Streamlined FHA 203k Rehab Loans For Fixer Uppers

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Streamlined FHA 203k Rehab Loans For Fixer Uppers

This Article On Streamlined FHA 203k Rehab Loans For Fixer Uppers Was UPDATED On November 4th, 2018

Streamlined FHA 203k Rehab Loans are residential construction loans where it permits a homeowner to do minimum general rehab remodeling to their homes such as the following:

  • basic remodeling
  • cosmetic repairs
  • updates to rooms
  • kitchens, and bathrooms
  • general home improvements

What Is Allowed With Streamlined FHA 203k Rehab Loans

Streamlined FHA 203k Rehab Loans also does not require the extensive paperwork required by the standard full FHA 203k Rehab Loan Program:

  • Streamlines is a fast track rehab loan program with procedures and process to get construction funds fast

Here are the terms of the Streamlined FHA 203k Rehab Loans:

  • There is a $5,000 minimum construction amount
  • There is a maximum $35,000 construction amount that a homeowner can spend on the rehab of their home
  • There cannot be any structural rehab work done with the Streamlined FHA 203k Rehab Loans
  • All home improvements needs to meet and conform to the United States Department of Housing and Urban Development HUD Minimum Property Standards
  • All home improvements needs to conform to all codes and zoning standards of the city, county, and state
  • Health and safety standards needs to be met with regards to lead based paint, peeling paint, and missing rails
  • Safety and Heath factors are of utmost importance
  • Always have priority over anything other repairs
  • This includes the installation of working smoke and CO detectors

Types Of Work Allowed With Streamlined FHA 203k Rehab Loans

Many home buyers who take advantage of the Streamlined FHA 203k Rehab Loans are home buyers who are buying a foreclosure or fixer upper.

  • There are many instances where a home cannot be financed
  • This is because the home is not livable or it is a foreclosure
  • No lender will finance that home unless repairs are made or a property is not habitable
  • The Streamlined FHA 203k Rehab Loans is the perfect solution for a home buyer to be able to purchase the foreclosure and/or fixer upper
  • They can purchase the home and do improvements to it with a streamlined loan program

Here are the types of work a home buyer can do with a Streamlined FHA 203k Rehab Loan:

  • Roofing, sofits, fascia, gutters, and downspouts
  • Repair and/or replace HVAC
  • Electrical Systems
  • Plumbing Systems
  • Tiles, Carpeting, Hardwood Flooring
  • Interior and Exterior Siding and Painting
  • Refrigerators, Washer/Dryers, Dishwashers, and other Appliances
  • Insulation
  • New deck and deck systems
  • Basement Remodeling
  • Windows, Doors, and Millwork
  • Well and Septic Systems

Work Not Allowed With Streamlined FHA 203k Rehab Loans

Property owners can almost do anything with a Streamlined FHA 203k Rehab Loans except for the the scope of work below:

  • Structural remodeling like moving structural walls
  • Room additions
  • Fixing structural damage
  • Any construction projects that will take six or more months to complete
  • The maximum allowable draws for Streamlined FHA 203k Rehab Loans is two
  • Any luxury installations like outdoor kitchens, swimming pools, Spas, jacuzzis, granite/marble countertops/flooring

How Does The Streamlined FHA 203k Rehab Loan Process Work?

A home buyer who is interested in buying a home using the Streamlined FHA 203k Rehab Loans will first need to get qualified by a lender. The process is fairly simple.

Once a home buyer is qualified for a FHA 203k Rehab Loan, the following steps is required:

  • Shop for a property to purchase that is in need of work
  • Itemize what improvements need to be done along with the scope of work and cost of construction
  • The real estate purchase offer will be similar to any other real estate purchase offer
  • The only difference that is stated on the real estate purchase contract is that the home buyer is purchasing the property via a FHA 203k Rehab Loans
  • Borrowers will need to get contractors bids
  • General contractor will itemize the scope of work and cost of each line item needed to submit to lender
  • Once the paperwork from contractor has been submitted, lender will order an as is as completed appraisal
  • The as completed appraisal is what the property will be worth once all the work has been done
  • Once the appraisal is complete and is cleared to close, the closing will take place
  • The construction funds will be held in an escrow account at the title company
  • The contractor will go to request draws of the work that has been completed

Duties Of The FHA 203k General Contractor

The homeowner chooses the General Contractor of their choice.

Here are the duties and roles of General Contractor needs to do:

  • The general contractor needs to provide the scope of work as well as the costs of each line item both labor and materials
  • The general contractor needs to provide their business licenses
  • Needs to provide bonding paperwork as well as the licenses of their trades such as electricians, plumbers, roofers, and other specialists who are working on the property
  • All permits are required to be provided

FHA 203k Loan Case Scenario

Lets take a case scenario example:

  • Borrower needing a $30,000 FHA 203k Streamline Loan
  • Lenders will require a 10% to 20% contingency reserve requirement account to be set up with you FHA 203k Loan
  • This contingency reserve requirement account is required in the event of unexpected repairs that may arise
  • On this particular case, if Lender requires a 10% contingency reserve requirement account to be set up, then $3,000 will be set aside
  • A total of $33,000 of funding will be available in 203k Rehab Loan Escrow Funding Account

Here is how FHA 203k Rehab Loan Process Works:

  • Once closing on home with a FHA 203K Rehab Loan, homeowner construction of $33,000 will be set up
  • $3,000 is set aside as 203k Rehab Reserve Account
  • The general contractor is going to ask for the first construction draw amount
  • Draw is half of construction bid amount or $15,000 of the  $30,000
  • When the home is fully completed, the general contractor will request the final draw of the contract amount
  • The balance of the $30,000 or the $15,000 left
  • There is the contingency reserve account balance of $3,000 in the event of any unexpected repairs
  • If the emergency reserve contingency account is not needed, can do a change order and request for additional work to be done
  • If it is not needed, then the excess contingency reserve funds will go to pay down the loan
  • All work needs to be completed in six months or less
  • There are a maximum of two draws to be paid to the contractor on 203k Streamline Loans
  • Can have up to a maximum of two contractors to do 203k Streamline Loan

Home buyers or homeowners interested in Streamlined FHA 203k Rehab Loans with a lender with no overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com.

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