When buying a home that is in need of repairs, sometimes it can feel like a chicken-and-egg process: the repairs can’t be done until you have bought the house, but the bank won’t lend money to buy the home until the repairs are done.
Enter the FHA 203k streamline.
The FHA 203k streamline program allows you to purchase a house and finance the cost of making the needed repairs to the property. The FHA 203k loan is insured by FHA and is available through many FHA lenders. It is only available to people who want to purchase a house that needs repairs – no investors are allowed in the program. The required down payment for the FHA 203k streamline program is the same as other FHA loan programs: 3.5% of the total cost of the property AND repairs.
When getting a FHA 203k loan, the following steps are the basic process of getting the 203k loan done.
FHA 203k Loan Process
- First, you locate the property that you want to buy. After doing a feasibility analysis of the property with a HUD consultant or a real estate professional, then the sales contract is written up. The sales contract needs to state that the property is going to be financed with the FHA 203k program and that the contract is contingent on the final approval of the additional repairs needed by the lender or FHA.
- Once the real estate contract is accepted, then it is time to find an FHA approved FHA 203k lender who can help arrange for a proposal that is prepared by a qualified and sanctioned 203K Consultant. The proposal should show the scope of work and include a detailed cost estimate on each item that is going to repaired.
- Once the proposal is done, then the appraisal is performed and the appraisal will need to to determine the value of the property after renovation.
- Once the lender gets you approved, the loan will close for the total amount of the purchase price PLUS the cost of the repairs and closing costs. The total amount of the loan will also include a contingency reserve of 10% to 20% of the total remodeling costs. This contingency is a reserve that will cover any extra work not included in the original proposal.
- At the time of the loan closing, the seller gets their money and the funds reserved for repair costs are put into an escrow account.
- Once the loan closes, mortgage payments start. It is possible to finance up to 6 mortgage payments (PITI) into the cost of rehabilitation if the property is not going to be occupied during the repair phase.
- All repair work must start within 30 days of closing.
- When it comes time for contractors to be paid, the funds held in escrow are released to the contractor during construction through a draw request process once the work has been inspected by the Consultant.
Once all work has been completed – then you can move in and call your new home yours!
The FHA 203k streamline process can be confusing and certainly if you have more questions about this process, contact one of our FHA 203k rehabilitation loan experts.