The purpose of any Government grant is to provide stimulus that will have a tangible result in an economic or social sector. Home improvement grants are no different and that motivation for the provision of funding to repurpose or renovate existing homes in the United States has some very measurable advantages for the economy and helps to address other economic maladies at the same time.
With the onset of “the credit crunch” or the restrictions by lenders to provide credit for new home purchases, the amount of new home sales in the Unites States began to slowly decline. This decline is not only due to more stringent lending policies by chartered banks but also in response to consumer hesitancy to enter into new mortgages given the unpredictability of the global economy and the rising unemployment rate in the United States. Fewer homes are being built because of the excess of new home inventory on the market. While these homes sit vacant hundreds of thousands of skill trades laborers in construction (builders, contractors, heavy equipment operators, electricians, masons and plumbers) remain unemployed or under employed. So rather than contributing to the glut of unsold homes and contributing to the growing American unemployment rate, it is far better to get Americans back to work by creating demand for their trade skills.
By encouraging home owners to invest in the renovation and restructuring of their homes, it reduces the effects of the housing bubble by reducing the number of new home builds or start ups. In order to successfully entice homeowners into renovating existing housing the cost of the renovations needed to be addressed. Just as the average person would sooner side with caution during unstable economic times and hesitate to enter into a mortgage for a new home purchase due to financial concerns, so too would they experience some difficulty in financing large renovation projects. The last thing most people want to do in the current economy is add to their debt.
In response to this the United States Government developed an incentive plan to encourage home owners to take on capital renovation projects rather than purchase new homes. Renovations to exisiting structures also have the potential to increase the number of residential units available in the United States addressing the need for more shared housing or rental properties. Regardless however of the motivating factors, the intention is to facilitate investment in private homes and the popular incentive appeared in the federal legislation called the 203k mortgage.
A Financing Alternative
The 203k mortgage refers to Section 10 1 (c) (1) of the Housing and Community Development Amendments of 1978 (Public Law 95557) amends Section 203(k) of the National Housing Act (NHA). The objective of the revision is to “facilitate the restoration and preservation of the Nation’s existing housing stock.”
The best case scenario to consider is the purchase of a new home which may require renovation. If the home owner decided to contribute and renovate his or her current structure to create more space for family members or for additional privacy, the addition or improvement would have to be financed (in most cases) by the bank. However it may not be possible to secure financing for more than the value of the home as most banks cap lending limits to the maximum valuation of the asset (the home). This is done to ensure their investment capital as much as possible in a very volatile economical environment. This is the only loan security the bank really has.
The 203k plan allows for the borrowing against a preexisting mortgage to finance improvements (cosmetic and structural) without charging excessive fees.
Eligibility Requirements
In order for a residential property to be eligible to qualify for home improvement grants, it must meet a set of criteria established in Section 203(k) of the National Housing Act (NHA). These guidelines are in place to ensure that the appropriate residential structures receive the investment monies to expand and meet a variety of needs and new residents.
In order to qualify for a home improvement grant in the United States the project must meet the following criteria:
- Properties of 1-4 person family dwellings that have been completed (constructed) for a minimum of one year
- Zoned according to maximum provisions of local zoning requirements
- All new construction units (wings or legal apartments or additions) must be attached to the main dwelling or principal structure
- Co-operative dwellings are not permitted
- Demolished homes that are rebuilt on the existing foundation are qualified
- Conversions which create more living space from one family to two, three or four family dwellings
- Modular units can qualify if mounted on an inspected foundation
- Properties which are “mixed use” whereas the property cannot have more than 25% to 40% of commercial floor space below a residential unit.
- Properties which are deemed “mixed use” will not deteriorate or compromise the health of other individuals in the area
- The health and safety of the project must not impeded residents, commercial owners or other property owners when completed
One of the criticisms of the 203k Plan is that it takes the onus of the United States Federal Government to invest in what most lobbyists refer to as “economical housing”. There is a growing concern for the provision of affordable housing in the United States and new housing projects for low income residents are not forthcoming in the budgets. Not everyone can afford a house. Those that cannot require quality housing at an affordable rate to actively engage them in the economy.
Whatever the true intention of the 203K Plan it is certain that it is designed to have a number of benefits. By making it easier to borrow for capital projects against the equity in the home, it helps to combat transient housing by encouraging individuals to invest in their own properties. With the correct financing in order, adding an extra floor or even a basement apartment has never been easier with a home improvement grant.
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