How To Fund Repairs/Upgrades With a FHA 203(k) Streamline Mortgage

If you’ve been passing up buying a home because it requires cosmetic repairs, FHA has a special rehabilitation mortgage program that provides funds for repairs and/or upgrades.

Not to be confused with FHA’s Full 203(k) program, a Streamline 203(k) loan eliminates much of the paperwork and simplifies the process to obtain rehab funds. The primary function of the FHA Streamline 203(k) is to aid with those cosmetic or minor repairs.

How Does an FHA 203(k) Streamline Mortgage work?

It used to be that you bought a home and then applied for a home equity loan to fix it up, resulting in two loans. But that’s no longer required now that the FHA 203(k) Streamline is available.

A Streamlined 203k loan is figured into the original loan balance, resulting in one, fixed-rate mortgage loan. And, the mortgage balance can exceed the purchase price of the property.

Borrowers are not required to hire professional consultants, licensed engineers or architects. The appraiser will put together a list of recommended (and in some cases required) repairs/improvements. A timeframe is established for the completion of the work.

Generally speaking, work is finished between 45 and 90 days. But we do allow up to 140 calendar days for completion if that amount of time is needed. Once the work is finished the final inspection will be done by the appraiser.

Under the Streamlined program, there is a $5,000 minimum and a maximum of $35,000 which can be financed in the mortgage amount to improve or upgrade the home.

No “structural repairs” are allowed under the FHA 203(k) Streamline mortgage, however, making or correcting any structural items are not considered to be minor.

The minimum of $5,000 is required and substantial improvements that will increase the marketability and value of the home must first be included.  Any repairs and improvements must comply with HUD’s Minimum Property Standards and must meet all local building, zoning and other codes.

Minimum required repairs include any health and safety repairs like peeling lead paint or replacing missing railings. Whether you want those items included or not, all health and safety issues must be addressed first. Smoke detectors must also be added if missing.

The Process of the FHA 203k Streamline Mortgage:

Find the home you’ll want to purchase and determine what improvements need to be made to the property.

The purchase contract offer is written the same as any other, except you’ll want to make sure that there is language stating the purchase is contingent upon borrower acquiring an FHA 203k type loan.

In order to complete the financing of the improvements, you will need to meet with a contractor to determine what kind of work you are planning and how much it will cost.

The contractor will give you a bid, which you’ll need to pass on to the lender.

The lender will order an appraisal to determine what the value of the house will be once all of this work is completed.

Keep in mind, you’ll also need to be qualified for the full loan amount which is based on the purchase price plus the additional cost of repairs.

Once the loan is approved, you’ll go to closing like you normally would.

The amount that will be needed to do all of these repairs or improvements will be placed into an escrow account held by the lender.

As the work is being completed, there will be draws from the account to pay the contractor.

Type of work for an FHA 203(k) Streamline:

  • Roof repair, gutters, downspouts
  • Existing HVAC systems
  • Plumbing and electrical systems
  • Flooring
  • Painting
  • Appliances
  • Weatherization
  • Repair, replace or add exterior decks, patios, porches
  • Basement waterproofing
  • Window and door replacement and exterior siding
  • Septic and/or well repair or replacement
  • Improvements in accessibility
  • Lead-based paint stabilization or abatement of lead-based paint hazards

What can’t you do? Ineligible improvements under the FHA 203(k) Streamline are:

  • Major structural repairs
  • New construction (adding a room)
  • Repair of structural damage
  • Repairs requiring detailed plans and specs
  • Any repair taking more than 3 months to complete
  • Repairs that would necessitate more than 2 draws
  • Luxury items that are not a permanent part of the real estate
  • Jacuzzi tubs, hot tubs, pools
  • Provide written work plan and cost estimates
  • Must include nature and type of repair and the cost of completion
  • Must be licensed and bonded for each specialized repair
  • Must agree in writing to complete the work for the amount of the cost estimate and within the allowed time

Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home.