203K Home Renovation Loans
Home Improvement and Rehabilitation Loans
Advantages of a Streamline 203K Home Renovation Loan
With a Streamline 203K Home Renovation Loan you can buy a home in need of and finance up to $35,000 in repairs with the original home loan. This money can be used for rehabilitation as well as upgrades. The increase in value of the home will likely exceed the additional repair costs that are added onto the loan.
How a Streamline 203K Home Renovation Loan works
The homebuyer first selects a property in need of repair. The home is not required to pass the usual FHA inspection and, in order to be eligible for the 203K loan, is actually required to not meet FHA guidelines.
Next, a licensed contractor prepares a cost estimate for repairs needed to meet FHA minimum housing standards, as well as those requested by the homebuyer. The estimate is completed before an offer is made. Any offer made on the property will state that the buyer is seeking a 203K loan and that the purchase of the property is contingent on the approval of this loan.
Home Appraisal and Home Inspection
Once the offer has been accepted, a licensed home inspector will be required to inspect the home. The home inspector needs to be made aware of the application for the 203K loan, and inspect for issues that cause the property to not meet FHA minimum housing standards. The issues found by the inspector need to be addressed in the contractor’s estimate. It may be necessary for the contractor to amend their estimate at this time.
The appraiser will have a copy of the report from the home inspector as well as the estimate from the contractor. The appraisal will reflect the value of the home after the repairs are complete. The appraisal is also contingent on the completion of the repairs. Upon completion of the repairs there will be an inspection but there will not be an additional appraisal.
Timeline of the Streamline 203K
The Streamline 203K will take longer to process than your standard home loan. It will likely take 60 to 80 days to close.
At closing, the seller is paid off and the remainder of the money is put into an escrow account to pay for the cost of repairs during the rehabilitation phase. The homeowner will take two draws from this account. The first draw of 50% is taken 30 days after closing to cover materials used in the renovation, with the second and final draw taken after the repairs are completed and the final inspection is made.
At the lender's discretion, a contingency reserve account may be set up, and the unused portion of this account applied toward the principle of the loan.
The Streamline 203K is an FHA loan
There are several lenders in Spokane County to choose from who can process the Streamline 203K. You can find a list of the FHA approved 203K lenders for your area on the Housing and Urban Development (HUD) website.
You can buy the same types of property as you can with any FHA loan. You can even by multi-family homes up to 4 units if you occupy one of the units. If you intend to rent out part of the property, this income does not count towards qualifying income for loan approval.
The loan limit is the same as any FHA loan in your area. The debt to income and down payment requirements are also the same. For more information on the FHA loan that overshadows this loan, please refer to the article on FHA loans.
The credit score required for a Streamline 203K loan is higher than that of a regular FHA loan. A credit score of 660 is required. Individual lenders may have overlays on the loan that could require an even higher credit score.
written by:Todd Hays