FHA 203k Streamline Mortgage Loans On Purchase And Refinance

This Article Is About FHA 203k Streamline Mortgage Loans

A 203k loan is an FHA insured acquisition and construction loan all in one loan.

There are two types of 203k loans.

  1. There is a full 203k loan
  2. There is a 203k streamline loan

A full 203 loan is a full construction loan where there is no limitation on the amount of construction budget amount that is allowed as a loan as it conforms to the county maximum FHA 203k loan limit guidelines.

  • A 203k streamline loan is an acquisition and construction loan that is mainly for minor repairs
  • The construction end of it cannot be greater than $35,000, which includes reserves
  • We will be just be covering 203k streamline mortgage loans on this blog

In this article, we will cover and discuss FHA 203k Streamline Mortgage Loans On Purchase And Refinance.

Advantages Of 203k Streamline Mortgage Loans

203k streamline mortgage loans are for borrowers who need minor repairs to their homes

  • Kitchen remodeling
  • Bathroom remodeling
  • New roofing
  • New gutters
  • Windows
  • Door
  • Millwork
  • Flooring
  • Heating/air conditioning systems
  • New appliances
  • Basement remodeling
  • Attic remodeling
  • Mold remediation
  • Termite repairs
  • Asbestos remediation
  • Peeling paint repairs
  • Electrical upgrades
  • Plumbing upgrades
  • Other non-structural repairs. 
  • Structural repairs are not allowed
  • Room additions are not allowed

Luxury items, such as swimming pool installations, hot tub installations, outdoor kitchens, tennis court installations, or hard landscapes such as installing new ponds with water features.

203k streamline mortgage loans are ideal for those homebuyers who are buyers of REO properties, foreclosures, HUD properties, Fannie Mae properties, and short sales.

203k Streamline Mortgage Loans Are Both For Purchase And Refinance Loans

What is the purpose of improving mortgage loans

203k streamline mortgage loans can be used for both purchase and refinance.

  • An ideal case where a 203k streamline mortgage loan is normally used as a purchase mortgage loan
  • It is where the home buyer is interested in purchasing a foreclosure, short sale, or REO and it fails appraisal because the property is not habitable
  • This is because it does not meet the appraisal guidelines due to peeling paint, faulty electrical, faulty plumbing, faulty HVAC, or other deferred maintenance

In cases like this, the buyer might not be able to purchase it as a regular FHA loan purchase but the property can qualify as an FHA insured 203k streamline mortgage purchase loan.

Refinance With A FHA 203k Streamline Mortgage Loan

For those homeowners who are thinking of refinancing their current homes for a lower rate but have outdated kitchens, bathrooms, and are thinking of remodeling their basements or kitchens as well, they can take advantage of a 203k streamline refinance mortgage loan.

  • Again, a 203k streamline is an acquisition and minor construction loan all rolled into one loan and only one appraisal is needed
  • There is no structural work allowed on streamline 203k’s
  • Homeowners who want structural changes such as room additions need to go with the full 203k renovation loan program
  • The maximum loan amount on streamline 203k’s is $35,000

There is no maximum loan amount on full standard 203k renovation loans. The maximum FHA loan limit will be the maximum acquisition and construction loan cap on full standard 203k loans.

$35,000 Is Maximum Construction Loan Amount On 203k Loans

What is the maximum amount of a construction loan for 203,000 loans

The maximum construction budget amount on a 203k streamline mortgage loan is $35,000.

  • Out of this budget, a 10% reserve is held in escrows for unexpected repairs

For example, here is a case scenario:

  • if a 203k streamline contractor is doing drywall work
  • and later discovers there is termite damage or mold after he removes a portion of the drywall
  • the 10% reserve escrow can be tapped to do the unexpected termite or mold remediation

Any unused funds from the construction budget cannot go back to the borrower in the form of cash:

  • Any leftover amount from the construction escrow goes back to pay down the principal reduction of the mortgage loan

General Contractor Required On FHA 203k Loans

As a 203k streamline borrower, you are required to hire a general contractor.

  • Homeowners need to have an arms-length relationship with the general contractor. 
  • Homeowners cannot hire a family member or close friend who is the general contractor.
  • This will be a violation of the terms of the 203k streamline agreement. 
  • The general contractor is only allowed two draws. 
  • The general contractor will get a 50% advance at the start of the work.
  • The remaining 50% will be paid upon completion of the work. 
  • The general contractor will have a maximum of 90 days or 3 months to complete the work from the closing of the 203k streamline mortgage loan.

Borrowers who need more information on 203k Streamline Mortgage Loans and need to get qualified with a lender with no overlays on government and conventional loans, please contact Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

Related> What Is A FHA 203k Loan?

Related> FHA 203k Rehab Loans

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