You can purchase or refinance a home in need of repair or modernization without obtaining separate financing (which often comes at higher interest rates) to have the necessary work completed. The 203(k) program has a streamline or standard option and allows the borrower to include the cost of eligible rehabilitation work into a single mortgage at a long-term fixed or adjustable rate.
One of the most recent options added to the lineup of FHA programs is the Streamline 203(k). It can be used to purchase or refinance a home that needs relatively minor rehabilitation and/or improvements with fewer restrictions and less paperwork. If the work can be completed without needing plans, consultants, engineers, and/or architects, you may be eligible for this program. These improvements can be financed by the loan on top of the acquisition cost (if a purchase). There is no minimum and the maximum is up to $35,000 for eligible repairs and expenses. Some improvements eligible under the streamline program are:
- Minor remodeling (that does not involve structural repairs)
- Repair, replacement, or upgrade of plumbing, electrical or HVAC systems
- Repair or replacement of roofs, gutters, etc. and flooring
- Painting of exterior or interior
- Purchase and installation of new appliances
- Repair or addition of decks, patios, and porches
- Basement finishing and remodeling (non-structural)
- Septic system and/or well repair or replacement
- Accessibility improvements for persons with disabilities
This program is also available to those who own the property free and clear. Additionally, if the repair cost does not exceed $15,000 an inspection and associated costs may be avoided (at the discretion of the lender/mortgagee).
The Standard 203(k) has a little more room for improvements over the Streamline. It will require a little more planning and paperwork, but there are more options and fewer restrictions on available funds (based on post-improvement value as determined by an appraiser). Even homebuyers who have purchased a property with cash can refinance using a 203(k) loan within 6 months of the purchase date. It will fall under the same guidelines as if you had purchased the home with a 203(k). Some examples of eligible improvements are:
- All improvements listed under the Streamline 203(k) option
- Room additions
- Moving a home to a new site
Expenses eligible for inclusion in the cost of rehabilitation are materials, labor, contingency reserve, overhead and construction profit, and up to 6 months of mortgage payments. It can also cover some expenses related to the rehabilitation such as permits, fees, inspections by a qualified home inspector, licenses, and consultant and/or architectural/engineering fees. The maximum amount of funds available to use is based on the Maximum Mortgage Calculation.
For more information about the 203(k) Rehab Loan call 888-407-0010 to speak with a licensed loan officer or just fill out the online form and we will call you shortly.