As you may have guessed the 203k loan program is alive and well in Morgan Hill as it is all over the Santa Clara Valley.
Homes these days most always need some amount of work. The most often used solution is the FHA 203k loan program. It is versatile in that you can use the Streamlined k for light repairs up to about $34,200... NOT the $35,000 limit that is stated boldly in the guideline. That is a confusing number as you read the smal print it must include costs and fees which typically run about $800. If you get a bid for $34,997 as we did recently, the lender is forced to push it through the check valve which is a one way valve to the "full 203k"
What that means is that this just turned into a "full 203k and there is no going back. The mistake must now be lived with.
Where else do we see this pop up? If an unknowing contractor bids a job and the appraiser comes out to find some items they missed, the check valve just opened again and it is now a full 203k.
How do you keep this from happening? Good question by the way.
1) use a contractor who knows the guidelines or a consultant to make the scope of work list.
2) try to do it as a 203b and let the appraiser come up with the conditions list then turn it into a steamlined k if possible but you have a list of needed repairs. This costs you a second appraisal so it may be less expensive to use the first method noted above.
What happens when it trips the check valve? That means it becomes a full 203k and can't ever be a streamlined k for that borrower.
We have lots of clients that only do the Steamlined k loans that wouldn't think of doing them with anyone that isn't a HUD consultant. Why? Simply this... it is cheap insurance as we know the guidelines. By having a consultant do the "home inspection / 203k compliance inspection" you get the best of both worlds and if it is a streamlined k you know it right up front and conversely if it is a full 203k you know that up front.
If your lender only does streamlined k loans then it is much better to know up front in case it is a full 203k.
If your lender, on the other hand, does both the full and streamlined k then it is acedemic. There is no difference in the time it takes to close the loan only a different box to check on their form.
