Are contemplating purchasing a home that needs repairs, if so, then the 203(k) or 203(k) streamline is the way to go.
Whether it needs just a little TLC like paint or new counter tops or major renovations, then you want to seriously consider the FHA 203(k) loan programs.
Realtors and mortgage professional can utilize the 203k loan program to sell more properties to clients and prospects that otherwise either don't have the funds - or don't want to use personal funds - to "fix the place up".
KEY PRODUCT FEATURES OF THE 203(K)
The 203(K) is a FHA loan that allows the buyer to purchase a home in need of minor or major repairs without a CO at closing.
- Allows the buyer to borrow additional money to make repairs after closing.
- 203(k) allows for bargain purchases on short sales, REO and foreclosure.
- It can also be used to refinance their current mortgage to upgrade their home.
- 30 Year fixed rate loan.
- No Prepayment penalty (can refinance later and drop PMI with increased equity)
- Creates equity fast.
- Allows for closing which otherwise could not close because of property conditions.
- Convert commercial 5-6 units to HUD limits of 1-4 family.
- Convert single family to 4 family.
- Mixed use properties with no more than 25% commercial space is eligible.
- Repairs are made to the buyer's standards and not the seller.
- Buyer can borrow up to 110% of the appraised completed value
THE 203K PROCESS
Buyer works with realtor to find the right property and discuss the preliminary work necessary or desired.
- Get pre-approved by lender for the purchase price range and repair estimate, or order a feasibility study from the 203(k) Consultant. This is a quick estimate of the work required.
- Go to contract on the house aware of the repairs or upgrades to be made
- Buyer meets with HUD Consultant on site to complete the work write up and estimate of repairs
- Order appraisal; the lender will then request the appraisal of the property. The 203(k) package is required prior to the appraisal. The appraisal must contain the before and after renovation value of the home.
- Close on house escrowing the funds for repairs and upgrades
- Contractor starts work and draws down funds for repairs and upgrades
- Project completed and homeowner moves in.
The consultant will work with the new homeowner through completion of the project. He inspects the work for compliance and for the Draw Request. There are 5 draws with the last being final inspection. Project must start within 30 days of closing and be completed within 6 months. This applies to both purchase and refinance.
To better understand the process, it is best to know there are two different types of FHA 203K loans:
The 203K Streamline is for repairs under $35,000 that do not involve any kind of structural renovations. For Streamline 203K's, the lender may release up to 50% upfront and 50% when the work is completed. The lender will require a final inspection to make sure the work is complete. However, be sure that $35,000 is enough to complete the work you want to have done. You do not want to run short of funds before the work is actually complete. This can sometimes happen with unforeseen damages during the construction process. While the Streamline k does not require a consultant to be involved, it certainly will help the process move smoothly and get to closing faster.
The Full 203(K) is for loans exceeding $35,000 in repairs. On these types of loans when you are doing more extensive repair, it is highly advisable and strongly recommended by HUD and the lenders to obtain the services of a 203(k) Consultant.. He is the key to the project's success. The Consultants role is clearly defined at the initial consultation. Obviously, the process can vary from loan to loan and the need to retain an Architect or Engineer could arise depending on the complexity of the project. The 203(k) consultant will work with all parties involved with the project until its completion. The consultant is the KEY to the 203(k) program. The borrower obtains the services of the consultant to prepare the construction exhibits. The 203(K) Consultant was created to address the need for DE Lenders to better control timeframes through the use of an individual who can formulate the work write-up by consolidating the functions of a home inspection, site visit and the creation of the bid package. The Consultant has an extensive construction background with advanced home inspection skills and remodeling experience.
If you're considering purchasing a home that may need repairs or upgrades, please contact me for more information and a 203(k) lender in your area.
All guidelines differ from lender to lender