The Federal Housing Administration (FHA) expects to issue in the next 90 days a request for information from the public to update its 203K program, a step to address the current affordability crisis by boosting the supply of homes.
“We’re looking at revamping the 203k program,” Julienne Joseph, deputy assistant secretary in the Office of Single-Family Housing for FHA at the U.S. Department of Housing and Urban Development (HUD) said Tuesday during the 2022 HousingWire Annual event held in Scottsdale, Arizona.
According to Joseph, homes needing renovation can be “daunting,” especially for first-time homebuyers looking for something that is turnkey.
In the case of FHA borrowers, she said that, among the many properties available, 35 or 40-year-old homes would be a good fit, but borrowers just don’t know how to get the loan to fix it.
“For years, we’ve all discussed how we make this program better. We’re in the process of developing a RFI (request for information) that we are going to put out to the industry because we want to be able to address it once and for all.”
The FHA’s perception is that the rules for the 203K program need to change to make it more similar and as popular as Fannie Mae’s Homestyle program for conventional borrowers.
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Currently, the 203k program enables borrowers to take out a purchase or refinancing loan and to finance repairs. FHA understands that the finance limit of $35,000 in the FHA 203k Limited, for example, does not reflect the current rising prices landscape and, in some cases, it does not cover the cost of renovations.
Adding to the reasons why fewer borrowers are taking advantage of the program each year, the 203k program also requires from 10% to 20% of the total loan amount to be set aside as a contingency and imposes a 1% origination fee on the borrower.
There’s no deadline to update the policy framework for the 203k program, as it will depend on comments received from the industry. FHA’s expectation, however, is that it will happen in 2023.