If you’ve been avoiding purchasing a home because you don’t have the cash for upgrades or renovation repairs, the Federal Housing Administration (FHA) has a renovation loan program just for you. Its called an FHA 203(k) loan and it has two options depending on the extend of your renovations. The FHA Limited 203(k) and standard FHA 203(k) Consultant Loan eliminate the need for large out-of-pocket renovation cost that can drain your savings. With these options you can simplify the financing process by financing your home and your renovation cost into one FHA 203(k) loan. Whether you’re repairing your current home or purchasing a fixer-upper, you should consider applying for either a Limited K or Standard loan.
What is an FHA Limited (Streamline) 203(k) Loan?
Designed specifically for homes that may need cosmetic repairs or upgrades, the Limited (formerly known as Streamline) 203(k) Loan is intended for homes that can be remodeled, repaired, or updated for less than $35,000. As long as the intended repairs don’t exceed that amount, you may be eligible for an FHA Limited 203(k) Loan from HomeBridge Financial Services. Before considering applying for a Limited (formerly known as Streamline) 203(k) Loan, here is a sample of some projects that are eligible. Speak to a HomeBridge Mortgage Loan Originator to get a full list of the home improvements you can make.
Eligible:
Ineligible:
What is an FHA 203(k) Consultant Loan?
Typically reserved for homes requiring more than $35,000 in repairs, HomeBridge’s Consultant K home loan is usually used for homes with more extensive work to be done. In order to apply for the loan, there must be at least $5,000 worth of repairs, and loan limits are based on property type and location. Since the Consultant K allows for more extensive work, more supervision is required throughout the process. A 203(k) Consultant will inspect your property and help you determine which repairs are required to bring the property up to FHA minimum standards. Below is just a sample of eligible repairs with a 203(k) Consultant Loan.
Eligible:
Ineligible:
For Consultant K loans, the 203(k) contractor must also sign the work write-up, acknowledging the cost of repairs. With the Limited K, contractors must sign a detailed contractor bid, which may include a breakdown of labor and materials for each part of the contract.
If you’re purchasing a home and happen to be a professional contractor and/or believe you’re otherwise qualified to perform some of the renovation work yourself, talk with a HomeBridge Mortgage Loan Originator today. Special rules apply in both of these circumstances, and our experts can explain in detail.
How Do Limited (formerly known as Streamline) 203(k) and 203(k) Consultant Loans Work?
In the past, those who purchased a fixer-upper would have to apply for two loans in order to finance the repairs: a mortgage and a separate home equity loan or use their savings account for renovations. Now, the two loans are combined, resulting in easy and convenient loan known as the Limited 203(k) Loan or the standard 203(k) Consultant Loan. The loans can be an adjustable-rate or fixed-rate mortgage.
With Limited 203(k) and Consultant K Loans, you can begin your home renovations as soon as the loan closes. Repairs must start within 30 days of closing and be completed within six months. With Limited K Loans, contractors typically receive 50% of the total amount when renovations begin, with the remaining amount due as soon as the final inspection is complete. With Consultant K Loans, the Consultant inspects the repairs as they’re completed and request the lender to release the funds. In both cases, any remaining funds are applied to the principal balance of the loan.
Consultant K vs. Limited K: Comparison of Features
When it comes to choosing the best FHA 203(k) loan for you and your home, there’s a lot to think about. How much will the repairs be? Who will be performing the work? How many times can I draw money? Are the home improvement projects I have in mind eligible? Before making a final decision, use the below chart to decide which home improvement loan is right for you.
Consultant K
Nature of project:
Substantial rehabilitation/renovation
Purchase/Refinance:
Either
Repair cost:
Min. $5,000/Max as supported by appraised value.
Self-help (owner performing work):
Yes
Owner GC (multiple contractors):
Yes
Max. number of draws:
Up to 5 (plus final release)
Initial draw/release for materials:
Fifty percent paid directly to supplier of materials with copy of invoice.
Max. financed mortgage payments:
If the property is uninhabitable up to 6 with DE UW approval
HUD REO sales:
Yes
Contingency reserve:
Yes 10% (15% if utilities are not on)
Limited K
Nature of project:
Repair and remodeling
Purchase/Refinance:
Either
Repair cost:
No Min. $35,000 Max total costs
Self-help (owner performing work):
Yes
Owner GC (multiple contractors):
Yes (Max – 3 contractors)
Max. number of draws:
1 (plus final release) per contractor
Initial draw/release for materials:
Up to 50% of rehab total amount.
Max. financed mortgage payments:
0
HUD REO sales:
Yes
Contingency reserve:
Yes 10% (15% if utilities are not on)
Source: HomeBridge Financial