After finishing our REO panel last Friday morning there was a lot of great information flying everywhere, there was one thing that stuck out in my mind. Eric Silva Tulare County's top REO agent said "If you want to compete with the cash buyers that the FHA 203K program is probably the best way to do that". He said that the asset managers along with the selling banks really like these programs because they know that the repairs will be done after the close of escrow and there isn't going to be any surprise repair request from that buyer. With that knowledge, it was time to figure out what the guidlines are for these streamlined FHA 203K loans. Below you will find all the info you will need to navigate one of these loans. Good Luck!
•· 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.
Repairs Not Permitted
•· Landscaping or yard work
•· Major remodeling
•· Moving a load-bearing wall
•· Room additions or add-ons to the home
•· Fixing structural damage
Requirements to Perform the Work
•· 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.
Disbursement of Payments
•· Maximum of two payments to each contractor, including the borrower, providing the borrower works under a "self help" plan.
•· No more than a 50% advance is allowed.
•· Do-it-yourself allowances do not include labor; only materials costs are allowed.
•· Final payment is paid after submission of evidence of payment to sub-contractors / suppliers or other possible lien claimants.
Reasons to Apply For a Loan Below $15,000
•· 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.
