Homeowners that are planning to have cosmetic repairs on their home but have no funds to fix them up, should not worry anymore because FHA has a program dedicated to addressed this problem. This program is called the Streamlined 203k. There are certain limits but all in all, this is a great program for owner occupied property.
This program can be used to accomplish rehabilitation and improvement of an existing one-to-four dwelling units that have been constructed for at least one year. Basically, this is a home improvement loan. Moreover, the units most comply with local zoning regulations.
Luxury items and improvements are not eligible as cost rehabilitation. However, the homeowner can use the Section 203(k) program to finance items such as painting, room additions, decks and other items even if the home does not need any other improvements. All rehabilitation construction and additions financed with this program must comply with the cost effective energy conservation standards and each sleeping area must be provided with a minimum of one approved, listed and labeled smoke detector. Moreover, all health, safety and energy conservation items must be addressed prior to completing general home improvements.
The rehabilitation loan agreement contains three provisions concerning the timelines of the work. First, the work must begin within 30 days of execution of the agreement. Second, the work must not cease prior to completion for more than 30 consecutive days. And third, the work is to be completed within the time period shown in the agreement which should not exceed six months.
The lender should not allow a time period longer than required to complete the work. When the borrower fails to perform under the terms of the agreement, the lender may refuse to make further releases from the Rehabilitation Escrow Account. However, the funds in the escrow account can be applied to reduce the mortgage principal.