Saturday, June 1, 2013

FHA 203K Mortgages - Light Rehab of Up to 35K in Repairs

The Federal Housing Authority or FHA also offers the 203k loan that is for light rehabilitation to a dwelling that requires $35,000 in repairs or less. This is called the Streamline 203k loan. This loan is great for buyers who may pass on a home because it needs minor repairs. This loan is different from major rehab version of the loan by the same name and eliminates paperwork and simplifies the rehab fund process.

How it Works

The 203k Mortgage for light rehabilitation works for homes for sales as well as improvements to existing homes. Its features include 30 year fixed or adjustable loans, 110% loan to value ratio, appraised value is given after the improvements are made to enhance the homes worth, and is great for minor rehabilitation repairs or revitalization.

You must occupy the home within 60 days after the repairs are completed and funds are disbursed to the contractor you pick in two stages. First, a 50% materials draw is funded and when the completion of repairs is 100%, the remainder of the funds is released.

Quick Facts

The Streamline minor rehab loan may be calculated into the original loan balance creating one loan. It can be an adjustable or fixed rate and the mortgage balance can exceed the purchase price of the property. Borrowers do not have to hire professional engineers or architects. A home inspector or an appraiser will create a list of needed or recommended repairs or improvements and you can do the repairs yourself, or hire a contractor.

Eligible Rehab Repairs

This loan is used mostly for light cosmetic repairs not exceeding $35,000 and includes roofs, gutters, and downspouts. It may also be used for HVAC systems, electrical, plumbing, minor improvements to kitchens or bathrooms, flooring, interior and exterior painting as well as new windows and door and weather stripping and insulation. The 203k light rehab loan encourages funds for handicap accessible improvements, energy efficient additions, removing lead paint, and the addition of decks, patios, porches, septic and well system. A buyer may also purchase new kitchen appliances and a washer or dryer.

Ineligible Rehab Repairs

Items not eligible are landscaping and yard work and major remodeling or rehabilitation to any dwelling. It is also not for moving walls, adding rooms or fixing extensive structural damage.

What Are the Terms?

With the 203k light rehab loan, no minimum loan balance is required; however, buyers must intend to occupy the property once the light rehab repairs are complete. The property may not be vacant for more than 30 days and all work must be completed within six months. You do not have to hire a HUD approved contractor; however, a professional must complete your light rehab repairs. All repairs must commence within 30 days after the closing.

Who Does the Work?

This type of mortgage allows the buyer to select their licensed contractor and the lender will review the contractor's experience. The lender will get a firm estimate from the chosen contractor and buyers may even arrange to complete some of the work themselves. If you go the do-it-yourself route, the lender will require documentation showing that you are qualified to complete the light rehab repairs.

Summary

The StreamlineK light rehab mortgage is great to make improvements to your owner-occupied home if the repairs are under $35,000. If the repairs fall below $15,000, the lender is not usually required to perform an inspection and a letter from the borrower is sufficient along with contractor receipts as notice of completion of work.

Perspective homeowners now have the option of buying a home in need of light rehab repairs and it's a lot less paperwork than the major rehab version. The 203k Streamline line loan may also be used as a home improvement loan. If the home you are looking at needs minor rehab repairs, ask your lender to check on this mortgage loans availability.


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