What is the inspection protocol of the HUD Approved 203K Consultant and what is the procedure to qualify a home for the FHA 203K Loan Renovation Program. It's particularly important to real estate agents working with clients considering the option to buy as is or to renovate or rehab with the 203K Renovation Loan. It's assumed that some will use this list as a means of by-passing or eliminating the FHA Consultant. Care should be taken working the rehab without guidance. Local codes and jurisdictional laws and controls will prevail over this short list as described below.
Among the many duties of the FHA HUD Approved Consultant, we are responsible to confirm or deny some basic building conditions when performing a feasibility study [feasibility study = first meeting with the client to determine if the project falls within their budget]. It’s also important to note that when a home is being evaluated as a Streamlined K [repair items that total less than $35,000 and do not include structural repairs], the protocol is the same. The responsibility and last call, if you will, resides with the Appraiser and/or the Lender. That fact alone should be reason enough to commit, if not all, at least a portion of the following list.
Also, remember that by eliminating the Approved HUD 203K Consultant the lender has chosen to put him/herself in the position of being fully responsible for confirming the property conditions. Care should be taken that you, the agent, do not put yourself in this position.
Here’s what HUD wants:
All rehabilitation construction and/or additions financed with Section 203(k) mortgage proceeds must comply with the following:
A. Cost Effective Energy Conservation Standards
(1) Addition to existing structure. New construction must conform to local codes and HUD Minimum Property Standards in 24 CFR 200.926d.
(2) Rehabilitation of Existing Structure. To improve the thermal efficiency of the dwelling, the following are required:
a) Weather-strips all doors and windows to reduce infiltration of air when existing weather-stripping is inadequate or nonexistent.
b) Caulk or seal all openings, cracks or joints in the building envelope to reduce air infiltration.
c) Insulate all openings in exterior walls where the cavity has been exposed as a result of the rehabilitation. Insulate ceiling areas where necessary
d) Adequately ventilate attic and crawl space areas. For additional information and requirements, refer to 24 CFR Part 39.
(3) Replacement Systems.
a) Heating, ventilating, and air conditioning system supply and return pipes and ducts must be insulated whenever they run through unconditioned spaces.
b) Heating systems, burners, and air conditioning systems must be carefully sized to be no greater than 15 percent oversized for the critical design, heating or cooling, except to satisfy the manufacturer's next closest nominal size.
B. Smoke Detectors. Each sleeping area must be provided with a minimum of one (1) approved, listed and labeled smoke detector installed adjacent to the sleeping area.
Here’s a (very) short list:•Smoke Detectors (fire safety)
•No burglar bars that require a key to operate (fire safety)
•No windows nailed shut (health and safety)
•Doors and windows must be operational and lockable (health and safety)
•No torn or loose flooring causing trip hazards (health and safety)
•No torn or rotten weather strip (energy efficiency )
•No loose caulking around windows, window panes, doorways, etc (energy efficiency)
•Check for attic and wall insulation (energy efficiency) [wall insulation is mandatory if opening the wall cavity for repairs]
•Roof must last at least 2 more years (building standard)
•Must have handrails on stairways and decks over 28 inches above grade [grade = finished ground or surrounding soils](building standard)
•No loose wiring (building standard/health and safety)
•No leaking roof (building standard)
•Stable foundation (building standard)
•Cooking device (building standard)
•Heat source (building standard)
•Roof bracing (building standard and health and safety)
•No rotten wood (building standard)
•No negative drainage [water standing or flowing toward the home’s foundation – slope should be 5% or 6 inches drop within 10 feet of the foundation](building standard)
•No graffiti [must be painted](building standard)
•Out buildings [storage buildings] on permanent foundations will be considered property improvements and subject to this list. [permanent = not able to be moved. The building’s foundation is determined to be “in-ground” or is not sitting on slides or skids that might make it moveable]. (appraisal standard)
There are a host of issues that deal with handicap access and construction protocol. Please contact a consultant or advisor!
Is this the only list?
No. This list is not all inclusive and there are variables to the above list. Those variables are directly associated with the number of different lenders in the US, meaning that almost the entire HUD program is lender specific and there are literally thousands of lenders offering the program. That means, potentially, all of them could have their own version of the 203K. Ask for the lender policies.
Can my client work on the property?
Maybe? Self-help [self-help = allowing the borrower to perform the rehab labor] is totally left to the lender. HUD allows the borrower to perform the work if he/she can convince the lender (and HUD) that they are capable of performing the work [see Mortgage Letter 05-50 (PDF LINK)]. However, HUD leaves the final decision to the lender. Ask for the lender policies.
Does HUD deny you the opportunity to hire a HUD Approved 203K Consultant on a Streamline 203K Renovation Loan?
No. You should hire a third party consultant to help you with a 203K Rehab, period. If you do decide to work with a consultant, your lender should be informed in the event the lender will be required to fill out a different section of the Maximum Mortgage Worksheet. The lender will also work directly with the consultant and provide the appraiser the consultant's work write up information. This fact alone can save your client and you valuable time and money.
I am available to conduct a 203K Feasibility Study with you and your client for a $150.00 (if the seller permits) to decide if the purchase can be the dream home or a not.
Fred Sweezer Sr.
FHA Approved Consultant S0712
FHA Approved Compliance Inspector T477
Certified Home Inspector