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How to Get an FHA Streamlined 203K Loan for Fixers

Streamlined 203K Loans Allow for Repairs up to $35,000

If you've been passing up buying homes that require cosmetic repairs for lack of funds to fix them up, FHA has a program for you. Not to be confused with FHA's much more complicated 203K program, a Streamlined 203K loan eliminates much of the paperwork and simplifies the process to obtain rehab funds.

First-time home buyers should get all the help they can. First-time buyers are often turned off by fixers or overwhelmed and ill-prepared to deal with the work required bringing some homes up to today's standards. Buyers get their foot in the door and say 'We have a lot of work to do here, and we're never going to get it done.

A Streamlined 203K loan might be the answer.

How Does a Streamlined 203K Loan Work?

It used to be that you bought a home and then applied for a home equity loan to fix it up, resulting in two loans. But many lenders won't make rehab loans. Some won't fund equity loans at closing, especially if there is no equity.

·         A Streamlined 203K loan is figured into the original loan balance, resulting in one loan.

·         It can be an adjustable-rate or fixed-rate mortgage.

·         The mortgage balance can exceed the purchase price of the property.

·         Borrowers are not required to hire professional consultants, licensed engineers or architects.

·         The appraiser or home inspector can put together a list of recommended repairs / improvements.

Eligible Repairs & Improvements

The Streamlined 203K loan allows for simple repairs that can be easily estimated and completed. Many are considered light cosmetic repairs, but some will require hiring a licensed contractor if it falls out of the borrower's area of expertise. Here is an approved list of repairs / improvements from HUD:

·         Roofs, gutters and downspouts

·         HVAC systems (heating, venting and air conditioning)

·         Plumbing and electrical

·         Minor kitchen and bath remodels

·         Flooring: carpet, tile, wood, etc.

·         Interior and exterior painting

·         New windows and doors

·         Weather stripping & insulation

·         Improvements for persons with disabilities

·         Energy efficient improvements

·         Stabilizing or removing lead-based paint

·         Decks, patios, porches

·         Basement completion and waterproofing

·         Septic or well systems

·         Purchase of new kitchen appliances or washer / dryer

Special Conditions & Terms

·         No minimum loan balance required.

·         Borrowers must occupy the property.

·         Property cannot be vacant for more than 30 days.

·         Work must be completed within six months.

·         Work must be professional.

·         If job requires a permit, borrowers must get a permit and a sign-off.

·         Work must commence within 30 days from closing.

Repairs Not Permitted

·         Landscaping or yard work

·         Major remodeling

·         Moving a load-bearing wall

·         Room additions or add-ons to the home

·         Fixing structural damage

Requirements to Perform the Work

·         Borrowers can select among licensed contractors.

·         The lender will review the contractor's experience, background and referrals.

·         The lender will want a copy of the contractor's estimate and the agreement between the contractor and borrower.

·         Borrowers can also arrange to do some or all of the work under a "self help" arrangement.

·         Do-it-yourself projects require providing the lender with documentation supporting the borrower's knowledge, experience and ability to perform the necessary work.

Disbursement of Payments

·         Maximum of two payments to each contractor, including the borrower, providing the borrower works under a "self help" plan.

·         No more than a 50% advance is allowed.

·         Do-it-yourself allowances do not include labor; only materials costs are allowed.

·         Final payment is paid after submission of evidence of payment to sub-contractors / suppliers or other possible lien claimants.

Reasons to Apply For a Loan Below $15,000

·         The lender is not required to inspect the completed work.

·         The lender is not required to authorize a third party to inspect the completed work.

·         A letter from the borrower or copies of contractor receipts will suffice as notice of completion, providing the lender has no reason to determine a third-party inspection is necessary.

FHA 203(k) Streamline Limited Repair Program Loan Process

What is it?

  • The 203 (k) Streamline Limited Repair Program allows a customer to purchase or refinance a home and make limited upgrades/repairs to the property all under one single loan.
  • There is no minimum amount for the repair costs; however the maximum is $35,000 (includes a 10% contingency).
  • There is a mandatory 10% contingency required on all Streamline loans. If the contingency is not used, it will be applied to the principal mortgage balance.
  • No more than two payments may be made payable to the contractor. Borrower repairs require special handling.
  • The borrower is given 3 months from the closing date to complete all the repair/rehab work.

·         Available on 1-4 residences, including HUD REO properties, manufactured homes, and condos. No partially completed properties allowed.

(This probably wouldn't qualify for the 203(k) Streamline loan, obviously too many units. But it certainly could use some help.)

Why would I be interested in the product?

  • You or a friend/neighbor/relative want to make some limited repairs/remodeling to your personal residence but don't have sufficient value in your property. This is available to 95% of the finished value.
  • You are a RealtorŪ selling a bank owned property with repairs required to get a loan and the bank is unwilling to make the repairs.
  • You are a RealtorŪ selling a property on a short sale and there is no money available for repairs.
  • You are a RealtorŪ showing someone a ‘fixer-upper" and they don't have the extra cash available to do the fixing.
  • You are a RealtorŪ selling a home that is selling for what is owed on it and your customers would like to have new carpeting, new appliances and/or paint.
  • You are a RealtorŪ that wants to sell more homes.

What can be done?

  • Repair/replacement of roofs, gutters and downspouts
  • Repair/replacement/upgrade existing HVAC systems
  • Repair/replacement/upgrade plumbing and electrical systems
  • Repair/replacement flooring
  • Minor remodeling, such as kitchens, which does not involve structural repairs
  • Painting, exterior and/or interior
  • Weatherization, including storm windows and doors, insulations, weather stripping, etc.
  • Purchase and installation of appliances, including free-standing ranges, refrigerators, washer/dryers, dishwashers and microwave ovens.
  • Accessibility improvements for person with disabilities
  • Septic system and/or well repair and/or replacement
  • Other minor remodeling

What can't be done?

  • Major rehabilitation or major remodeling, such as the relocation of a wall
  • New construction
  • Repair of structural damage
  • Repairs requiring detailed drawings, plans or architectural exhibits
  • Landscaping
  • Pool improvements/repair
  • Anything taking longer than 3 months to complete

Who and how?

  • All repairs/work must be completed within 3 months of closing
  • Repairs must be completed by a contractor unless the borrower can demonstrate the required expertise/experience
  • The contractor does not have to be a licensed general contractor but must provide a resume and two references
  • The repairs must be reasonable

How much more does it cost?

  • Normal FHA rates and fees apply with the following exception:
  • $100 final lender inspection fee
  • Additional appraisal charges may apply
  • Additional title charges may apply
  • Origination fee will be normal 1% plus .5% (minimum $350) on repair amount

Who do you call?
Mike Clifford 614-975-1640

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