A major shift in Limited 203k re: Septic Systems

A major shift in Limited 203k re: Septic Systems

A few years ago, I received a call from a HUD employee who knew I was a national trainer. He informed me that several lenders in the Santa Cruz Mountains area of CA were replacing entire septic systems using the Limited 203k. He told me that septic system replacement was regarded as a "structural" repair as if I could stop a lender from misusing the program. It appears that this repair is now included with the Limited 203k.

Under the latest 4000.1 guideline, I found what follows.

This is from the HUD 4000.1 re Limited 203k's

Limited 203(k) Eligible Improvements The Limited 203(k) may only be used for minor remodeling and nonstructural repairs. The total rehabilitation costs may not exceed $35,000. For the first 15,000 Mortgages secured by Properties in QOZs during each calendar year through December 31, 2028, the total rehabilitation costs must not exceed $50,000. FHA will provide advance notice via Mortgagee Letter suspending such increase before the 15,000 mortgage limit is reached. There is no minimum repair cost. A list of QOZs is available from the Treasury Department’s Community Development Financial Institutions Fund. (1)

Types of Improvements Eligible improvement types include, but are not limited to:

• eliminating health and safety hazards that would violate HUD’s MPR;

• repairing or replacing wells and/or septic systems;

• connecting to public water and sewage systems; • repairing/replacing plumbing, heating, AC, and electrical systems;

• making changes for improved functions and modernization;

• eliminating obsolescence;

• repairing or installing new roofing, provided the structural integrity of the Structure will not be impacted by the work being performed; siding, gutters; and downspouts;

• making energy conservation improvements;

• creating accessibility for persons with disabilities;

• installing or repairing fences, walkways, and driveways;

• installing a new refrigerator, cooktop, oven, dishwasher, built-in microwave oven, and washer/dryer;

• repairing or removing an in-ground swimming pool;

• installing smoke detectors;

• installing, replacing or repairing exterior decks, patios, and porches; and • covering lead-based paint stabilization costs (above and beyond what is paid for by HUD when it sells REO properties) if the Structure was built before 1978, in accordance with the Single Family mortgage insurance lead-based paint rule and EPA’s Renovation, Repair and Repainting Rule. 

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