It is so easy to gloss over repairs or updates your house may have simply because you don’t have the money to take care of them. The FHA (Federal Housing Administration) has a great program called the 203K. This handy program allows you to purchase or refinance and roll your repairs and updates right into the mortgage. The great thing is all repairs and updates are done after closing. There is no risk of fixing the property and then it not going to closing.
|| What kind of repairs does it include? ||
Streamlined 203K is for nonstructural repairs. Things such as painting, new appliances, nothing major. Regular 203K would be more for structural and major repairs. Updating electrical or needing a new roof. These repairs are under $35K.
There are other repairs that can be made through the full FHA 203K such as room remodels, floors, siding, HVAC, reconditioning or replacing plumbing, updating electric, making energy improvements, eliminating safety/health concerns, etc. This program doesn’t cover what they determine to be luxury items such as a pool.
|| How much can the loans be approved for? ||
According to the FHA, for the regular 203K the amount of money you can be approved for is the lesser of the two: (1) the value of the property before rehabilitation plus the cost of rehabilitation, or (2) 110 percent of the appraised value of the property after rehabilitation, whichever is less.
Which type of 203K you go with, streamlined or regular, also determines the amount you can get. With a streamlined the loan can have up to $35,000 in addition to the purchase price of the home. To determine your eligibility, contact a 203K lender and get pre-qualified.
|| FHA 203K FAQs ||
1. Contact a 203k Lender and get pre-qualified. We can assist you in finding a lender in your area that we’ve worked with to insure that you’ll get the best service.
2. Hire a real estate professional to assist in finding a suitable property. Always choose one that understands 203k.
3. Set an appointment with us as your 203k Consultant. As your consultant, I will meet you at your site and review copies of the contracts and agreements required for the 203k loan given to you by your lender that you will need to sign prior to the close of the loan. After our meeting and the HUD/FHA Home Inspection that I will provide, I will create a “Job Specification & Bid Request”, which is a list of the FHA required repair items to be completed. I will also list inclusions you may want to add like new cabinets, flooring, windows, etc. I will also forward copies of the various reports to your lender to assist you in the loan process.
4. Get contractor bids by using the “Job Specification & Bid Request” prepared by me as your consultant.
5. Choose a contractor. As your consultant, I can assist you in this process and verify contractor compliance to the specifications. The lender will hire an appraiser and once the appraisal report is done, in most cases, your lender can close the loan.
6. Schedule the contractor to begin the work. Once the work begins, the contractor will require continuing inspections called “Draw Requests” to get progress payments for the work as it’s completed. As your consultant, I will inspect the project and prepare these documents and repeat the procedure until the project is complete.
*Although the “Streamline” program does not require a Consultant by FHA Standards, if the work to be done is valued over $15,000 and under $35,000, it would be recommended that you use the Consultant to prepare the “Job Specification & Bid Request” and to act as a “Plan Reviewer” to verify compliance with the specifications and to perform a “Final Draw Inspection”.
|| Required/Suggested/Desired Repairs ||
Regardless if you go with a Streamline or Full 203K, all repairs are measured against Minimum Property Standards (MPS). There are some that are required, for instance if you have an active leak in the home, it must be repaired to meet MPS. However, a roof with hail damage that isn’t leaking would be a suggested repair. Updating your kitchen would be a desired repair, unless it didn’t meet MPS.
Whether you are going Streamline or full, we highly recommend using a consultant regardless. Our job is to make your process smoother. We will make sure you get contractor bids that all look the same and are easy to read. Along with each step of the process making sure it will be ready for the final inspection and appraisal.