The FHA 203K Streamline Mortgage is perfect for those homes that are in need of repair. The FHA 203K is a Rehab loan program. There are actually 2 versions of the FHA 203K Rehab loan program, but the “Streamline K” is the more popular of the two. This program allows a home buyer to finance an additional $35,000 in improvements to the home they buy, above an beyond the actual purchase price. FHA only requires a 3% down payment for this program, making this a very attractive loan program.
To see a video I put together on this program, click here.
Use the FHA 203K to Purchase California Bank Repo’s
In many areas of California home buyers are finding that although it is a buyers market, there are a lot of buyers out there. Many homes are receiving multiple offers, creating a little bit of a bidding war. At the same time there are plenty of foreclosed properties in poor condition but in good locations. These homes are sitting on the market and the banks are willing to accept low offers just to get them “off the books”. As a buyer you will need a little vision, but the end result can be very nice.
Typical Improvements Allowed on the Streamline 203K Loan program
- Kitchen or bath remodels
- Patios, decks or terraces
- Roofing
- Safety, energy efficient and electrical upgrades
- Flooring
- Windows and doors, siding
- Paint
- Appliances – Yes, that’s correct. You can buy new appliances as part of this program.
- Minor remodels that don’t require structural repairs
- Heating and air conditioning
Luxury items , such as swimming pools, hot tubs, tennis courts (but wouldn’t that be fun), saunas or alterations to support commercial use are not permitted
How Does the FHA 203K Streamline Program Work?
When the loan is funded, 50% of the rehab funds are disbursed immediately. Included with the initial disbursement is an instruction letter with details regarding the 2nd (final) disbursement. The final disbursement is issued only when all of the work is completed. If the work is $15,000 or more then a final inspection by an FHA appraiser is required. If the work is less than $15,000, then no final inspection is required. This would be perfect if appliances were the primary reason for using a 203K.
How do I Get PreQualified for the FHA 203K?
The process for getting PreQualified for this program fairly easy. The Down payment is only 3%, credit is flexible, and the initial approval can be, and in most cases is, Automated.
Once PreQualified, and then PreApproved, the next step is to go find a house. Home buyers will find there is not much competition for a damaged property. Most people will shy away from these homes, leaving them for investors looking to make money by flipping the property.
Once a property is found, the borrower needs to determine improvements needed and schedules an inspection with a cost consultant. The cost consultant (or borrower in some situations) then completes the work write-up and prepares contractor bid packages to obtain cost estimates. The appraiser will use the work write-up to determine “as is” and “improved value.”
The Loan Officer and/or Realtor will be able to guide the home buyer through this part of the transaction. It is helpful to work with a Loan Officer who works with a lender who is a Direct Endorsed FHA lender and can fund the loan “in-house” rather than broker it out. Control of the loan process is very important and can also save money for the buyer. There really are not too many Loan Officers who are knowledgeable with this loan product.
Foreclosed properties are not known for being in pristine condition, and the banks selling the properties typically are unwilling to fix repairs. The FHA 203K Streamline program will be an important tool for any home buyer to have when beginning to home buying process.
If you need additional information on an FHA 203K Loan Program, please contact Tim Storm at 877-786-4243 x 7. I will be able to prepare specific loan scenarios based on your qualifications and goals.
Frost Mortgage Lending Group is a Direct Endorsed FHA lender located in Tustin, CA. We serve Orange County, Los Angeles County, San Bernardino and Riverside County, and San Diego County. We are also able help borrowers in N. California.
Authored by Tim Storm, CMPS, Sr. Loan Officer with Frost Mortgage Lending Group, a Direct Endorsed FHA Lender located in Tustin, CA.
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Do you know of any licensed contractors who are familiar wtih the FHA 203k and can give me an estimate on repairs to submit with an offer? The property is located in the Downey/Norwalk/Whittier area. Thanking you in advance. Daniel Jaime