ON GFE – DO NOT INCLUDE IN APR

• Building Permit Fees
• Building permit fees from contractor’s bid. (If work
will require a permit, [e.g., roof], then permit fees must
be disclosed)
 FHA Standard 203K

203K Consultant Fees

• The maximum fees that may be charged by the

Consultant are as follows:
• Feasibility Study: $100
• Work Write-Up:
• $400 for repairs less than $7,500
• $500 for repairs between $7,501 and $15,000
• $600 for repairs between $15,001 and $30,000
• $700 for repairs between $30,001 and $50,000
• $800 for repairs between $50,001 and $75,000
• $900 for repairs between $75,001 and $100,000
• $1,000 for repairs over $100,000
• The Consultant may charge an additional $25
per additional Dwelling Unit.
 FHA Standard 203K

203K Consultant Fees

• Draw Inspection Fee: for each draw request, the
Consultant may charge an inspection fee that is
reasonable and customary for work performed
in the area where the property is located,
provided the fee does not exceed a maximum
of $350.
• Change Order Fee: $100 per change order
request
• Re-Inspection Fee: $50 when re-inspection of a
work item is requested by borrower or by PRMG
• Mileage Fee: the Consultant may charge a
mileage fee at the current IRS mileage rate
when the Consultant’s place of business is more
than 15 miles from the property.
 FHA Standard 203K

Disbursement of Funds
• Any disbursements paid to the
contractor, must have 10% of the
draw request held back in the
renovation escrow account.
• Before final release of rehabilitation
escrow funds, the final inspection
and draw request signed by the
Consultant, contractor, and
Borrower must be approved.
• Contractor is paid as work is
completed, up to 5 draw requests
(4 intermediate and 1 final), after
work is inspected.
 FHA Standard 203K

Disbursement of Funds
• Project must be completed within 6
months
• A W-9 must be provided to set up
the contractor in the system. A
two-party check is made out to the
borrower and the contractor, and
is then sent to the borrower.
• If the Contingency Reserve is not
used (or not completely used), the
remainder can either be made
available for additional
improvements or the funds may be
applied toward the principal
balance.
 FHA Standard 203K

Maximum Mortgage Calculation

• The max mortgage worksheet has been
eliminated. The DE Underwriter must log
into FHA Connection during underwriting
to fill in the calculations.
• Must use the 203K Calculator in FHAC prior
to endorsement for all 203K transactions
• Loan officers/processors should use the
203K worksheet available from HUD, print
the results and include it in the loan file
submission that can be found at the
following link:
https://entp.hud.gov/idapp/html/f17203k-
look.cfm

For a complete list of required origination, processing, and closing

forms/documents for the Standard 203K program, please refer to the
Standard 203K Product Profile.
 FHA Standard 203K

Mortgage Insurance Premium (MIP)

• For the purpose of calculating the LTV

to determine the correct MIP factor,
must divide the Base Loan Amount by
the After Improved Value.
 Closed-End Second Liens

Construction Review Process

• PRMG Underwriter must submit construction documentation to

investor for review/approval prior to final loan approval.
• Review time can vary based on investor workflow, but may be
from 3-5 business days
 Closed-End Second Liens

Things to Consider
• These loans have additional documentation
and review requirements
• Anticipate and plan for the time it is going to
take to get these loans through the system
due to the additional review requirement
• Set proper expectations with the borrowers
and realtors
• You are highly encouraged to review the
product profiles to become familiar with the
loan product
• Link to Product Profiles:
http://www.eprmg.net/guidelines/PRMGProductProfileLinks.pdf
 FHA Standard 203K

FT360 Information

Additional information on the

203K product in regards to FT360
will be provided by the
Automation team and will be
posted to the Resource Center
when available. Please reach
out to support@prmg.net with
any questions.
 Standard 203K

Additional Information

Launch Date: January 18, 2017

• Pricing and LLPAs will be on rate sheet/FT360 pricing engine

• For specific questions on data input in FT360, you can access
training material from the Resource Center or reach out to
support@prmg.net for assistance
 Standard 203K
Additional Resources

For Standard 203K guidelines, refer to the product profile and additional resources
listed below.
FHA Standard 203K Product Profile:
http://www.eprmg.net/guidelines/FHA%20203K%20Standard.pdf

FHA Standard 203K and Limited 203K Comparison Matrix:

http://www.eprmg.net/guidelines/matrix/Limited%20and%20Standard%20203K%20Comparison%20Matrix.pdf

Resource Center Links:

http://www.eprmg.net/ResourceCenter/RetailRC.pdf
 Questions?
PRMGUniversity@prmg.net