FHA Streamlined 203(k) Loan ProgramThrough the Federal Housing Administration’s (FHA) Streamline 203(k) program, borrowers can purchase or refinance their home and include rehabilitation and repair costs in the same loan.This program can help you expand homeownership opportunities by offering a renovation program to people who want to revitalize the communities they serve.
FHA Streamlined 203(k) Program An affordable financing solution that combines the purchase or refinance of the home along with the costs of the improvements into a single loan.• Purchase or refinance a property• “Update” a property• Fix a required repair• Make optional improvements
Increased Market Opportunity• Borrowers purchasing a home in need of rehabilitation – Perfect for HUD REOs, foreclosures, and short sales – Incomplete renovations – Out-dated kitchens, bathrooms, etc.• Borrowers refinancing their principle residences and making improvements – Improve instead of move – Out-dated kitchen, bathrooms, etc. – Expand to accommodate a growing family
Improvements Allowed• Roofs, gutters and downspouts• Basement waterproofing• Mild mold remediation• Heating, ventilation and air conditioning systems• Plumbing and electrical systems• Flooring, exterior and interior painting• Minor remodeling that does not involve structural repairs
Improvements Allowed• Weatherization, including storm windows and doors, insulation, weather stripping• Replacement of window and doors and exterior wall re-siding• Appliances, including free-standing ranges, refrigerators, washers and dryers, dishwashers and microwaves.• Improvements for accessibility for persons with disabilities• Lead-based paint stabilization or abatement of lead-based paint hazards• Replacement/addition of exterior decks, patios, porches
Improvements Not Allowed– Major structural repairs– New construction (adding a room)– Repairs requiring detailed plans and specs– Any repair taking longer than 3 months– Repairs requiring more than 2 draws– Luxury items are not eligible • Swimming pools, hot tubs, tennis courts, gazebos, barbecue pits, saunas or alterations to support commercial use
Property Guidelines• Owner Occupied Properties Only• Single Family Residence• Manufactured• Approved Condo’s• PUD’s (planned unit development)• 2-4 Unit Properties• REO, Short Sale, Foreclosure Ok! (need minimum of 12 mo. Cert. of completion, no builder spec foreclosures)
Streamlined 203(k) Loan• Up to $35,000 in renovation allowed – Including all repair costs & contingency• Must utilize borrower directed licensed contractor – No self help allowed• 2 Draws- – Initial draw of up to 50% of repair costs is disbursed at funding – Final draw after final inspection
EXAMPLE: Purchase of a property with 96.5% LTVPurchase and Renovation Cost Sales Price ("as-is" appraised value) $120,000 Labor / materials, inspection fee for renovation $25,000 Contingency (10% required) $2,500 Total for Purchase and Renovation $147,500"As-Completed" Value (Determined by the appraiser) $160,000 Value to use for determination of LTV must be the lesser of the total cost of purchase & renovation or the "as-completed" value.Maximum Loan Amount at 96.5% LTV $142,338
Simple Process To Financing• Borrower purchase offer for “As Is” condition is accepted• Buyer obtains estimates for repairs and /or rehabilitation• Appraiser uses estimates to determine “as-is” and “to be improved” value• Loan Amount requested based on purchase price & repair estimates• Loan Processed, Underwritten, Closed as normal• Up to 50% of repair costs disbursed at closing, remainder put in escrow• Work is started within 30 days of closing and completed within 3 months.• Any funds remaining in escrow will be applied to principal reduction of loan
Renovation Period• Renovation should begin within 30 days of closing• Borrowers will make their regular mortgage payments throughout the course of construction• Maximum renovation period is 3 months.
Final Inspection - Completion• When the work is complete, send an email to AFR requesting final funds • Include the Conditional Waiver & Release and the Mortgagor’s Letter of Completion• Once the documents are received, AFR will order the final inspection from the original appraiser• Upon the receipt of the acceptable final inspection, a final disbursement will be made to the contractor• All remaining funds in escrow will be made as a principal reduction to the mortgage
A Few Commonly Asked Questions (See guidelines for complete details)• What are the minimum and maximum amounts for repair costs under this program? – There are no minimum repair costs. The maximum total repair costs including the contingency reserve (10%) and costs are $35,000 subject to a maximum loan to value.• Is there a maximum mortgage amount worksheet that must be used? – Form HUD-92700, 203(k) Maximum Mortgage Worksheet must be used to calculate the mortgage amount.• Is there a final inspection required to be done once all the work is completed? – Yes, an inspection to determine that all listed repairs and or renovations were satisfactorily completed is required regardless of the amount borrowed for the repairs• Can this program be used for the purchase of HUD homes? – Yes. The Streamlined 203(k) program may be used for single-family housing sold by HUD. REO properties that have been designated by FHAs Management and Marketing contractor as "insurable" with repair escrow ($5,000 or less repairs) or "uninsurable" (with m ore than $5,000 but no more than $35,000 in required repairs) are eligible• How much time is permitted to complete the work? – The contractor must finish the work within 90 days. If the work is not completed within 90 days of closing, a principal reduction will be made towards the remaining unpaid balance of the mortgage.
A Few Commonly Asked Questions (See guidelines for complete details)• Are there additional costs to the mortgagor? – AFR will hold back $300 to be used towards final inspection. Unused inspection fees will be credited against the unpaid principal balance within 30 days of the projects completion.• Can the Streamline 203(k) program be used for Manufactured Housing? – Yes. The program can be used for a loan on a manufactured home however, it cannot be used to permanently affix the home to the foundation. The home must be completely secured to the foundation as evidenced by an engineers certification and appraisal prior to closing.• How much is the contingency reserve? – The contingency reserve is up to 10% of all repairs or rehabilitation expenses. The amount of reserve is at the underwriters discretion. All funds remaining in the escrow account after final payment to the contractor is made, including any remaining reserve amount will be used as a principle reduction.• Where can I go if I have questions or need additional information about the Streamlined 203(k) program – AFR Mortgage Loan Officer, www.AFRMortgage.com chat, or email at email@example.com
American Financial Resources, Inc.• About Us – AFR Residential, a division of American Financial Resources, Inc. – Nationwide residential mortgage lender – Headquartered in Parsippany, NJ. – GNMA approved seller/issuer, FHA Mortgagee and FNMA seller/servicer. – Serve thousands of clients each year throughout the country – In business since 1997 – Grown to one of the largest FHA lenders in the country.