Sunday, September 16, 2012

FHA 203k Streamline - The Best Way to Purchase Fixer Upper Homes

Buying a home that is need of repair has always been a struggle. The lender wants the property to be in tip top shape before the loan can be finalized. The seller does not want to pay for repairs. But the buyer really wants the home and they can see the potential value with a little bit of work. What is a person to do? The FHA 203k loan is made for this exact type of scenario.

The streamline version of the FHA 203k was changed in 2005 to allow borrowers the flexibility to make small improvements as well as enhance the look through cosmetic features. The streamline version of 203k is different from the full 203k loan. The streamline version allows a person to buy a home and add up to $35,000 to cover these small repairs.

There are documentation requirements for getting the work approved by FHA. However, the home buyer is allowed to choose the contractor, the type of work being performed and the color, if appropriate. This essentially allows a prospective buyer to contact a reputable contractor, find a suitable home that needs only modest repairs, and get approved for the loan. The lender will need to qualify the buyer for the amount of the purchase price plus the maximum $35,000.

The purpose of having the contractor with you when you look at homes is to get an accurate estimate for the necessary adjustments. Repainting the walls, replacing the carpet, adding modern appliances and updating the roof are a few examples of the type of work that can be performed with the 203k streamline loan.

Getting together an accurate bid from the contractor is also critical in the appraisal stage. This allows the appraiser to determine the current value of the home and the value after the repairs and modifications have been completed.

The FHA 203k streamline also offers an escrow feature to protect the home buyer and the lender. The contractor will receive an initial portion of the funds in order to purchase materials and begin work on the home. The final amount of the money will not be disbursed until the work has been completed and inspected.

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