FHA 203K and streamline 203K financing option

Hello, in the first few months of this year I successfully completed a FHA Streamline K, 203K loan. This type of loan is offered by HUD and offers you the opportunity to finance almost any repairs (besides structural) and improvements you would like to make. I was unable to find a lot of information about this type of financing on this site so I thought I would document a few things about my experience. Considering the time it took me to investigate this type of loan, I am confident many people did not know such an opportunity exists.
Cool things about the loan

  1. Offers you the chance to finance the property and repairs in one mortgage
  2. Repairs can include anything from painting, lead removal , replacing appliances to adding a Jacuzzi out back. You cannot finance structural repairs such as addition.
  3. This is used for properties ranging from 1-4 units, as long as it is a primary residence – I used it for a four unit
  4. You can borrow up to $35,000 for repairs. There are instances where you can borrow more than this if you can prove that the purchase price plus the renovation costs are collectively below the property’s value.

Good Things about the loan

  1. This is a great way to afford major repairs on a new property
  2. You have the flexibility to use the money on almost whatever you like.
  3. The financer cuts the checks to contractors – no need for you to pay then get reimbursed

Bad things about this loan

  1. You can only do limited work – you are required to use licensed professionals to do the financed work. This can drive up costs . Items such as painting or cleaning, you have to document that you have the experience to complete such easy tasks.
  2. Paperwork, paperwork, paperwork – you are leveraging a government backed program and this is a hell of a lot of paperwork. You are required to have contractors fill out a lot of paperwork as well.
  3. The interest rate will likely run a point or two above going rates – this is similar to a construction loan
  4. All repairs you make need to get inspected and approved
  5. Very few banks offer this type of loan, at least in my area (Dayton, Ohio)
  6. I believe this can only be used for properties that will be owner occupied for the first year
  7. Closing WILL take longer than 60 days

Ther are more “bads” than “goods” but this is an awesome way to rehab properties! Hope this is useful for you! Ben

Good stuff, thanks for the info! There’s alot of posts that pop up regarding the 203K loan and hopefully your post can answer some of those questions. A few questions I had, were: What are the LTV limits for the mortgage + rehab money? how hard was it to qualify for the 203K, was it harder to qualify for than any other FHA mortgage? Thanks!

The maximum LTV is 110% of the post-rehab value of the property. This value was “proven” through comps.
I have not had to qualify for other type of FHA mortgages before. However, in talking with friends qualifying is not much different from more traditional FHA loans. There seems to be a lot more paperwork and the amount of banks offering this type of loan was extremely limited.

Thanks, Ben

Jake,

The 203K is a good loan fo an OO especially in this market. However they are complicated and can take 45-60 to close. However in this market where you can get a great deal on a foreclosure and then fix it up or remodel it with the money from closing it is worth the extra time to get the right deal.

The other nice thing is that because it is an FHA loan you can streamline refinance after 12 months to get a lower rate or shorter amortization without having to qualify.