Posts Tagged ‘FHA 203K Streamline’

FHA 203k Streamline

July 15, 2014

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Over the past couple of months, I’ve closed a couple 203k streamline loans. I figured now is a good time to talk more about the program itself.

The 203k Streamline loan rehabilitation loan from FHA that allows a borrower (purchase or refinance) to put a little bit of “tender loving care” into a home that needs some updating. There are two versions of this loan. Let me talk about both so there is no confusion.

The first version is simply called the FHA 203k loan. There is no cap on the amount of work that can be done to the home (so long as the home appraises high enough). The borrower can also make structural changes to the home. This loan program takes a longer time to get through underwriting and may require multiple appraisals. This adds up to making it a 45-60 day closing time frame.

A quicker way is using the FHA 203k streamline program. The Streamline version has a cap on the amount of work that can be done. The program also requires a 10% contingency reserve in case the work goes over budget. The cap is $35,000, and 10% of that amount is $3,500. Since almost every one chooses to finance the 10% contingency reserve, that leaves roughly $31,500 for the renovations. Once the work is complete, any excess funds left over in the contingency reserve will be deducted from the loan amount.

The advantage of using the Streamline version is it allows for a quick closing time (around 30-40 days), and an easier time through underwriting. The main drawback is the cap on the amount of money that can be used for renovations.

Here are some bullet points about the FHA 203k Streamline:

  • allows up to $35,000 worth of work that can be done on the home (roughly $31,500 if financing the 10% contingency reserve)
  • the Streamline program allows for a variety of items to be repaired/replaced/updated (roof, windows, siding, flooring, fixtures, appliances, HVAC, etc.).
  • the Streamline program will not allow any structural changes to the home. This means walls cannot be taken out to open up the floor plan.
  • other allowable improvements can include mold remediation, lead-based paint stabilization, septic system repair/replacement
  • borrowers can choose to add exterior decks or patios
  • money can also be used to modify a home for persons with disabilities

As you can read, there are a lot of advantages and goals that can be accomplished using the 203k streamline loan. If you are buying a property in the state of Georgia, and would like to know more, contact me. We can talk about the details of the program and see if the FHA 203k Streamline loan will fit your needs.

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FHA to lower max loan amounts

December 10, 2013

blog-author-clayjeffreys3

At the beginning of 2013, I wrote a blog post mentioning how the government wants to pull back (not out) of the mortgage industry in terms of the number of loans they insure. One way they hope to accomplish this (as mentioned in the post earlier this year) is to increase the mortgage insurance premiums on FHA loans. See the link above for the full post.

Another sign the government is attempting to scale back is the recent announcement that FHA maximum loan amounts will be reduced. Expect to see the counties with the highest FHA loan limits of $729,750 to reduce by roughly 14% to $625,500. The reduction in other areas/counties of the country has yet to be determined. FHA also announced that areas where the housing market has not recovered as much will not see a reduction in the maximum loan amount.

This is actually a good sign for the housing market and mortgage industry overall. The government stepped in and expanded the availability of FHA loans during the housing crisis. Now that housing prices across the country are recovering and loan guidelines have loosened a bit for conventional loans, FHA insured loans are not as critical to the housing market.

With those two things in mind, the goals of FHA right now are to:

  • reduce the number of loans they insure
  • replenish their reserves that were depleted due to all of the foreclosures
  • concentrate on borrowers that are still underserved

How does this news impact those looking to buy a home? First, realize that a LOT has changed in terms of FHA loans, minimum down payments for conventional loans, minimum credit score requirements for both FHA and conventional loans, etc. In short, if you haven’t spoken with a licensed mortgage originator about the changes, an FHA loan may not even be the best avenue to explore anymore.

Second, expect a rush of buyers into the market this coming year. In the metro Atlanta area, there was a housing shortage for almost all of 2013. Now is the time to plan and get prequalified to get a jump start on the housing market for 2014. If you are buying in the state of Georgia, contact me today to get the prequalification process underway.

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Contingency Reserve Requirements on Renonvation Mortgages

March 15, 2011

I’m staying with the “renovation” theme from my last several posts. This week I want to address a common question I get regarding one of the requirements on the Fannie Mae HomeStyle Renovation Mortgage, Fannie Mae HomePath Renovation Mortgage, and the FHA 203k Mortgage… “Why do these programs require a 10% contingency reserve?

The first thing I should do is define a contingency reserve. Fannie Mae and HUD (FHA loans) require a 10% contingency reserve on these renovation mortgages for unforeseen costs associated with the project.

The last thing anyone wants is to get into a renovation project on a tight budget with no additional assets and an unexpected problem occurs. Some potential issues that arise during a renovation cannot really be accounted for until the process is underway. That is why the 10% contingency requirement exists.

The contingency reserve is not an option. Since this is the case, a better question becomes “what happens to the 10% contingency reserve if it isn’t used?

As anyone who has gone through a renovation project on a home knows, most of the times costs end up going over budget, so it probably won’t be a problem. 🙂 In the event there are funds remaining, usually one of the following occurs with these three programs (203k, HomeStyle, HomePath):

  • additional work on the home – in some cases, the contingency reserve could be used to fund additional work on the home. If this isn’t allowed, then the other option is a…
  • principal reduction – the remaining funds are used to pay down the loan balance. Depending on the renovation program (and lender originating the loan), the borrower could request a recast of the mortgage. In other words, re-amortize the mortgage to lower the monthly payment
  • receive the contingency reserve as cash back – this is typically not an option for the borrower

Contingency reserves can be annoying, but they are definitely needed. As previously stated, the last thing anyone wants is to get near the end of the project and run out of money. What happens then? That is a scenario you never want to face!