The FHA offers a great program for homeowners or even homebuyers to remodel their existing home or the one they are about to purchase. The 203K Streamline Loan gives you the opportunity to have one mortgage for the purchase or refinance of your home along with the money necessary to remodel it the way you would like it. There are restrictions with this loan since it is “streamlined,” you cannot make major changes like you can with the standard FHA 203K loan, but there are a great deal of changes you can make with this program.
Figuring out the Loan Amount
The first step is determining the loan amount you are eligible to receive with the streamline program. Basically, you are allowed $35,000 over the appraised value of the home. This gives you $35,000 to remodel your home, have a 10-15 percent emergency contingency fund in the event that something unexpected were to occur, and to cover any necessary fees. Just as is the case with a standard FHA loan, you will be expected to put down 3.5% of the purchase price of the home if you are buying the home for the first time. If you already own the home, the principal amount of the outstanding loan will be the starting point for your loan amount.
Determining the Necessary Changes
Once you know the amount of money you have to work with, you can start determining what changes you will make. No changes are allowed to be structural with this program – any structural changes require the full 203K program. The allowed changes, however, are quite lengthy. You can repair/replace things like the gutters, roofing, plumbing, air conditioners, furnaces, flooring, and windows. You can also paint the home, remodel the kitchen as long as there are no structural changes, and finish the basement. You may also make your home more energy efficient or handicap accessible. In general, the remodeling must be able to be completed in six months and cannot include any landscaping or pools, in addition to no structural changes.
Securing a Contractor
You cannot just use any old contractor off the street to do the work for you; nor can you do the work yourself. The lender has to have a say in how the process goes. Typically this means overseeing the estimates received by contractors to ensure that the costs are reasonable and customary. The contractors also have to be able to supply documentation showing that they have proper licensing and insurance for the job. This is a necessary step in the process because the lender needs the work that will be done and the exact costs in writing in order to proceed with the loan.
Getting the Loan
Once you know the changes you want to make and you have a loan amount ready to go, you can apply for the Streamline 203K Loan. The process takes a little longer than a standard FHA loan because the FHA lender has to oversee the changes that are going to be made to the home. In general, the lender will go through the loan application process, order an appraisal and underwrite the loan. Once it is ready to close, the process will change slightly. You will still close the first portion of the loan as any other loan – the seller or the original mortgage holder gets paid off right away. The remaining funds meant for the remodel, however, are placed in an escrow account. This account is managed by the lender – you do not receive any cash out from the loan.
Disbursing the Funds
Before the loan closes, the contractors performing the work on your home will state whether or not they need funds up front to get the work started. If he needs the money, he will need to show what it will be used for – typically the lender reserves it to money for supplies or permits to get going. The second disbursement does not take place until the work is completed. If the dollar amount of the changes made exceeds $15,000, then the lender has to inspect the property to make sure everything was completed as stated. If the dollar amount does not exceed $15,000, the lender will be able to take your word regarding whether or not the work is done to your satisfaction.
The Streamline 203K loan is a great way to get the work done you want on your home without taking out a home equity loan or maxing out your credit cards. Because it is an FHA program, the requirements for the loan are fairly simple to meet, enabling you to remodel your home the way you want.