Buying a home that is in less than perfect condition can be a challenge. Unless you have a large amount of money to put down on the home, you are at the mercy of what lenders require. Typically, this means that you’ll need to find a home that doesn’t need a lot of work.
What if you have your heart set on that home though? You can use FHA 203K financing. If you are lucky enough, you can get away with the FHA 203K streamline loan, which has more requirements than a standard FHA loan, but not as many as a full 203K loan.
This loan gives you the money you need to buy and fix up the home. You can even use it to refinance your existing home while having the money to renovate it. The trick with the 203K streamline loan is that you can only finance up to $35,000 in renovations and you cannot make any structural changes.
That’s what the FHA requires to keep the loan ‘streamlined.’ Below we help you understand the benefits of this loan to help you see why you should apply for it.
You Can Buy a Home That Isn’t Perfect
Like we said above, most loan programs don’t let you buy a home that doesn’t pass their standards. The FHA 203K streamline loan does allow you to buy a home that needs a little TLC. As long as the renovations cost less than $35,000, you should be in good shape.
You will need to provide the lender with the name of the contractors that will do the work on the home as well as the list of what they will do. You don’t need architectural drawings or licenses in most cases, since the work cannot be structural.
What you can do is buy a home that doesn’t have working utilities or appliances or maybe a home that needs new flooring or has a leaking roof. The funds from the 203K loan can help you purchase and renovate the home to make it meet the FHA code.
You Only Have One Loan
While it’s true that you can apply for a home equity loan or line of credit, that’s a lot of hassle. Now you have your purchase/first mortgage plus your second loan. That means balancing two mortgage payments each month.
With the FHA 203K streamline loan, you have one loan. The FHA allows you to borrow enough money to buy the home and renovate it all in one loan. This way you have the money you need without worrying about qualifying for two loans, paying the closing costs on two loans, and making two loan payments each month.
You Can Make Many Different Renovations
Just because the FHA 203K streamline loan is limited, there are still many renovations you can make. You just can’t knock down any walls or add new rooms. The list of allowed renovations is rather lengthy, but here are some of the most common:
- A new roof
- New HVAC systems
- Minor kitchen remodeling
- Minor bathroom remodeling
- New flooring
- New windows
- Energy efficiency changes
- Add a new patio or deck
- Add new kitchen appliances
- Remove lead-based paint
- Make a home handicap accessible
Any renovations that you can fit in within the $35,000 limit and that isn’t structural may be allowed. This reduces the paperwork and legwork that you’d have to do if you took out the full FHA 203K loan.
If you Need Less than $15,000, You Have Even Fewer Requirements
The FHA 203K streamline loan has fewer requirements for borrowers that need less than $15,000. Normally, when you borrow more than $15,000, the lender has his hand in all aspects of the process. This includes inspecting the work before any disbursements are made.
With loans that are less than $15,000, the lender doesn’t have to inspect the work. This means that you can approve the work and the contractors will get paid. All you have to provide the lender with is receipts from the contractor and/or a letter from you stating the work is complete.
This can help move the process along a lot faster, allowing you to enjoy your newly renovated home without worrying about paperwork.
FHA Loans Have Flexible Guidelines
Just like standard FHA loans, the FHA 203K streamline loan has flexible underwriting guidelines. You only need a 580 credit score and to meet a 31/43 debt ratio.
Just like regular FHA loans, though, some lenders require higher credit scores or lower debt ratios, especially if you borrow close to the $35,000 maximum. Either way, though, the FHA has flexible guidelines that make it easy to qualify for the loan.
The FHA 203K streamline loan is easy to get and easy to get through as you handle the paperwork the lender requires. The FHA 203K can help you pay for renovations that you don’t have the cash to pay for upfront. This way you can make your home renovations on an existing home or a home you want to buy without depleting your bank account all at once.