FHA Rehab Loan

Today’s FHA streamline 203k loan is entirely different than the traditional 203k product most lenders are used to.  This new product offers buyers and homeowners an opportunity to do some non-structural repairs with FHA’s simplified process.

If buying, purchasers will be able to get the money they need to purchase the property and get additional funds for any improvements to be made.  All that is needed are estimates from contractors for any improvements expected to be made with the funds.  You should be able to close your loan within 45 to 50 days of having made formal application.  All work is expected to begin immediately upon closing and to be finished within a reasonable amount of time, meaning less than 6 months.  (Your lender could require an even shorter rehab period, say 30 to 60 days.)

If you already own a property and wish to make some improvements – not a problem.  Just get estimates from contractors to bring along to your lender when you apply for this loan.  There are guidelines to follow if you have owned the property for less than one year as FHA requires the lender to use the original acquistion cost of the property when determining the maximum mortgage amount.  There are no income guidelines.

Remember this program does not allow any structural work to be done on any property such as additions.  The program is intended to facilitate uncomplicated rehabilitation and improvements for which architects, consultants, engineers and plans are not needed.

The property must be an owner occupied 1 to 4 family house, FHA approved condominium, or a mixed use property that meets FHA’s guidelines.  This is not a do-it-yourself loan.  You must hire a contractor or if putting in new kitchen cabinets, have the vendor (Home Depot or Lowe’s for example) complete the work for you.  There are few exceptions with regards to a particular trade.  If an electrical upgrade is needed, the applicant may be able to do the work as long as proof is provided to the lender’s satisfaction that the applicant is a licensed electrician and meets the guideline.  No money will be paid to the applicant for any labor; only materials.

Here are some of the highlights of the program:

  • up to $35,000 in repairs with no minimum requirement
  • no consultant needed
  • two disbursements allowed (contractors are paid up to 50% for the cost of the material up front but must wait for balance of payment when all the work on the property has been completed by all contractors involved)

Eligible Improvements include:

  • repair/replace or upgrade of:  roofs, gutters, downspouts, existing HVAC systems, plumbing systems, electrical systems, flooring, septic systems, wells
  • minor remodeling as in kitchens and baths which do not require any structural repairs
  • interior and exterior painting
  • weatherization including:  new doors, new windows, storm windows, insulation, weather stripping, exterior siding
  • repair/replace/add exterior decks, patios, porches
  • purchase and install home appliances, i.e., free-standing ranges, refrigerators, washers, dryers, dishwashers, microwave ovens
  • accessibility improvements for persons with disabilities
  • abatement of lead based paint hazards/lead based paint stabilization
  • remodel/finish basement with no structural repairs
  • basement waterproofing

Any left over funds will be applied to the principal balance of your loan.

As a final note, this program cannot be used for additions to existing property.  The program is intended to facilitate uncomplicated rehabilitation and/or improvements for which architects, consultants, engineers, and plans are not required.