If you want to make changes to your home and include those changes in your mortgage, the FHA Streamlined 203K loan is a great option. If those changes are minor, meaning less than $35,000, you can take advantage of the streamlined 203K. This “easier” version of the FHA loan is a great way to get the changes done to your home that you desire without the many headaches that the standard 203K may cause. In addition to the lower cost of the renovations, there are several other stipulations you must meet in order to be eligible for this form of the 203K.
The improvements involved in the streamlined 203K are considered more cosmetic in nature. This means that they cannot be structural changes or any type of new construction. They are “minor” repairs that may include things like simple roof repairs, painting the exterior of your home, or adding new appliances inside. None of the changes can require specs or plans; nor can they take longer than 6 months to complete. The basic improvements that are allowed include:
- Roof repairs
- Heating or air conditioning repair or replacement
- Plumbing improvements
- New carpeting or flooring
- Paint on the interior or exterior
- Energy efficiency changes
- Changes for those with disabilities
- Adding a deck or patio
- Finishing a basement
The stipulations require that the job be able to be done quickly, requiring no more than 2 disbursements of payment and that does not require the use of a consultant.
Streamlined 203K Loan Amount and FHA Stipulations
The streamlined 203K loan limits you to the amount of money that it will take to purchase the home with an additional $35,000 for repairs. You do have to have the contractors approved that will be doing the work on your home and the lender will need to see the estimates provided by the contractor in order to approve your loan. A main difference with this loan as opposed to the standard loan is the ability to do some of the repairs on your own, provided that you can show the knowledge and/or expertise required to do the job. It will be up to the lender’s discretion whether or not they will allow you to do the repairs with the money provided by the new mortgage.
The payments are made twice. At the closing of your mortgage, you are given up to 50% of the $35,000 to pay the contractors to get started. Once the work is completed, the second draw will take place. If you are working on some of the improvements on your own under the direct approval of the lender, you can only draw money for the materials required, not the labor. The lender will not disburse the final funds until it is proven that all parties involved in the work on the home have been paid in order to avoid any type of lien on the home.
The streamlined 203K is a very easy loan to obtain and use in order to make your house look exactly how you want it to look when you move in. Because of the decreased requirements, as long as you fit the mold for an FHA loan with average credit, 3.5% down payment, and steady income, you should not have a problem making the improvements on your home. As an added benefit, the streamlined loan is less expensive because you do not need to use a consultant to help you through the bidding, completion of the work, and the disbursement of the funds.