Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase or refinance of an existing (<1 year old) house and the cost of its rehabilitation through a single mortgage. The minimum rehabilitation amount must be at least $5,000, with the total value of the property falling within the FHA mortgage limit for the area. The after improved value determines the loan amount and you may borrow up to 110 percent of the after improved appraised value.
The types of improvements that borrowers may make using Section 203(k) financing include:
- Structural alterations and reconstruction.
- Modernization and improvements to the home's function.
- Elimination of health and safety hazards.
- Changes that improve appearance and eliminate obsolescence.
- Reconditioning or replacing plumbing; installing a well and/or septic system.
- Adding or replacing roofing, gutters, and downspouts.
- Adding or replacing floors and/or floor treatments.
- Major landscape work and site improvements.
- Enhancing accessibility for a disabled person.
- Making energy conservation improvements.
- Eligible Streamlined (k) improvement and/or repairs.
FHA's Streamline (k) program permits homebuyers to finance up to an additional $35,000 into their mortgage to improve or upgrade their existing home. With this new 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. What makes this loan more attractive is that the changes to the property can be cosmetic as well as meet minimum property requirements. There is no minimum repair cost threshold of $5,000. The Streamlined (k) program is intended to facilitate uncomplicated rehabilitation and/or improvements to a home for which plans, consultants, engineers and/or architects are not required.
The Streamlined (k) program includes the discretionary improvements and/or repairs shown below:
- Repair/Replacement of roofs, gutters and downspouts
- Repair/Replacement/upgrade of existing HVAC systems
- Repair/Replacement/upgrade of plumbing and electrical systems
- Repair/Replacement of flooring
- Minor remodeling, such as kitchens, which does not involve structural repairs
- Painting, both exterior and interior
- Weatherization, including storm windows and doors, insulation, weather stripping, etc.
- Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwave ovens
- Accessibility improvements for persons with disabilities
- Lead-based paint stabilization or abatement of lead-based paint hazards
- Basement finishing and remodeling, which does not involve structural repairs
- Basement waterproofing
- Window and door replacements and exterior wall re-siding
- Septic system and/or well repair or replacement
The FHA 203 (k) and Streamlined (k) loan programs can both be used in conjunction with the Energy Efficient Mortgage (EEM) program. The amounts permissible under the EEM program as well as the qualifying requirements-are in addition to those available under the Streamlined (k) program and, thus, combined may exceed the $35,000 Streamlined(k) repair cost limit. Both the cost of EEM improvements as well as weatherization items (not to exceed $2,000) may be added to the total FHA loan amount.
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