The FHA 203K program has been in existence for a long time, but a few years ago the “Streamline” version of the program was released by HUD. The FHA 203K is a Rehab loan program. The more popular “Streamline K” program is good for up to $35,000 in improvements. This program allows a buyer to buy a home with only 3% dows (going to 3.5% in 2009) and get an additional $35,000 to go towards improvements for the home.
This program can be used when purchasing a home or when refinancing a home that is already owned. To see a video I put together on this program, click here.
This Program is Good for Damaged Bank REO Properties
In Orange County, CA home buyersare finding that despite how they keep reading in the newspaper that this is a buyers market, the nice properties in the good locations are getting multiple offers. They are actually getting into bidding wars. But if they look a little harder, there are properties in good locations that are damaged. There is not much competition for these home, and this is where the deals are. To take advantage of these deals you need to have a little vision, and a Realtor and Loan Officer who know more than just the basic loan programs.
Typical Improvements Allowed on the Streamline 203K program
- Kitchen or bath remodels
- Patios, decks or terraces
- Roofing
- Safety, energy efficient and electrical upgrades
- Flooring
- Windows and doors, siding
- Paint
- Appliances – Yes, that’s correct. You can buy new appliances as part of this program.
- Minor remodels that don’t require structural repairs
- Heating and air conditioning
Some things, like luxury items are not permitted. These include swimming pools, hot tubs, tennis courts (but wouldn’t that be fun), saunas or alterations to support commercial use.
How Does the FHA 203K Streamline Program Work?
When the loan is funded, 50% of the rehab funds are disbursed immediately. Included with the initial disbursement is an instruction letter with details regarding the 2nd (final) disbursement. The final disbursement is issued only when all of the work is completed. If the work is $15,000 or more then a final inspection by an FHA appraiser is required. If the work is less than $15,000, then no final inspection is required. This would be perfect if appliances were the primary reason for using a 203K.
Is Qualifying Difficult?
Getting Prequalified for the 203K Streamline is the same as getting Prequalified for a normal FHA loan. Down payment is still 3% and credit is still relatively flexible. Once PreQualified, and then PreApproved, the next step is to go finda house. Home buyers will find there is not as much competition for a damaged home. Most people will shy away from these homes, leaving them for investors looking to make money by flipping the property.
Once a property is found, the borrower needs to determine improvements needed and schedules an inspection with a cost consultant. The cost consultant (or borrower in some situations) then completes the work write-up and prepares contractor bid packages to obtain cost estimates. The appraiser will use the work write-up to determine “as is” and “improved value.”
The Loan Officer and/or Realtor will be able to guide the home buyer through this part of the transaction. It is helpful to work with a Loan Officer who works with a lender who is a Direct Endorsed FHA lender and can fund the loan “in-house” rather than broker it out. Control of the loan process is very important and can also save money for the buyer.
This program will be very popular in 2009. Foreclosed properties are not known for being in pristine condition, and the banks selling the properties typically are unwilling to fix repairs. The FHA 203K Streamline program will be an important tool for any home buyer to have when beginning to home buying process.
Authored by Tim Storm, CMPS, Sr. Loan Officer with Crestline Funding, a Direct Endorsed FHA Lender located in Irvine, CA. 877-786-4243 x 7
When we hit the day after Thanksgiving, shopping takes over… at least historically nationwide[ surprise!] and, this year, analysts are paying extra attention to sales figures since the news has been so negative about the economy.
