Friday, October 11, 2013

What is the Difference Between a Standard 203k & a Streamlined k?

I've just been reading a number of blog posts that all says something about this quesiton and they all seem to have different opinions... lets get it straight and clear the air

Streamlined k 

... is for NON-STRUCTURAL issues and a loan amount under $35,000 including costs and fees which are typically about $800 therefore the maximum amount of the contractor's bid is going to be about $34,200 NO MORE otherwise it becomes a Standard 203k loan. This is like a check valve. Should the contractor bid $34,500 and we add the $800 costs and fees it is now above $35,000 and trips the check valve to a full 203k loan and a consultant will be brought in on the project.

Don't be fooled into thinking this is all inclusive... it isn't. If your lender "requires" a contingency reserve like many do, we need to back that out of the contractor's maximum bid amount too. If the lender "requires" a 10% contingency the maximum contractor bid will be reduced to about $30,780... if the bid comes in higher than that this loan becomes a "Standard 203k" project. Simple, not quite. Academy Mortgage and a few others require a 20% contingency so we need to back out more from the contractor's bid to about $27,360. Anything over that amount and this is now a Standard 203k and a consultant would be brought in on the project. Wow, and everyone tells you the maximum loan amount for a streamlined k is $35,000 - the fact is that IT ISN'T! It never was, it was always $35,000 including costs and fees.

Standard 203k 

I have just been reading those other blogs that say the Standard 203k is for "structural repairs". Not necessarily. Just because the Streamlined k is for non structural repairs ONLY doesn't mean the Standard 203k is ONLY for structural repairs. In fact a Standard 203k can be for non structural repairs in excess of $35,000 or structural repairs that don't even come up to the $10,000. Just because the repairs are structural the Standard 203k is your only choice between these two loan programs.

A Standard 203k can be for repairs in which the only limit is the ability of the borrower to qualify up to the maximum loan amounts for the county where you are located. Alameda, Contra Costa, and Marin counties for example have a maximum loan amount of $729,750 which includes the purchase money or existing debt and the money to make the repairs. We are working on one that the construction cost alone is $670,000.

We had one in Sacramento County where the loan limit is $561,000 and the purchase was for $888,000. The home required $150,000 in construction repairs for a total of $1,038,000. Options were to pay cash and pay the entire $1,038,000 or get a loan for $561,000 and only have to pay $477,000 down payment. Keep your cash and let this low interest loan fixed for 30-years do it's job.

What program would I use for a fire burned home or tornado damaged home? 

Simple, if the home has been damaged by either of these issues it is likely going to have structural repairs. The insurance paid you off so keep that money in your bank and get a 30-year low interest fixed rate loan and use the Standard 203k for your repairs. Yahoo! You now have money in the bank and your house is livable again.