This is an excerpt from a book I am writing called "Buyers Guide to Foreclosures" (generic title but to the point).
Financing can be a major hurdle for some buyers wanting to purchase a foreclosure because of the condition of the home, which may keep it from qualifying for conventional or traditional FHA loans. The 203k is a great option. I encourage all agents to familiarize themselves with this loan program.
The Streamlined is used for homes that need minor repairs such as replacing a roof or flooring, interior and exterior painting and HVAC system replacement or upgrades (doesn’t really sound like minor repairs). This loan has a maximum rehab limit of $35000 with no minimum. Therefore, you can make repairs that cost as much as $35000 or $5 - but you really wouldn’t need the loan if you only plan to make $5 worth of repairs. The rehab funds are placed in an escrow account with half dispersed to the contractor up front and the remaining funds released after the repairs are completed and inspected.
The Standard 203k is for homes that need major repairs such as structural and/or foundation repairs, adding a room to the home and major landscaping improvements. With this loan, the total rehab cost must be greater than $35000. There is a $5000 minimum of eligible repairs or improvements required, such as structural repairs, termite damage, etc. After the initial $5000 is met, the remainder can be used for cosmetic repairs and upgrades. Again, rehab funds are placed in escrow and are released as repairs are completed and inspected. The Standard also allows up to six months of your mortgage payments to be included in the rehab costs if the Housing and Urban Development (HUD) consultant determines that you must be displaced during the repairs.
The 203k loans can be used to purchase a 1 to 4 unit residence. To qualify the borrower must occupy the home as their primary residence. Maximum loan limits are based on property type and location. Also, luxury items such as installation of a swimming pool, hot tub or barbecue pit are not eligible.