Why 203k Streamline Mortgage Loans
A 203k loan is a FHA insured acquisition and construction loan all in one loan. There are two types of 203k loans. There is a full 203k loan and 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 or construction budget amount that is allowed as 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 manily for minor repairs and 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.
Advantages Of 203k Streamline Mortgage Loans
203k streamline mortgage loans are for mortgage loan borrowers who need minor repairs to their homes such as kitchen remodeling, bathroom remodeling, new roofing, new gutters, windows, doors, 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, and 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 home buyers who are buyers of REO properties, foreclosures, HUD properties, Fannie Mae properties, and short sales.
203k Streamline Mortgage Loans Are Both For Purchase Mortgage Loans And Refinance Mortgage Loans
203k streamline mortgage loans can be used for both purchase mortgage loans and refinance mortgage loans. An ideal case where a 203k streamline mortgage loan is normally used as a purchase mortgage loan is where the home buyer is interested in purchasing a foreclosure, short sale, or REO and it fails the FHA appraisal because it does not meet the appraisal guidelines due to peeling paint, faulty electrical, faulty plumbing, faulty HVAC, or other deferred maintenance. On cases like this, the buyer might not be able to purchase it as a regular FHA loan purchase but the property can qualify as a 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.
$35,000 Is Maximum Construction Loan Amount On 203k Streamline Mortgage Loans
The maximum contruction 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, 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 left over 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 mortgage borrower, you are required to hire a general contractor. You need to have an arms length relationship with the general contractor. You cannot hire a family member or close friend who is your general contractor or it is a major violation with the terms of the 203k streamline agreement. The general contractor is only allowed two draws. Your general contractor will get a 50% advance at the start of the work and the remaining 50% will be paid upon completion of the work. Your general contract will have a maximum of 90 days or 3 months to complete the work from the closing of your 203k streamline mortgage loan.
Gustan Cho NMLS ID # 873293
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