Understanding The FHA 203(k) Rehab Streamline Loan Program

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1 Understanding The FHA 203(k) Rehab Streamline Loan Program

2 FHA s 203K Streamline Rehab Program The FHA 203(k) program is HUD s primary program for the rehabilitation and repair of residential properties This report covers the Streamline 203(k) Purchase and rate/term refinances only Cash out refinances are not allowed

3 FHA s 203K Rehab Program No additional credit guidelines 203(k) loans allow for repairs to be financed into one loan Remember your Lender may have credit overlay s Repair costs funded at time loan closes Sale proceeds disbursed at closing Lender or escrow holds repair funds Funds disbursed as work completed

4 Did you Know? Surge in home rehabilitation is primarily due to baby boomers. Some just now reaching 65 and improving homes for retirement. Estimated 75 million in the baby boomer generation. Approximately 76% of 128 million or 97 million homes across America are 21 years old or older.

5 The 203k Streamline loan helps those who are Sellers who have no equity and can t sell presently. Buying a home and want to make improvements but they don t have the money to do it. Buying a distressed home needing a lot of repairs and improvements and need money to do them. Want to capture equity by buying an undervalued distressed home and improve it increasing it s value. Are interested in a home needing updating (kitchen, bath). Want to make energy efficient improvements.

6 Benefits Borrower: Seller: One single FHA government insured loan Standard FHA downpayment Customized home preferences Build equity and wealth for future Add comfort and enjoyment More potential buyers Faster sale of home Can t sell and want to enjoy improvements until they are able to sell

7 Property Eligibility To be eligible, the property must be a one- to fourfamily dwelling that has been completed for at least one year Demolished homes or homes that will be tore down during the rehab process are eligible provided some of the existing foundation system remains in place Conversion of single family to multi and vice versa is acceptable All health and safety issues must be addressed

8 Streamline Objective The Streamline 203(k) is intended to help facilitate, uncomplicated improvements or repairs Luxury items are not eligible Examples are: adding swimming pools, hot tubs, tennis courts, gazebos, barbecue pits, saunas or alterations to support commercial use

9 Streamline 203(k) Up to $35,000 in total rehabilitation costs No minimum rehab amount HUD Consultant not required Borrowers work with contractors and receive bids for required work HUD does not approve contractors; Lenders responsibility to accept Bids must be specific to the desired repair improvements and typically must break out the cost of materials and labor

10 Streamline 203(k) Self-Help is discouraged Work to start within 30 days of closing and be completed with 6 months (work can not start prior to loan closing) Up to 2 draws for contractors Lenders may choose to release 50% of the repair costs at closing No special FHA inspections required for repairs under $15,000

11 Streamline 203(k) Eligible Repair List Repair/Replace roofs, gutters, downspouts Repair/Replace/Upgrade heating and cooling systems Repair/Replace/Upgrade plumbing and electrical systems Repair/Replace carpet and flooring Minimal remodeling of kitchens and bathrooms (No structural repairs) Window/door replacements Lead paint stabilization / abatement Accessibility improvements for persons with disabilities

12 Streamline 203(k)- Ineligible Repairs These types of repairs are ineligible for the Streamline program: Major rehabilitation Relocation of load bearing wall Room additions New construction Repairs requiring detailed drawings or architectural exhibits Repair of structural damage

13 Purchase Borrower required to meet FHA s minimum cash investment Whichever is lesser: Purchase price or as-is appraised value plus rehabilitation costs 110% of after-improved appraised value Multiply by 96.5%= Total Base Loan Amount

14 Purchase Example: Lesser of: Sales Price= $200,000 Rehab costs= $ 15,000 Total= $215,000 OR After-improved value= $220, % of after-improved value= $242,000 $215,000 X 96.5%= $207,475 Total Base Loan Amount

15 Rehabilitation Costs Labor & Materials Lenders may require Contingency Reserve Inspection & Title update fees Permit fees, if applicable Supplemental origination fee 1.5% of above fees or $350, whichever is greater Discount Points on Repair Costs and Fees

16 Loan Highlights Home purchase plus repairs and improvements in one loan. Loan uses home value assuming improvements are made. Loan can be up to 110% of the home value assuming improvements are made. Energy efficient improvements can be added on top of the $35,000. Energy efficient improvement costs are not used in determining the required home value after improvements.

17 Common Oversights Property is a condo in a building with more than 4 units Borrowers are related to someone in the transaction Septic, well repairs and mold remediation allowed but the repairs must be completed before a disbursement is made. Permits have to be pulled and provided before a disbursement is made. Work is performed prior to the loan closing on refinances

18 For Additional Information Visit askmegastarforfree.com or call Pierre Burris at MFC s NMLS #3043 MegaStar Financial Corp NW Vivion Rd. Kansas City, MO pburris@megastarfinancial.com