FHA's 203(k) Rehab Loan

If you are buying a home in Fort Lauderdale and South Florida you need to consider this loan whether or not the property can bought without repairs.  If it needs repairs to qualify for a mortgage it is a great but it also should be considered if you want to update the kitchen, the floors, the bathrooms, etc.  It is better to finance them into the loan using the banks money at these low rates than to use your own money.  Leverage is good when used correctly.

Below is a list of Eligible & Ineligible improvements for the 203(k) Streamline which allows up to $35k in repairs (actually closer to $32k once you take out the 10% contingency reserve) and the Full 203(k) that doesn’t have a limit:

Full 203(k) Program

There is a minimum requirement of $5,000 in eligible improvements on the subject property. All health, safety and energy items have to be addressed prior to completing any general home improvements. Eligible improvements include anything that will become a permanent part of the property.

Eligible improvements

Structural repairs and alterations – includes additions to the structure

Improvement in the functionality or modernization – includes updating kitchens and bathrooms

Changes for aesthetic appeal and the elimination of obsolescence – new exterior siding and new doors, repair/replacement of plumbing, heat, air conditioning or electrical – installation of new plumbing fixtures are acceptable, including interior whirlpool bathtubs

Installation of well and/or septic system – must be installed or repaired prior to beginning any other repairs to the property

Please check underwriting guidelines, for properties less than one acre in size, when installing a well and/or septic

Replacement of flooring, carpeting or tile

Energy conservation improvement – new double pane windows and doors, storm windows, insulation, solar domestic hot water systems

Major landscape work and site improvement – patios and terraces that improve the value of the property equal to the cost, or that are needed to preserve the property from erosion. Tree removal is also acceptable if the tree presents a hazard to the occupants.

Purchase and installation of appliances, including freestanding ranges, refrigerators, washers/dryers, dishwashers and microwave ovens

Accessibility improvements for accessibility for persons with disabilities

Painting and other cosmetic repairs

Repair of a swimming pool – must be less than $1,500

Ineligible work items

Items that will not become a permanent part of the property are not eligible

Luxury items are not eligible – Examples are: new swimming pools, exterior hot tubs, saunas, spas, tennis courts and barbecue pits

Rehabilitation requirements

All rehab work must be performed by a qualified, experienced contactor chosen by the borrower and satisfying all requirements.

Borrowers may not use relatives as their contactors; review Identity of Interest disclosure for details on other restrictions.

Inspections are required for all draws.

“Self-help” is not allowed.

Homeowner/Contactor agreement required along with the estimate from the contractor.

All work must be completed within six (6) months.

A consultant is required and will do the Work Write-up/Specification of Repairs.

The borrower can have up to 3 contractors. If more than 3 contractors are required, a general contractor must be hired, to oversee the project.

203(k) Streamline Limited Repair Program

The 203(k) Streamline Limited Repair Program allows homebuyers to finance up to $35,000 into their mortgage to improve or upgrade their home. Expenses that may be included in the $35,000 are inspection fees, building and other permits, the supplemental origination fee, title update cost and the amount of any contingency reserve required by the mortgagee. The 203(k) Streamline cannot exceed the dollar limit of $35,000.

Eligible work items

Repair/replacement of roofs, gutters and downspouts

Repair/replacement/upgrade of existing HVAC systems

Repair/replacement/upgrade of plumbing and electrical systems

Repair/replacement of existing flooring

Minor remodeling, such as kitchens, which does not involve structural repairs

Interior and exterior painting

Weatherization: including storm windows and doors, insulation, weather stripping, etc.

Purchase and installation of appliances, including freestanding ranges, refrigerators, washers/dryers, dishwashers and microwave ovens

Accessibility improvements for persons with disabilities

Repair/replace/add exterior decks, patios, porches

Basement finishing and remodeling, which does not involve structural repairs

Basement waterproofing

Window and door replacements and exterior wall residing

Septic system and/or well repair or replacement

Lead-based paint stabilization or abatement of lead-based paint hazards

Ineligible work items

Major rehabilitation or major remodeling such as the relocation of a load-bearing wall

New construction (including room additions)

Repair of structural damage

Repairs requiring detailed drawings of architectural exhibits

Landscaping or similar site amenity improvements (Example: fencing, tree trimming & retaining walls)

Any repair or improvement requiring a work schedule longer than six (6) months

Rehabilitation activities that require more than two (2) payments per specialized contractor