If you’ve been passing up buying a home in Texas because it requires cosmetic repairs and you are lacking the funds for repairs and/or upgrades FHA has a program for you. Not to be confused with FHA’s full 203K program, a Streamlined 203K loan eliminates much of the paperwork and simplifies the process to obtain rehab funds.
How Does a Streamlined 203K Loan Work?
It used to be that you bought a home and then applied for a home equity loan to fix it up, resulting in two loans. But that’s no longer required now that the FHA Streamline 203K is available. A Streamlined 203K loan is figured into the original loan balance, resulting in one loan. It is a fixed-rate mortgage loan. The mortgage balance can exceed the purchase price of the property. Borrowers are not required to hire professional consultants, licensed engineers or architects. The appraiser or home inspector can put together a list of recommended repairs / improvements.
The Process of the Streamlined 203k
Find the home you’ll want to purchase and determine what improvements need to be made to the property.
The purchase contract offer is written the same as any other, accept you’ll want to make sure that there is language stating the purchase is contingent upon borrower acquiring an FHA 203k Loan.
In order to complete the financing of the improvements, you will need to meet with a contractor to determine what kind of work you are planning and how much it will cost.
The contractor will give you a bid, which you’ll need to pass on to the lender.
The lender will order an appraisal to determine what the value of the house will be once all of this work is completed.
Keep in mind, you’ll also need to be qualified for the full loan amount which is based on the purchase price plus the additional cost of repairs.
Once the loan is approved, you will go to closing like you normally would.
The amount that will be needed to do all of these repairs or improvements will be placed into an escrow account held by the lender.
As the work is being completed, there will be draws from the account to pay the contractor.
Type of work for Streamlined 203(k):
- Roof repair, gutters, downspouts
- Existing HVAC systems
- Plumbing and electrical systems
- Flooring
- Painting
- Appliances
- Weatherization
- Repair, replace or add exterior decks, patios, porches
- Basement waterproofing
- Window and door replacement and exterior siding
- Septic and/or well repair or replacement
- Improvements for accessibility
- Lead-based paint stabilization or abatement of lead-based paint hazards
What can’t you do? Ineligible improvements under the Streamlined 203(k):
- Major structural repairs
- New construction (adding a room)
- Repair of structural damage
- Repairs requiring detailed plans and specs
- Any repair taking more than 3 months to complete
- Repairs that would necessitate more than 2 draws
- Luxury items that are not a permanent part of the real estate
- Jacuzzi tubs, hot tubs, pools
If you are interested in this type of loan please contact me today for more information and to obtain a pre-qualification.