There are two types of 203K rehab loans, the standard and
the streamline. FHA (Federal Housing Administration) is a division of HUD
(Department of Housing and Urban Development. FHA administers the mortgage
insurance for primary residential homes 1-4 units, that allows buyers the opportunity
to purchase existing homes with 3.5% down payment. I will explain both types
and some of the basics for both.
If you have been shopping for a home you’ve probably noticed
many are in need a repair, remodel or a complete overhaul due to foreclosures
and bank owned properties. This is a great example where a 203K standard can be
used for a purchase. This rehab loan will cover a complete tear down to a
complete rehab of all rooms, appliances, roof, electric, plumbing. If you are already a homeowner and would like to rehab or remodel your home, you can also refinance into a 203K standard.
If you are a Realtor this product could help you sell your
listings! There are other loan products for seller but that’s another blog
post. If interested email me for ways to sell your listings by offering your seller simple fixes that can make a huge difference in the seller net profits.
How a 203K Standard works;
The seller or your lender depending on if you are buying or refinancing, your new loan is funded at closing. The 203K is a one time close loan. The funds needed for your rehab portion are deposited into an interest
baring account at a bank or credit union and construction costs are paid out
from this account just like a construction loan or at the completion of the
project. With the 203K standard 5 draws are allowed. Inspections are required before
each draw.
Loan maximums are like any FHA loan they are based on your county limits.
Click Here to find your state/county limits
The
minimum on the rehab portion is $5000.00. IF your repairs or rehab were at or under $35,000 you would use the 203K Streamline or Limited.
Your FHA/HUD
Consultant can make suggestions based on the scope of the project.
The lender will insist on a contingency reserve of between
10-20% to cover construction overages plus your payment of
principal-interest-insurance-taxes (PITI) and mortgage insurance (MI) during
the construction phase for up to 6 months if the property is uninhabitable.
Your FHA/HUD Consultant will determine and make recommendations for the amount of the contingency
and the duration of how long the property will be uninhabitable during
construction.
Requirements;
You must have an approved FHA/HUD Consultant, that
person reviews your plans, architectural drawings, material list and bids. The
consultant will be required to complete two reports; A Feasibility Analysis
Report (FAR) and a Specification of Repairs or SOR. The consultant will do an
inspection before each draw to make sure all the work is done per HUD
guidelines
Their fees range from $400 - $1000 depending on the size of
the project.
You must have a Licensed General Contractor (GC)
who oversees the complete project and works with the FHA Consultant to meet
the FHA guidelines. Your GC will normally have subcontractors for electrical, plumbing,
roofing all depending of the scope of the project. YOU can help on certain jobs
but only under the direct supervision of your GC. The contractor must start the
work within 30 days after your loan funds. The lender allows up to 5 months for
contractor to finish the project and get the occupancy permit.
You must have an approved FHA Appraiser who will do an
initial appraisal before funding of all the rehab plans, bids and cost breakdown
and provide in the report the AFTER rehab completion Value. If this 203K is for the
homeowner who is refinancing the appraiser will need to report on the “AS IS”
value as well as the AFTER-completion value.
Here’s how a 203K
Streamline or Limited works; This is a simpler process, you don’t need the
FHA/HUD consultant although they are valuable and you might want one anyway!
Just not required.
This loan has a limit of $35,000 in rehab money available
after close. Again the minimum is $5000. You still need a Contractor and Appraiser.
The contractor has 4 months to complete the work.
The type of repairs you can do range from remodeling kitchen/bathrooms to buying all new appliance. A new roof, electrical, plumbing and fixtures, even landscaping can be included. You
just need to keep it at or under $35,000.
They are called streamline because the process is much
easier and quicker.
However even the 203K standard may seem difficult it’s NOT,
most of the work is done by others including your lender (ME) the Consultant,
Contractor and Appraiser we all work together to make it all come together. It’s
a GREAT way to get a home under market value and make it yours. I highly
recommend these loans, they are both great products.
As for you the borrower, qualifying for either of these FHA 203K
standard or streamline is basically same as any FHA loan,
some lenders restriction may apply in addition to the FHA guidelines. Best way
to see if you qualify is to contact me and I’ll get you pre-approved.
Here’s a couple links to help you with some research, I
always recommend doing your research and educating yourself and I am also happy
to help with education and research.
Find a FHA/HUD consultant in your state… just add your
state in the drop down and all the approved consultants in your state will be listed. After your lender(ME) I
recommend talking with a consultant, they can help you with many questions and
a referral to the best contractors, who are experience in working with FHA203K projects. They
know who are the best in their field.
There are many other interesting factors for multi-family units and how you can use the 203K product. I didn’t get into these types of properties here, because this is a blog not a book. So, if you have questions contact me,
roxy@roxyredenbaugh.com or just call me. I would love to talk with you.
If you are an investor and thinking..... how can I do this too?
Because who wouldn’t want to buy distressed properties to resell or keep and
rent. FannieMae has a product for you
too! It’s called the HomeStyle Loan, stay tuned and join my blog over on the right side and I’ll post information and guidelines on that product next.
Thank you for stopping by my blog, I appreciate and welcome
your comments and questions.
Have a wonderful day!
Roxy Redenbaugh
ACMC Loan Consultant
Certified Mortgage Coach
Branch Manager
NMLS #269926
This loan is a Fannie Mae product, what I think makes it
very special is that it allows investors to participate. It’s also great for
primary and second homes for the owner-occupied borrower.
Realtors, I encourage you to learn more about the loan
products that will help you sell your listings and help your buyers with
alternatives. This loan product is a valuable tool to do just that. I also have
loans for sellers to help them fix, remodel or update their home in preparation
of listing it. As you know, these modern fixes help sell homes and increase
profits. I offer incentives to sellers that need short term money to make these
improvements. 
