If you’ve been passing up buying a home because it requires cosmetic repairs, FHA has a special mortgage program (203k Rehab) that provides funds for repairs and/or upgrades.
Not to be confused with FHA’s full 203k program, a Streamline 203k loan eliminates much of the paperwork and simplifies the process to obtain rehab funds. The primary function of the Streamline 203k is to aid with those cosmetic or minor repairs.
A feasibility study is a quick inspection of the property with the Borrower to determine minimum property standards (MPS) and if the desired work qualifies within the loan amount. The consultant retainer fee of $300 and the feasibility fee of $100 are due at this time. Then the consultant prepares a Preliminary Work Write-Up (PWWU) to present to general contractors for bids. If the project does not proceed after the PWWU is prepared, the $100 is refunded. The Borrower will be asked to sign a separate Consultant Borrower Agreement outlining the fee amounts and the Consultant’s responsibilities to the Borrower.
After reviewing the Preliminary Work Write Up (PWWU) with the Borrower noting life/safety issues to be performed, FHA Minimum Property Standards (MPS) and required repairs, Borrower’s wish list, modifications or upgrades desired, verifying that the property meets the $5,000 minimum repair value to be eligible for the HUD 203K project, the Consultant will then invite contractors (unless the Borrower has already chosen a contractor) to bid on the project for the Borrower to choose from the list. The contractors will not be privy to the Consultant’s estimated figures.
Once a contractor has been chosen, the Consultant will require the HUD approved fee (as per HUD scale based on the amount of the rehabilitation cost) to be paid by the Borrower prior to submitting the final WWU to the underwriter. The Consultant will reduce the WWU fee by $300.00 which was part of the initial consulting fee of $400 (i.e. $100 feasibility fee and $300 retainer fee). The Borrower is allowed to escrow the Consultant fees into the loan and be reimbursed the fee amounts. The Consultant will prepare a Contractor Borrower Agreement outlining the Contractor’s responsibilities to the project. This agreement allows the Borrower to terminate and assign a new contractor to the project if necessary. The final HUD 203k WWU is submitted to the underwriter for processing.
The Streamline program provides funds for purchase, repairs, upgrade. There is a maximum of $35,000 less 10% contingency (i.e. $31,500 working capital) which can be financed in the mortgage amount to improve or upgrade the home. No structural repairs.
Minimum required repairs include any health and safety repairs like peeling lead paint or replacing missing railings. All health and safety issues must be addressed first.