FHA 203k Streamline Now the “Limited 203k”
FHA 203k Limited (Streamline 203k)
FHA has offered the 203k loan for decades. They introduced the FHA 203k streamline a little later, but it is certainly not a new mortgage product. Recently, the 203k streamline was retitled the – Limited 203k – despite the fact that the guidelines saw little change.
Despite that, most lenders execute the loan in a substandard fashion. It is simply not a priority and that is evidenced by their general lack of education displayed by their loan officers.
Unfortunately, much of the information online reflects that lack of training. It’s either outdated or ill-informed. In fact, you’ll be hard-pressed to find another mortgage loan product with as much poor and inaccurate information surrounding it than the 203k.
So, let’s set the record straight on the Limited 203k (or 203k streamline) and all renovation loan products. They are – top to bottom – one of the most useful mortgage products available.
Versatile, flexible credit qualification and low down payments make FHA 203K loans a great choice for buyers looking to purchase and renovate a foreclosure. that’s not the only use though, 203k loans serve a variety of purposes outside of foreclosure or short sale purchases.
The 203K is also perfect for buyers with a specific neighborhood in mind, but no houses that meet their needs.
With the ability to do both basic required renovations so that the home meets FHA collateral guidelines OR to completely craft your dream home with upgrades, additions or green improvements; the FHA 203K loan provides a great opportunity to add energy efficiency to your new home.
So, what is the FHA 203k streamline, how can I use it, what repairs are allowed and how is it different from a standard 203k loan?
The Skinny on the 203k Limited
First, both FHA 203k loans are fantastic renovation mortgage products. The HomeStyle Renovation is no slouch either, but that is a different post. One I suggest you read once you’re up to speed on FHA’s renovation loan offerings.
The distinctions are fairly clear per FHA guidelines; anything structural or anything over $35,000 in renovations requires a HUD Consultant and therefore a standard / full 203k loan.
Anything under $35,000 with cosmetic only type improvements usually qualifies for the FHA 203k Limited.
Many lenders only offer the Limited 203k, they do not offer the consultant version. Some mortgage lenders ONLY do the full 203k, they prefer the layer of protection that the HUD consultant provides.
We offer both FHA renovation mortgage products and prefer to guide you into the right renovation loan; not just the 203k renovation loan that we offer.
Renovation mortgages are massively important, lenders that only offer the Limited 203k (or limit themselves to a tiny selection of rehab loans) are doing a disservice to all parties.
The 203k streamline is incredibly flexible on what renovations and upgrades you can finance into your renovation loan. Here are just a few of the eligible home improvements you can make with the FHA 203K Limited:
FHA 203k Streamline Eligible Repairs
- Windows & Doors
- Roofs,Fascia & Soffits
- Drainage Issues
- HVAC & AC Systems
- Kitchen Renovation
- Bathroom Upgrades
- Energy Efficient Improvements
- Decks, Patios & Porches
- Lead Based Paint Abatement
- Handicap Accessibility
- Well & Septic Systems
- Plumbing / Bath / Shower / Toilet
- Electrical Upgrades
- Basement Build-Outs
- Tankless Water Heaters
- Insulation and Weather Stripping
- Solar Energy Panels
- Interior & Exterior Paint
The list above is not all-inclusive, there are more ways you can use a 203k loan to improve your new property and if you don’t see a renovation / upgrade you’d hoped to complete then you’ll likely be able to do that with one of our other renovation loans.
Despite what some lenders may say, there’s no “minimum” amount of repair on a Limited 203k. The standard 203k does have a $5000 minimum, but that is not applicable to the Streamline.
The max amount of repair is $35,000 – period. Anything over that and you’ll need a different renovation loan product.
That said, your contractor bid (or bids) cannot total $35,000 because every 203k loan has a contingency reserve of at least 10%. That protects you if the contractor runs over and it protects us against incomplete scopes of work.
Contractor bids should not exceed $30,000 to stay on the safe side. That’ll provide enough wiggle for the contingency reserve and a few associated fees that are standard to all renovation loans.
Since the appraisal is based on after-repair value, it is mandatory that the scope of renovations be EXACTLY as the list provided to the appraiser from your contractor.
Sticking with a lender that offers a variety of renovation mortgages is key to success. There are some caveats to all mortgage products, especially renovation loans.
Having a knowledgeable loan officer who works for a mortgage lender with a strong renovation product line is imperative if you want to pursue renovation financing. Choose a quality loan officer at a quality mortgage lender or face the consequences of getting the wrong loan.