It just needs a little TLC, right? If your buyers are willing to put some elbow grease into it, buying and a fixer-upper or foreclosure can be a profitable endeavor. But there's a level of risk involved, not to mention a substantial commitment of time and effort on their part, and long periods of time when they may be living in chaos and sawdust. If they're still up for the challenge, it can be a rewarding experience.

However, the purchase of a house that needs repair is often a catch-22 situation, because the bank won't lend the money to buy the house until the repairs are complete, and the repairs can't be done until the house has been purchased.

First-time buyers especially are often turned off by fixer-uppers or are overwhelmed and ill-prepared to deal with the work required to bring some homes up to today's standards. Buyers often 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."

If your buyers have been passing up homes that require cosmetic repairs and lack the funds necessary to fix them up, then FHA has a program for them. Not to be confused with FHA's much more complicated 203(k) Rehab program, a 203(k) Streamline loan eliminates much of the paperwork and simplifies the process to obtain rehab funds.

A 203(k) Streamline loan might just be the answer for them!

How Does a 203(k) Streamline 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 203(k) Streamline 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 203(k) Streamline 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.

Under the 203(k) Streamline program, the following repairs Are 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 as well as a copy of their license and E&O insurance.
• 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 provided 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.

If what your buyer needs is less than $15,000, then:

• 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.

With the FHA 203(k) Streamline loan program, buyers can finance the cost of improving an existing 1-4 unit property into 1 loan at a long term fixed or adjustable rate at the time of purchase! The mortgage amount will be based on the projected value of the property with the work completed (taking into account the cost of the work). That means the mortgage loan amount is based on the "as completed" value rather than the "as is" value of the property.

The mortgage can include all of the improvements needed to make the house perfect for your Buyers! And the process is easy, too! With one application, one approval, one closing and one loan, your Buyers can fulfill their dreams of expanding or updating their new home, or making needed repairs.

All this jargon basically means your Buyer can buy that property and fix it up with just 1 loan!

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	Lew Corcoran, Sr. Mortgage Consultant Reverse Mortgages / FHA Loans / VA Loans USDA Rural Development Loans in Massachusetts and Florida Save on closing costs when you apply for a mortgage online ActiveRain Blog / Localism / New England Properties The Mortgage Market Watch and Interest Rate Lock Advisory

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