If you have your eye on a home that needs some fixing up, but that you think has great potential, there’s a great program for you. It’s called the FHA 203K streamline program. This loan program gives you funds to buy and renovate a home all in one loan. You don’t have to worry about taking out other loans or racking up your credit cards.
The streamline program has certain restrictions, though. You can make home improvements, but they cannot be structural and cannot be too costly.
Keep reading to learn the details of this valuable home renovation program.
What is the FHA 203K Streamline Loan?
The FHA 203K streamline loan provides you with enough funds to buy the home and renovate it. It’s one of the few loan programs that allow you to buy a home in ‘as is’ condition. In other words, you can buy a home that wouldn’t pass the FHA appraisal without a little help.
With the streamline loan, you can only include repairs up to $35,000. Anything beyond that amount would require the full FHA 203(k) loan, which has more restrictions. You might want to exercise caution when bidding out the work, though. If you get too close to the $35,000 threshold, you may end up going over because of the ‘extra’ fees that may be involved. Things like inspections, permits, and unforeseen emergencies can eat up the costs. It’s best to keep the total costs around $31,000 to be safe.
The Allowed Renovations
The 203K streamline loan allows you to make a large number of renovations, but again, nothing structural. Some of the most common repairs include:
- Minor kitchen and bathroom remodels
- Replacing the flooring
- Replacing the carpeting
- Installing a new roof
- Installing new doors or windows
- Adding a patio
- Finishing a basement (nonstructural)
- Cosmetic changes, such as painting the interior or exterior of the home
This is just a small list of what you can do with the money. Any repairs or renovations you propose must be run past the lender, though. You cannot just take the money and do what you want with it. The lender plays a role in the process from start to finish.
Choosing the Contractors
For starters, your contractor must be licensed and insured. He must also know that you are using 203K financing. It’s best if you choose a contractor experienced in this type of financing because there are certain deadlines he must meet. There are also contracts he must sign in order for the lender to be able to move forward with the loan.
The contracts have to do with the cost of the project as well as how the money will be disbursed. The lender will hold on to the money while the work is completed. He will only disburse the funds as follows:
- 50% of the funds will be disbursed at the closing
- 50% of the funds will be disbursed upon final inspection and approval of the work
The lender won’t tell you which contractor to use, but if they don’t have the right requirements, the lender will not allow you to move forward with the loan.
Doing Your Own Renovations
Some borrowers want to handle their own renovations. The FHA doesn’t exactly love this scenario, but they will allow it in certain circumstances. You must be able to prove that you have the experience to do the work. You must also prove you have possession of the tools – you cannot use the funds from the loan to buy the tools to do the work. Finally, you have to prove that you have the time to do the work. The FHA 203K streamline loan gives you 6 months to complete the work. If you work full-time and have a heavy schedule, this may not work for you.
Other FHA 203K Streamline Requirements
Aside from the dollar amount of the loan and the allowed renovations, the FHA has a few other requirements for the FHA 203K streamline loan. Mainly, you must live in the home as an owner-occupied property. This program is not to help investors build their portfolio.
You must also be able to live in the home while the renovations are completed. The FHA does grant a 30-day grace period though, giving you one month to move into the home while the renovations begin.
The FHA 203K streamline loan is a great way to buy a home that needs a little TLC. Whether they are cosmetic changes you want to make or there are things wrong with the home, you can include the cost, up to $35,000 in the loan. It’s a great way to get money upfront to fix up the home the way you want it.