FHA 203k Rehabilitation Loan

Also referred to as a "Streamline K" - is a mortgage program specifically designed for those who wish to make improvements on a home they own, or would like to buy. This loan lets you purchase or refinance and rehabilitate a property with one loan closing. The projected rehabilitation costs are held in an escrow account and disbursed as work is completed and inspected. The loan amount is based on the projected market value of the property when all repairs are completed.

What Home Improvements Can I Make with a 203K Loan?

A Streamline 203k loan allows for a wide variety of home improvements to be performed on a home. It's intended for simple repairs, light remodeling, and upgrades (including money saving energy efficient upgrades).

There is NO MINIMUM amount you must borrow. Therefore, your 203K rehabilitation loan can refinance as little as $1 and as much as $35,000 worth of improvements. It's up to you.

Here are just a few of the improvements you can perform with the Streamline K:

• Repair, replace, and upgrade roofs, gutters, downspouts
• HVAC systems (heating, vacuum, and AC)
• Plumbing and electrical systems
• Flooring, exterior decks, patios, and porches
• Minor remodeling that does not involve structural repairs (i.e. kitchen, bathroom or basement)
• Interior and exterior painting
• Weatherization, including doors, windows, insulation, stripping, etc.
• Appliance purchase & installation (i.e. kitchen appliances, washer, dryer)
• Energy efficient upgrades
• Lead-based paint removal & stabilization
• Exterior wall re-siding
• And more!

Are your intended projects on this list? An FHA 203K loan may be just what you need!

Benefits of a 203K Loan

• Properties that are sold "as-is" often would not qualify for a standard FHA loan. However, 203K loans are designed to improve, update and modernize the home.
• The loan enables you to purchase foreclosure properties that require repairs. Most HUD Foreclosure properties could benefit from a 203K loan.
• You can purchase a home that does not require repairs and finance the cost of "modernization" or cosmetic repairs. (See eligible improvements.)
• The loan allows for 1-4 unit dwellings, including condominiums.
• Where zoning allows, a 203K loan can be used to convert a single family dwelling to 2-4 units and vice versa.
• Up to 110% (100% on condominiums) of the "as-is" value of the home may be used as basis for mortgage calculations. (The appropriate LTV factor is then applied.)
• Up to six months of PITI (principal, interest, tax and insurance) payments can be financed to assist those who would otherwise be required to make double-housing payments. (Consultant K only)
• Buyers who purchased a property with cash can use the 203K program to complete repairs/ modernization and replenish funds used at the time of purchase.
• The loan can be used for complete reconstruction of a home on its original foundation.
• Properties in "below-average" condition can be upgraded through repairs and maintenance (i.e., new roof, fix broken windows, and lead paint abatement). Increase square footage by building an addition, building a second floor or finishing a basement or attic space. (Consultant K only.)

What Type of Properties Can Be Financed?

Single-Family Residences

• Single family attached, detached, and PUDs are eligible for 203K lending.

Two- to Four-Unit Properties

• All two- to four-unit properties require confirmation that the property will not be used for transient use (for example, nightly and weekly rentals).
• There are limitations to the loan to value under this program if a non-occupant co-borrower is being used. Check with your loan officer on the details.

Three- to Four-Unit Properties

• All 3 to 4 unit properties have a debt service requirement. They must be self-sustaining. The net market rents from all of the units must equal or exceed the monthly mortgage payment.
• 3 months of PITI reserves are required on 3 to 4 unit properties.

Condominiums

The 203K program allows rehabilitation of a condominium unit based on the eligibility conditions listed below:

• Rehabilitation is limited only to the interior of the unit. Mortgage proceeds are not to be used for the rehabilitation of exteriors or other areas that are the responsibility of the condominium association, except for the installation of firewalls in the attic for the unit.
• Only the lesser of five units per condominium association, or 25 percent of the total number of units, can be undergoing rehabilitation at any one time.
• The maximum mortgage amount is based on not over 100 percent of after-improved value.
• Mixed-Use Properties Mixed-use is a property that contains both commercial and residential units. A 203K can be used on a mixed use residential property provided it meets certain requirements. Ask your loan officer for details.
• Eligible Improvements For the Consultant K, there is a minimum requirement of $5,000 in eligible improvements on the subject property. There is no minimum requirement for a Streamline K. Repairs and improvements must comply with HUD's Minimum Property Standards, which will be determined by the HUD appraiser or the Consultant. The repairs must also meet local building, zoning and all other applicable codes.
• Any deficiencies in thermal efficiency or smoke detectors must be included in the repairs. Smoke detectors are required adjacent to each sleeping area.
• Any additional repairs noted by appraiser must also be addressed. More detailed breakdowns for Eligible vs. Ineligible Improvements for Streamline K and Consultant K are provided in the appropriate sections of this guide.