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There are some good deals out there on properties due to foreclosure, short sale, or simply the owner could not keep up the property. Let’s say you found a good deal but needs repairs.

When an appraisal is done on that property, the appraiser will write the noted deficiencies in the appraisal. A conventional lender as well as a regular FHA 203(b) loan, will require that the repairs be done before closing. This is the preferred way of handling the situation if you have enough reserves to cover the expenses, or if you negotiated that the seller will cover the cost of the repairs, before the closing. Typically no major structural repairs such as moving walls, roof replacement, or room additions are considered in this category. The ideal situation is to have the property habitable before the loan closes.

When the repairs are considered major and neither the buyer nor seller has the funds to cover the repairs, that’s when an FHA 203K streamline rehabilitation loan is appropriate. An FHA 203K streamline is a loan that provides the financing as part of the same mortgage loan to cover the cost of repairs up to a maximum of $35K. There is no minimum. It is underwritten once, based on the value of the property “as is” as well as the value of the property after repairs are completed. Both values would need to be on the appraisal. An approved contractor will be necessary to perform the work. However, the borrower may be able to do the work himself provided it meets the licensing, bond and insurance guidelines required by HUD and the particular county.

Examples of these repairs could be but are not limited to:

• Missing kitchen cabinets and/or appliances
• Missing toilets, sinks, bathtubs or other plumbing fixtures
• Exposed electrical wires and missing wall outlets
• Broken or torn down walls
• Missing carpets or tiles

Work not allowed:

• Major rehabilitation or major remodeling, such as the relocation of a load-bearing wall;
• New construction (including room additions);
• Repair of structural damage;
• Repairs requiring detailed drawings or architectural exhibits;
• Landscaping or similar site amenity improvements;
• Any repair or improvement requiring a work schedule longer than six (6) months; or
• Rehabilitation activities that require more than two (2) payments per specialized contractor.

Again, if the property needs some repairs the ideal situation if possible is to complete the repairs upfront either through the borrower or the seller paying for the repairs and then closing on a regular FHA 203(b) loan. When that is not feasible a 203K FHA streamline loan is a great alternative to procure the funds to make the house habitable in the first place. There are many other requirements for a 203K loan. Call us for additional details.