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Did You Know?
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FHA's
New Streamlined 203(k)
HUD has developed
a new FHA insured mortgage, called the “Streamlined
(K)” Limited Repair Program, that permits homebuyers to finance an additional
$35,000 into their mortgage to improve or upgrade their home before move-in. With
this new product, homebuyers can quickly and easily tap into cash to pay for property
repairs or improvements, such as those identified by a home inspector or FHA appraiser.
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The purchase of
a house that needs repair is often a catch-22 situation, because the bank won't
lend the money to buy the house until the repairs are complete, and the repairs
can't be done until the house has been purchased. HUD's
203(k) program can help you with this quagmire and allow you to purchase or refinance
a property plus include in the loan the cost of making the repairs and improvements.
The FHA insured 203(k) loan is provided through approved mortgage lenders nationwide.
It is available to persons wanting to occupy the home. The
downpayment requirement for an owner-occupant (or a nonprofit organization or
government agency) is approximately 3.5% of the acquisition and repair costs of
the property. The
203(k) loan includes the following steps:
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A potential homebuyer locates a fixer-upper and executes a sales contract
after doing a feasibility analysis of the property with their real estate
professional. The contract should state that the buyer is seeking a 203(k)
loan and that the contract is contingent on loan approval based on additional
required repairs by the FHA or the lender.
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The
homebuyer then selects an FHA-approved 203(k) lender and arranges for a detailed
proposal showing the scope of work to be done, including a detailed cost estimate
on each repair or improvement of the project.
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The
appraisal is performed to determine the value of the property after renovation.
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If
the borrower passes the lender's credit-worthiness test, the loan closes for an
amount that will cover the purchase or refinance cost of the property, the remodeling
costs and the allowable closing costs. The amount of the loan will also include
a contingency reserve of 10% to 20% of the total remodeling costs and is used
to cover any extra work not included in the original proposal.
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At closing,
the seller of the property is paid off and the remaining funds are put in an escrow
account to pay for the repairs and improvements during the rehabilitation period.
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The
mortgage payments and remodeling begin after the loan closes. The borrower can
decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation
if the property is not going to be occupied during construction, but it cannot
exceed the length of time it is estimated to complete the rehab.
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Escrowed
funds are released to the contractor during construction through a series of draw
requests for completed work. To ensure completion of the job, 10% of each draw
is held back; this money is paid after the lender determines their will be no
liens on the property. | | | | | | |
For
a list of lenders who are offering the 203(k) Rehabilitation Program, please see
the 203(k) Lenders List.
The interest rate and discount points on the loan are negotiable between the borrower
and the lender. Return
to 203(k) home
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