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
- Offers you the chance to finance the property and repairs in one mortgage
- Repairs can include anything from painting, lead removal , replacing appliances to adding a Jacuzzi out back. You cannot finance structural repairs such as addition.
- 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
- 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
- This is a great way to afford major repairs on a new property
- You have the flexibility to use the money on almost whatever you like.
- The financer cuts the checks to contractors – no need for you to pay then get reimbursed
Bad things about this loan
- 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.
- 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.
- The interest rate will likely run a point or two above going rates – this is similar to a construction loan
- All repairs you make need to get inspected and approved
- Very few banks offer this type of loan, at least in my area (Dayton, Ohio)
- I believe this can only be used for properties that will be owner occupied for the first year
- 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