Homes with cosmetic issues may be passed over by many buyers because they cannot afford to fix up the home in addition to the monthly mortgage payment. That’s where the FHA 203K Streamline Rehab Program comes in. Rehab loans used to be very complicated – requiring a high credit score, repair or renovation plans, contractor restrictions, and resulted in having two loans to pay back. The streamline 203K is intended to help facilitate uncomplicated improvements or repairs to a home that does not require plans, consultants, engineers, architects, etc.
With a 203k streamline mortgage you can get the home financed as well as additional cash (up to $35,000) to make renovations, all in a single loan amount. Since the loan amount is more than the value of the home, there are stricter requirements for a 203k loan than would be for a FHA loan.
203k Streamline Loan Requirements
- The property has to meet FHA 203(k) eligibility standards (see below).
- Income verification (w2’s, paystubs and tax returns for self-employed)
- Maximum cash for repairs is $35,000; or up to 110% of the purchase price of the home
- Down payment of 3.5% is required
- 2-year employment history with no gaps
You don’t have to be a first-time buyer to be approved for a 203k streamline loan.
Property Requirements
For your property to qualify for the 203k streamline loan, you must be purchasing or refinancing the home as your primary residence. It cannot be used for investment property. Borrowers must occupy the property and the property cannot be left vacant for more than 30 days.
Home types that meet the eligibility requirements include:
- Single-Family Homes
- 1-4 unit multi-family homes at least one year old
- 1-4 building condominiums
How the 203k Streamline Loan Works
A Streamlined 203K loan is figured into the original loan balance, resulting in one loan. The 203k streamline mortgage is available as a fixed-rate mortgage or adjustable rate mortgage, and as a 15-year or 30-year loan term. Borrowers are not required to hire professional consultants, licensed engineers, or architects, but self-completed work does require providing the lender with documentation supporting your knowledge, experience, and ability to perform the project. The appraiser or home inspector can put together a list of recommended repairs or improvements.
Contractor Payment Disbursement:
- A max of 3 contractors are allowed to be used for repairs
- Contractors (or borrower if borrower is completing work themselves) will be paid:
- 50% at time of closing
- Remaining 50% once all work is completed
- Do-it-yourself allowances do not include labor; only materials costs are allowed
Work and Contractor Requirements
- Work must commence within 30 days from closing and must be completed within six months.
- Work must be professionally done, and if the job requires a permit, borrowers must get a permit and a sign-off.
- Some or all of the work can be done by the borrower, however, self-completed work does require providing the lender with documentation supporting your knowledge, experience, and ability to perform the project(s).
- Borrowers can select among licensed contractors and the lender will review the contractor’s experience, background, and referrals.
- The lender will want a copy of the contractor’s estimate and the agreement between the contractor and borrower.
203K Streamline Eligible Repairs
The following is a list of repairs and improvements approved by HUD:
- Roofs, gutters, and downspouts
- HVAC systems (heating, venting, and air conditioning)
- Plumbing and electrical
- Minor kitchen and bath remodeling
- Decks, patios, porches
- Flooring: carpet, tile, wood, etc.
- Interior and exterior painting
- New windows and doors
- Weather-stripping and insulation
- Improvements for persons with disabilities
- Energy efficient improvements
- Stabilizing or removing lead-based paint
- Basement completion and waterproofing
- Septic or well systems
- Purchase of new kitchen appliances or washer/dryer
203K Streamline Non-Eligible Repairs
- Major remodeling such as relocation of load bearing walls
- New construction such as room additions
- Repairs of any structural damage
- Repairs requiring detailed plans, drawing, etc.
- Work requiring six (6) months or longer to complete
- Activities requiring more than 2 draw payments
203k Streamline Rehab Loan Program FAQs
- What if the home is not habitable? A streamlined 203(k) cannot be used if the home will not be habitable at any time during the renovation. Instead, you will need a different loan option to renovate a uninhabitable property.
- Can a 203k Streamline loan be used to purchase a HUD-owned property? Yes, if the home meets the eligibility requirements.
- How is the home appraised? The appraiser determines what the value of the home, “subject to” the improvements to be made. They are typically provided with a copy of the contractor’s bids to identify what will be repaired or remodeled.