Sunday, August 31, 2014

FHA 203k - HUD is Getting Back to Strict Adherence to the Guideline

This may be good or bad for you and your client.

It is impacting one client that I'm aware of right now on a commercial building that he wants to turn into a residential use or mixed use building.

The guideline has always been very clear on the building must be a residential or mixed use building with a certificate of occupancy dated at least twelve months prior. Yet for years that rule was relaxed substantially to allow any building with a certificate of occupancy to be turned into a 1-4 unit building or a mixed use building under the existing guidelines for those type properties.

NO MORE, it is now strictly by the book. The property must have had some residential use prior to the renovation. A commercial building cannot be renovated to residential use or mixed use under the FHA 203k program.

Where I think this is going to bite us most is where the guideline says there is only a foundation on the site all of it must be reused and an engineer must come out and  certify it is all good and all can be reused. HUD actually had me do on years ago that only had 3 piers on the site. We used that as the basis of rebuilding the home. It was quite common that even if we only had a piece of the original foundation we could rebuild a home. NOT going to happen any longer.

There was a pump house on a lot in Santa Cruz mountains and that is all that remains of the original house and structure... NO CAN DO

There was a home raised on a city lot but when they took it down they damaged a small portion of the foundation... NO CAN DO

It doesn't mean there aren't other construction loans available for these scenarios just not the FHA 203k.