FHA 203K Rehab Loan
If you've been passing up buying homes that require cosmetic repairs for lack of funds to fix them up, FHA has a program for you. Not to be confused with FHA's much more complicated 203K program, a FHA Streamline 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 many lenders won't make rehab loans. Some won't fund equity loans at closing, especially if there is no equity.
- A Streamlined 203K loan is figured into the original loan balance, resulting in one loan.
- It can be an adjustable rate or fixed rate mortgage .
- 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.
Eligible Repairs & Improvements The Streamlined 203K loan allows for simple repairs that can be easily estimated and completed. Many are considered light cosmetic repairs, but some will require hiring a licensed contractor if it falls out of the borrower's area of expertise. Here is an approved list of repairs / improvements from HUD:
- Roofs, gutters and downspouts
- HVAC systems (heating, venting and air conditioning)
- Plumbing and electrical
- Minor kitchen and bath remodels
- Flooring: carpet, tile, wood, etc.
- Interior and exterior painting
- New windows and doors
- Weather stripping & insulation
- Improvements for persons with disabilities
- Energy efficient improvements
- Stabilizing or removing lead-based paint
- Decks, patios, porches
- Basement completion and waterproofing
- Septic or well systems
- Purchase of new kitchen appliances or washer / dryer
Special Conditions & Terms
- No minimum loan balance required.
- Borrowers must occupy the property.
- Property cannot be vacant for more than 30 days.
- Work must be completed within six months.
- Work must be professional.
- If job requires a permit, borrowers must get a permit and a sign-off.
- Work must commence within 30 days from closing.
- Landscaping or yard work
- Major remodeling
- Moving a load-bearing wall
- Room additions or add-ons to the home
- Fixing structural damage
- Borrowers can select among licensed contractors.
- The lender will review the contractor's experience, background and referrals.
- The lender will want a copy of the contractor's estimate and the agreement between the contractor and borrower.
- Borrowers can also arrange to do some or all of the work under a "self help" arrangement.
- Do it yourself projects require providing the lender with documentation supporting the borrower's knowledge, experience and ability to perform the necessary work.
- The lender is not required to inspect the completed work.
- The lender is not required to authorize a third party to inspect the completed work.
- A letter from the borrower or copies of contractor receipts will suffice as notice of completion, providing the lender has no reason to determine a third-party inspection is necessary.