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What is the difference between a 203(K) streamline and 203(K) standard loan?

A 203(K) Streamline loan is used to purchase or refinance a home that needs minor repairs or upgrades. The total repair amount, including all eligible fees, cannot exceed the maximum limit of $35,000. Streamlined 203(K) improvements include repairing the roof, replacing the gutters, and upgrading the plumbing, heating, cooling, or electrical systems. It can also include non-structural repairs, such as interior or exterior painting or upgrading appliances like the refrigerator and washer or dryer. Basement remodeling, basement waterproofing, and window or door replacement can also be upgraded with this program.

A standard 203(K) loan allows homeowners to borrow a minimum of $5,000 for eligible improvements. To complete the transaction, all Minimum Property Standards (MPS), Health & Safety, local requirements, and repairs cited by the FHA appraiser are required to be satisfactory. Standard 203(K) improvements include plumbing and electric upgrading, roofing repairs, floor treatments, energy efficiency items, upgrading heating and cooling units, structural work, or replacing free-standing appliances.

How do I qualify for a rehab loan?

To qualify for a rehab loan, there are specific program requirements homeowners must meet. These guidelines are issued by the Department of Housing and Urban Development (HUD) and include the following:

  • First, you need to find a property that needs sufficient improvements before you can live in it. From there, make an offer on the house. Remember to include in your purchase and sales contract that you are using an FHA 203(K) loan.
  • Only qualified lenders can approve an FHA 203(K) loan, the HUD can provide you a list of qualified lenders if you are having trouble finding one. Once you select your lender, you will submit a loan application, which includes a detailed list of repairs and improvements that need to be made.
  • Your mortgage lender will have their own set of requirements for homeowners to meet. To qualify, you must meet all their requirements. These qualifications typically include minimum credit scores, proof of income, debt-to-income ratios, and down payment.
  • After your loan is approved, a closing date will be set. When the closing day arrives, the seller will be paid. The money to cover rehab expenses will be placed into an escrow account that will be controlled by your mortgage lender. Once the closing phase is completed, your contractor may begin rehab construction.
  • During certain points of the rehab process, your contractor will list what projects have been completed and their total costs. Your lender will request inspections throughout the renovation process. If the renovations are approved by your lender, they will be release funds from the escrow account for the payment.

What are FHA 203(K) loan limits?

The maximum amount of money a homeowner can receive using an FHA 203(K) depends on the type of loan they get (regular vs. streamlined and purchase vs. refinance). The minimum amount you can borrow with an FHA 203(K) loan is $5,000.

The maximum amount you can borrow under an FHA 203(K) is the lesser of two amounts:

  • 1. The Nationwide FHA Mortgage Limits, or
  • 2. The Loan-to-Value (LTV) ratio from the Purchase Loan-to-Value Limits are multiplied by the lesser of:
    • a. 110% of the After Improved Value, or
    • b. The Adjusted As-Is Value, in addition to the following:
      • i. Financeable Repair and Improvement Costs, for Standard 203(K) or Limited 203(K)
      • ii. Financeable Mortgage Fees, for Standard or Limited
      • iii. Financeable Contingency Reserves, for Standard or Limited
      • iv. Financeable Mortgage Payment Reserves, for Standard only
When refinancing, the loan limits will be similar. However, homeowners should evaluate the existing debt they have first.

With a streamlined loan, you can borrow up to the purchase price of the home, plus $35,000 with no minimum repair costs. To get an accurate as-is value on the property or estimated value of the property post-rehab, homeowners will need to get an appraisal.

What are FHA 203(K) allowable repairs?

There are two types of FHA 203(K) loans homeowners can finance. A regular or standard 203(K) loan is designed for properties that need structural repairs, remodeling, landscaping, or room additions. A streamlined or limited 203(K) loan is meant for energy conservation improvements, new roofing, new appliances, or non-structural repairs, such as painting.

Other repairs that an FHA 203(K) loan will cover include:

  • Decks
  • Patios
  • Bathroom and kitchen remodels
  • Flooring
  • Plumbing
  • New siding
  • Additions to home (i.e. adding a second story, garage, etc.)
  • Heating and air conditioning systems
Keep in mind, this loan does not cover more luxurious additions, such as a tennis court, fireplace, or pool. Additions to the property for commercial use will not be approved. These renovations do not help the home’s overall quality or become a permanent part of the property.

What types of properties qualify for an FHA 203(K) loan?

Only certain homes can be approved for an FHA 203(K) loan. Qualifying homes include the following:

  • A one to four-family home that has been completed for at least a year
  • A home that has been torn down, but has still had some foundation in place
  • A home that you want to move to a different location
  • Co-op homes are not accepted, but some condos are eligible
Properties must also qualify under FHA requirements established by the Department of Housing Urban Development (HUD). For example, the home’s value cannot exceed the loan’s maximum amount, which depends on what area you live in.

What are FHA 203(K) contractor requirements?

According to the Department of Housing Urban Development (HUD) contractors are required to follow specific instructions when dealing with a rehab loan project. Typical contractor responsibilities include:
  • Contractors must provide a homeowner/contractor agreement
  • Contractors must provide a detailed estimation of when the work will be finished
  • Contractors must complete work in the timeframe agreed upon in the contract
  • Contractors must meet all local licensing and bonding requirements
  • Contractors must provide licensing, bonding, and reference information to the mortgage lender
  • Contractors must obtain permits, if not obtained by the homeowner.
If you have any further questions, please reach out using the information below.

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