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FHA 203k Renovation Loans: Full and Streamline

FHA 203k Renovation LoansOrange County, CA – Have you walked through the front door of a property and quickly realized it needs major work? Or maybe it just needs a few cosmetic touches to appeal to your sense of style. Whether major or minor, The FHA 203k renovation loans allow a borrower to include their renovation costs into their purchase or refinance. It eliminates the need for two separate loans.

FHA 203k loans, along with other renovation loans, have become very popular these days due to the high number of foreclosed properties. Often times, the previous owner will strip the home of all it’s valuables. This leaves many properties in need of rehabilitation.

Why the FHA 203k? This loan is a very handy option for cash strapped borrowers. A new homeowner only needs a 3.50% down payment. As like a standard FHA loan, the down payment can be gifted from a relative or close friend. The FHA 203k allows you to set aside the funds that will be needed for your repairs. So, 3.50% down for the purchase plus repairs is a great benefit. Another great benefit is that the loan follows FHA’s standard guidelines with a few exceptions for each investor.

So what’s the process? First you must start with locating a property. Once you’ve made an offer and your offer has been accepted, you’ll need to select and meet with an FHA 203k coordinator. You can search for one of these coordinators in your area by clicking here. You’ll then want to select your contractor and schedule a meeting for all 3 of you. The coordinator will perform an initial inspection of the property to help you estimate the cost of repairs required to meet FHA’s minimum property standards.

  1. The 203k coordinator prepares specifications for the work to be completed.
  2. The contractor then provides a bid for the work to be completed based on the coordinator’s specifications.
  3. The coordinator reconciles the bids with specifications. He will then provide the following:
  • Provides 203K Write-up. This Write-Up will also be given to the appraiser to determine the future “improved-value” of the home. The lender will base the loan on the “improved value” not the “as-is” value.
  • Provides copy of the contractor bids that match the Write-up.
  • Provides 9746 Draw Schedule.
  • Provides Consultant Identity of Interest Disclosure.
  • Obtain Borrower Identity of Interest Disclosure.

Now let’s dive into the differences between the full and streamline renovations. The full renovation allows a maximum build cost of $150,000 to be financed. If the amount of renovations exceed $150,000 then the borrower is allowed to pay the difference directly to the contractor. The allowable renovations are much more extensive. See below.

The FHA 203k streamline renovation allows a maximum build cost of $35,000 to be financed. This is better for minor rehabs or cosmetic repairs. Just like the full renovation, if the repairs exceed $35,000 then the borrower can pay the difference directly to the contractor. The turn time on this FHA 203k loan will be quicker. See below for the list of allowable repairs.

There are additional expenses associated with a 203k loan that are typical of construction/rehab loans. These expenses are:

  • Consultant fees
  • Contingency reserves (10% – 20%)
  • Inspection fees
  • Permit fees
  • Architectural and engineering fees, if applicable
  • Liquid PITI reserves (2-6 months)

The FHA 203k renovation loans are great options for homeowners looking to refinance and make some modifications or new homeowner’s remodeling their home right after their purchase. They offer flexibility and affordability. To see if this is the right mortgage for you then I suggest getting pre-approved. Discuss your plans with your lender or give me a call. We’ll be happy to answer your questions about the FHA 203k loan programs as well as any other renovation loans that might suit your situation.

Scott Storace

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