FHA 203(K) Product Information 1
Program Summary The FHA 203(k) The FHA 203(k) loan allows a borrower to purchase or refinance and repair or renovate a property all in one loan. The borrower closes with the property in as is condition. Two main Program types: - Streamline K - Consultant K Loan Amount: Based upon an after-improved value. The 203K is offered as a 30 year Fixed-Rate Mortgage. Closing Timeline: - The FHA Streamline and Consultant 203K Loans take 45 days from application to closing when they are done correctly HUD 203(k) Page http://portal.hud.gov/hudportal/hud?src=/program_offices/housing/sfh/203k/203kmenu. Disbursement of Funds: - A 203K is fully disbursed at closing and then repairs are made. - The repair money is held in an escrow account by the servicing lender and disbursed as work is completed and inspected. Repair money is disbursed as work is completed and inspected on a Consultant K. On a Streamline K, the funds are distributed 50% 10-12 days after closing and the balance upon completion of all repairs. 2
Opportunity Renovation loans give any FHA qualified family, at any income level an affordable financing solution at market rates. Home buyers can close as-is and borrow both the purchase (or refi) money and repair or renovation money in a single mortgage loan. The repairs or improvements are done after the loan is closed. Generally, the loan amount is based on the lower of either the sales price plus repairs or the improved value of the property. With the FHA 203(k) Renovation Loan you can finance properties that may need minor repairs or even major renovations. We can also finance properties that may need updating or improvements to fit the homeowner s individual needs. This is a mainstream product for buyers at any income level, and at all market levels. Any property that needs repair Any listing in an older neighborhood that could use updates ANY PROPERTY, IN ANY CONDITION, IN ANY NEIGHBORHOOD, FOR ANY QUALIFIED BUYER. 3
Opportunity Any qualified borrower can buy and finance the purchase plus the money for improvements. All buyers at all income levels are looking for affordability, the most for their money, the best deal, an older home, discounted property, a handyman special or fixer upper, REO or property Sold As-Is! All standard FHA credit, income, credit and documentation criteria applies. This is a fully funded loan. At closing the seller is paid and an escrow is established for the homeowner to fund the improvements. The down payment is just 3.5% based on the sale price plus repairs. This loan includes: - The cost to purchase the property (or pay off liens in a refinance). - The cost to repair, improve, remodel or renovate and - Other soft costs normally associated with a renovation project: inspection fees, permits, contingency reserve. ANY PROPERTY, IN ANY CONDITION, IN ANY NEIGHBORHOOD, FOR ANY QUALIFIED BUYER. 4
Program Detail Rehabilitation Period Rehabilitation must begin within 30 days of closing and be fully completed within a maximum of six months. If the property is not habitable the Mortgage Payments may be included as part of the total renovation cost for payments that come due during the period in which the property cannot be occupied. (max 6 mo.) *Not available on the Streamline K. Amount of Rehabilitation Consultant K Minimum $5,000 rehabilitation costs. No maximum except The total loan amount must fall within the area FHA mortgage limit. The mortgage basis is determined by either the as is value of the property before rehabilitation plus the cost of rehabilitation or 110% of the appraised value of the property after rehabilitation, whichever is less. Expenses eligible for inclusion in the cost of rehabilitation are materials, labor, plus expenses related to the rehabilitation such as permits, inspection fees and lien protection fees for title updates; must include contingency reserve (10 20%). Additional restrictions apply. 5
Program Detail Eligible Improvements Consultant K The types of improvements that borrowers may make include any improvement that is a part of the real property and adds value. Eligible improvements include: Structural alterations and reconstruction Modernizing and improving the home s function Eliminating health and safety hazards Changes that improve appearance Reconditioning or replacing plumbing; installing a well and/or septic Adding or replacing roofing, gutters and downspouts; floors and/or floor treatments Major landscaping and site improvements, patios, decks and terraces; tree removal Repair or replacement of existing walks and driveways Enhancing accessibility for a disabled person New Free standing range, refrigerator, washer/dryer, trash compactor and other appliances Making energy conservation improvements Swimming pool repairs up to a maximum of $1,500 6
Program Detail Amount of Rehabilitation Streamline K Maximum Renovation Escrow Amount, including all allowable costs is $35,000. The total loan amount must fall within the area FHA mortgage limit. The mortgage basis is determined by either the as is value of the property before rehabilitation plus the cost of rehabilitation or 110% of the appraised value of the property after rehabilitation, whichever is less. Expenses eligible for inclusion in the cost of rehabilitation are materials, labor, plus expenses related to the rehabilitation such as permits, inspection fees and lien protection fees for title updates; a contingency reserve is not required, however it is highly recommended. Additional restrictions apply (Maximum for repairs $30,000). 7
Program Detail Eligible Improvements Streamline K The streamlined FHA 203(k) program is intended to facilitate uncomplicated rehabilitation and/or improvements to a home for which plans, consultants, engineers and/or architects are not required; eligible improvements are limited and cannot include any major rehabilitation or remodeling, new construction such as a room addition, repairs to structural damage or site amenity improvements. Refer to Mortgagee Letter 05-50 for further detail. Examples of eligible improvements are: Repair/replacement of roofs, gutters/downspouts; plumbing; electrical systems; and flooring Repair/replacement/upgrade of existing heating, ventilation and air conditioning systems Minor remodeling that does not involve structural repairs, such as kitchens Exterior and interior painting Weatherization, including storm windows and doors, insulation, weather stripping, etc. 8
Program Detail Eligible Improvements Streamline K continued Purchase and installation of appliances, including free-standing ranges, refrigerators, washers, dryers, dishwashers and microwaves Improvements for accessibility for persons with disabilities Lead-based paint stabilization or abatement of lead-based paint hazards Repair/replacement/addition of exterior decks, patios, porches Basement finishing and remodeling that does not involve structural repairs Basement waterproofing Replacement of windows and doors and exterior wall re-siding Ineligible Improvements Streamline K : Foundation Work Structural Work Landscaping or similar site amenity improvements Any repair/ improvement requiring a schedule longer than six months Rehabilitation activities that require more than (2) payments per specialized contractor Major rehabilitation or major remodeling 9
Sales The Draw Process Streamline K 50% of contractor s bid funded 12-14 business days after closing 50% released when work completed, after final inspection & title update Consultant K Funds released per Consultant s line item breakdown: Up to 5 draws 10% holdback on each draw Holdback released after final inspection & title update * Consultant and Draw Center must approve change orders prior to work being done 10
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