Qualifying For An FHA 203k Streamline Loan Made Simple
Why an FHA 203k streamline? You know that feeling you get when after months of searching you set eyes on a perfect home? It has everything you ever dreamed of, two bathrooms, four bedrooms, a huge back yard for hosting family get- together's.
There’s just one problem. Your dream home is still, just that, a dream. It needs some serious TLC, some tweaking. A traditional mortgage won’t cover the cost. But an FHA 203K streamline loan can provide an avenue for you to purchase.
What is the FHA?
Set up by FDR in 1934 in the wake of the Great Depression, the Federal Housing Agency can underwrite and insure loans from approved lenders to give buyers the ability to take out loans to cover the cost of mortgages plus renovations.
FHA now also insures lenders for home repairs costs, often combined in a traditional mortgage, called a FHA 203K loan.
So who is eligible, what are the rules on the kinds of project you can take on and what do you need to do?
FHA 203K Streamline that Dream!
There are two types of FHA 203K loans for home repairs/renovations.
The FHA 203k standard loan has no limit on the amount of renovation funds you can borrower as long as the house appraises to be worth what you are putting into the home. Now keep in mind that there is an FHA max loan amount per county so you would want to be sure you fit within that limit.
The 203K streamline loans might be just what you’re looking for. There is a cap on the amount of renovations for this loan and that is $35,000.
This means you can’t plan a full-scale renovation.
Small Scale Work
To be eligible for a streamline loan you must only be planning small scale work like replacing the carpets, installing a new kitchen or carrying out minor repairs. It can also include minor repairs to roofs and gutters and small scale repairs to electrical and plumbing installations in the house. Anything that is structural or changing floor plan via moving load bearing walls would require the Standard 203k.
If your repair takes longer than three months or you’re thinking of using the funds to furnish your new home with state-of-the-art-goods like a Jacuzzi think again, these are specifically outlawed. The funds must be used for items that are permanently affixed to the property and adds value to the home.
If using the 203k Standard there will be a HUD Consultant that is on the project. The consultant will reviews the bid and work to be done. If a streamline loan then there will be a final inspection done typically by the appraiser to insure the work that was agreed upon has been completed. This final inspection does not change value as that was determined up front via the appraisal this is just a confirmation work that was on the bid was completed.
Credit, Credit, Credit
So what kind of credit score do you need to be 203K eligible? Well it works just like the traditional FHA 203b loan for credit, down payment and general underwriting guidelines. Some lenders may place overlays on top of the program to protect themselves. Credit score requirements will vary from lender to lender but typically a mid score of 580 will allow you to have access to the program with the minimum down payment of 3.5%.
Down with the Payments
The down payment is 3.5% of the purchase price plus the improvements. The interest rate will be higher than the rate on the traditional FHA loan because it is a specialty program and allows for the renovations. You will see about .250-.5% increase in the rate for the ability to add renovations to the purchase or refinance.
Let’s Talk
203K loans are becoming ever-more popular. By 2012 it was estimated they accounted for nearly $1.7 Billion of loan activity and there were over 21,000 loans taken out.
Call me today and lets see if one of our renovation loan products is right for you!