FHA Streamlined 203(k) Program

Everything an Agent needs to know, and then some.

The purchase of a house needing repair is often a catch-22 situation; 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.

HUD's Streamline 203(k) program can help overcome this obstacle by enabling your client to purchase or refinance a property plus the cost of making the repairs and improvements in one mortgage.

The Streamlined 203(k) loan home buying process includes the following steps:

• A potential homebuyer locates a fixer-upper and executes a sales contract after doing a feasibility analysis of the property with his/her real estate professional. The contract should state that the buyer is seeking a 203(k) loan and that the contract is contingent on loan approval based on additional required repairs by the FHA or the lender.
• The homebuyer then selects an FHA-approved 203(k) lender and arranges for a detailed proposal showing the scope of work to be done, including a detailed cost estimate on each repair or improvement of the project.
• The appraisal is performed to determine the value of the property after renovation.
• If the borrower passes the lender's credit-worthiness test, the loan closes for an amount that will cover the purchase or refinance cost of the property and the renovation costs
• At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.

 Occupancy

Must be owner-occupied

Eligible Properties

· Attached and detached SFR and PUDs

· 2- to 4-unit properties

· Condominium units in FHA approved units

• REO properties

Ineligible Properties

• Log homes

• Condotels

• Cooperatives

• Manufactured homes

• Homes that have never been

completed

 Loan Rehabilitation Amount

Minimum: none

Maximum: $35,000

Rehabilitation Period

Rehabilitation construction must begin within 30 days of closing, and all work must be completed within six months of closing.

Borrowers that do their own work Requirements

Borrowers doing their own work must have lender approval, sign a self-help agreement, and fully understand that construction must be completed within six months of loan closing or a shorter period, as determined by Summit Mortgage

Contractor Requirements

All contractors must be licensed by the State of Minnesota. The lender must review the following items pursuant to the proposed contractor:

• Credentials

• Work experience

• Client references

Seller and Financing Contributions

Sellers, or other interested parties such as real estate agents, builders, developers, etc., or a combination of parties are permitted to contribute up to 6% of the property sales price toward the buyer's actual closing costs, prepaid expenses, discount points, and other financing concessions. Closing costs normally paid by the borrower are considered contributions if paid by the seller.

Fund Disbursement

3-4 weeks after the loan is closed, 50% of the rehabilitation funds are disbursed. The balance is disbursed upon completion of all work. If the cost of the renovation is over $15,000, an inspection by the original appraiser is required. As with the rest of the rehabilitation process, the lender will coordinate the inspection directly with the borrower.

No final inspection is required if the cost of renovation is under $15,000.

What Improvements are Eligible under the Streamlined 203(K) Program

This 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 203 (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
• Repair/replace/add exterior decks, patios, porches
• 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

What improvements are NOT Eligible under the Streamlined 203 (K) Program?

• Major rehabilitation or major remodeling, such as the relocation of a load-bearing wall
• New construction (including room additions)
• Repair of structural damage
• Repairs requiring detailed drawings or architectural exhibits
• Landscaping or similar site amenity improvements
• Any repair or improvement requiring a work schedule longer than six (6) months
• Rehabilitation activities that require more than two (2) payments per specialized contractor.

This loan takes a little longer to close.  Please plan accordingly. Feel free to call me with any questions.  I look forward to helping in anyway I can!

Joan Rusco
Senior Mortgage Banker
Summit Mortgage Corporation
(651) 344-4001
joanrusco@ruscoloan.com
www.RuscoLoan.com     www.VALoansMN.com

P.S.  If you want to be known for great service after the sale (and who doesn'tJ?) call your clients who moved into a home that you know they wanted to make changes to and tell them about this loan program.  Have them call me!  An existing homeowner can refinance their current Conventional or a FHA loan into a FHA 203(k) loan and get the funds they need for the improvements and reduce their interest rate!  Since our national credit "situation", it has become impossible for many folks to get a Home Equity Line of Credit for the improvements they hoped to make.  With a FHA 203(k), people with average credit can refinance into a lower payment and make home improvements with one loan.  Your clients will LOVE you and tell everyone what a great agent you are for taking care of them even after the sale closed.  As this market continues to improve, your phone will ring off the hook!