The U.S. Department of Housing and Urban Development (HUD) has announced a new incentive for borrowers who are interested in rehabilitating homes in federally designated opportunity zones.
Specifically, HUD and the Federal Housing Administration (FHA) are expanding the Limited 203(k) Rehabilitation Mortgage Insurance Program for homes located in opportunity zones. Under the program, any borrower can roll up to $35,000 in rehab costs into a purchase mortgage or refinance. HUD’s incentive package raises that ceiling to $50,000 for homes within opportunity zones nationwide.
HUD introduced the expansion with an eye toward encouraging residential real estate activity in opportunity zones, which have so far seen a heavy focus on commercial and multifamily-housing investments.
“Providing this opportunity means that the families seeking affordable homeownership or to improve their homes in distressed neighborhoods — where rehabilitation is needed the most — have a path to financing that makes it realistic to do the repairs and improvements that will uplift the entire community,” HUD Secretary Ben Carson said.
The incentive will be limited to the first 15,000 mortgage originated under the limited 203(k) program in opportunity zones each calendar year through 2028. Although limited 203(k) financing is generally constrained to nonstructural repairs, several rehab improvements are eligible — including plumbing, heating, air conditioning, connections to public water and sewage systems, and mitigation of lead-paint issues.
Current homeowners with properties in opportunity zones can take advantage of the higher loan amount when refinancing to improve their existing homes. As of Sept. 30 of this year, the FHA was actively insuring more than 623,000 mortgages for eligible homes within opportunity zones — roughly 8% of FHA-backed loans in the U.S.
The announcement was met with approval in the mortgage lending community. Kirk Willison, government affairs director for the Community Home Lenders Association, called it “a notable step in eliminating barriers to affordable homeownership.”
“Raising the loan limit for home renovations to $50,000 will encourage more homeownership and economic development in underserved communities,” Willison said.
HUD’s announcement comes on the heels of a pair of bills — one in the Senate, another in the House of Representatives — aimed at increased oversight of the opportunity-zone program. A signature initiative of Donald Trump’s presidency, the program has come under fire after media reports highlighted moves by officials to allegedly benefit associates of the administration.
