The FHA has come out with the 203(k) loan, which is used to make improvements to a home and can be utilized for purchasing or refinancing. There is also the 203k Streamline (refinance) loan that can be used the same way (borrower must be in the home 6 months to do this). This loan program is becoming more popular as many of the homes that are on the market need some TLC.
Eligible Improvements
Luxury items and improvements are not eligible as a cost rehabilitation. However, the homeowner can use the 203(k) program to finance such items as painting, room additions, decks and other items even if the home does not need any other improvements. All health, safety and energy conservation items must be addressed prior to completing general home improvements.
Here are the basic guidelines:
- FHA traditional guidelines
- FHA down payment (3.5%)
- Assumable loans
- Finance up to 6 months of mortgage payments (escrow account)
- Purchase or Refinance
- No up front mortgage insurance
- Condos okay
- 1-4 unit dwellings only
- "Mixed Use" okay (conditions apply)
- Eligible Borrowers:
- Owner Occupants
- Non- Profits
- No investors
- Loan Types
- 30 or 15 year fixed rates
- Purchase or refinance
- ARMS available
- Qualified borrower may assume
- Property Eligibility
- Single family dwellings
- Condominiums
- Townhouses
- Mixed Use (commercial)
- 1-4 Unit buildings
- Examples of improvements
- Safety and Hazard improvements must be done
- Minor kitchen and bath remodels
- Functional upgrades
- Plumbing, heating air conditioning, and electrical upgrades
- Interior / exterior painting
- Septic and well systems
- Decking, patio, porches
- Roofing, gutters and downspouts
- Flooring, tiling and carpeting
- Energy conservation improvements
- Kitchen / laundry appliances
- Access for the disabled
- New windows / doors
- Home Inspection:
An FHA Approved 203(k) consultant (estimator) will estimate the cost of your construction in order to determine the type of repairs and the costs required for the improvement
Appraisal:
The appraiser must provide an opinion of the After-Improved value of the subject property, and in some cases, may be directed by the lender to provide the As-is value.
In those cases for which both As-is and After-improved values are required, the valuation analysis may consist of either one or two separate appraisal reports.
The number of appraisals depends on the complexity, scope and lender review of the proposed rehabilitation and nature of the work.
- Other Eligible Costs:
(THESE COSTS MAY BE FINANCED INTO THE MORTGAGE LOAN)- Contingency reserve (10-15%)
- Origination Fee
- Up to 6 months PITI mortgage payments
- Permit costs
- Consultant fees
- Inspection and title update fees
- Architectural & Engineering fees (if needed)
What is a streamline 203k mortgage?
HUD has developed an FHA insured mortgage, called the "Streamline (K)" Limited Repair Program that permits homebuyers to finance an additional $35,000 into their mortgage to improve or upgrade their home before move-in. With this product, homebuyers can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or FHA appraiser.
Maybe these programs will help stimulate home values.
Good luck!!
Justin Lees
Sr. Financial Specialist
Paramount Equity Mortgage
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