FHA 203k Streamline

FHA 203k STREAMLINE

What improvements are eligible under the 203k Streamline program?

The FHA 203k Streamline program is intended to facilitate uncomplicated rehabilitation and/or improvements to a home for which plans, 203k consultants, engineers and/or architects are not required.

A FHA Streamline 203k includes the discretionary improvements and/or repairs shown below:

• Repair/Replacement/upgrade of existing HVAC systems
• Repair/Replacement/upgrade of plumbing and electrical systems
• Repair/Replacement of flooring
• Minor remodeling, such as kitchens, which does not involve structural repairs
• Painting, both exterior and interior
• Weatherization, including storm windows and doors, insulation, weather stripping, etc.
• Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwave ovens
• Accessibility improvements for persons with disabilities
• Lead-based paint stabilization or abatement of lead-based paint hazards
• 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 re-siding
• Septic system and/or well repair or replacement
• Repair/Replacement of roofs, gutters and downspouts

What are the minimum and maximum amounts for repair costs under this program?

Given the need for homeowners to make minor repairs without exhausting personal savings, and in consideration of the increasing cost of materials, the minimum repair cost of $5,000 was elimnated in 2005 (mandatory minimum for a standard 203k is $5,000). A streamline 203k has a Rehabilitation Escrow Account ceiling of $35,000.

Can a Streamline 203k be used for refinancing the mortgage?

A 203k Streamline is also available for mortgage refinance transactions including those where the property is owned free-and clear. Only credit-qualifying “no cash out” refinance transactions with an appraisal are eligible.

What are the appraisal requirements under the Streamline 203k program?

A 203k Streamline may be used for discretionary repairs and/or improvements that may not have been identified in the course of a pre-purchase inspection or appraisal.  The 203k lender must provide the 203k appraiser with information regarding the proposed rehabilitation or improvements and all cost estimates so that an “after-improved” value can be estimated.   All 203k appraisal should also include an “as-is” value.

What are the mortgagor’s requirements for selecting a 203k approved contractor? 

The mortgagor may use one or more contractors to complete the repairs.  “Self-help” arrangements, in which the mortgagor performs the work, are not to be approved unless the mortgagor can sufficiently demonstrate that he or she has the necessary expertise and experience to perform the work competently (e.g., mortgagor is an electrician and will perform electrical repairs/upgrades to the property). 

• The cost estimate(s) must clearly state the nature and type of repair and the cost for completion of the work item and must be made even if the mortgagor is performing some or all of the work under a self-help arrangement.  The 203k lender must review a contractor’s credentials, work experience and client references and may require the mortgagor to provide additional cost estimates if necessary.
• After review, the selected 203k contractor(s) must agree in writing to complete the work for the amount of the cost estimate and within the allotted time frame.  A copy of the contractor’s cost estimate (s), 203k Homeowner/Contractor Agreement(s), copy of the contractor’s commercial liablity insurance, contractors license (when applicable) and bonding documentation (when applicable)  must be placed in the file.  The contractor must finish the work in accordance with the written estimate and Homeowner/Contractor Agreement and any approved change order.
• As in the Standard 203k program, the Rehabilitation Construction Period begins when the mortgage is closed.

What are the 203k lender’s requirements for examining the contractor bids? 

Contractor bids:  While mortgagees are not contractors, participation in this program requires that they examine the contractor’s bid(s) and determine that they fall within the usual and customary range for similar work.  A 203k lenders must also ensure that the selected 203k contractor(s) meet all jurisdictional licensing and bonding requirements.

What are the lender’s requirements for paying contractors?

• Payments in advance of construction:  The 203k lender—at its discretion—may provide the contractor with up to 50 percent of the estimated cost of any work item prior to beginning construction.  Such payments should only be made where the 203k mortgagee is satisfied with the reputation of the contractor(s) and the contractor is not willing or able to defer receipt of payment until completion of the work or the payment represents the cost of materials incurred prior to construction.
• For repair costs not exceeding $15,000, the 203k  lender is not required to perform, or have others perform, inspections of the completed work. However, the mortgagee may choose to obtain or perform inspections if it believes such actions are necessary for program compliance and/or risk mitigation.  The lender may also ensure that the repairs and/or improvements have been completed by obtaining the 203k contractor’s receipts or by a signed Mortgagor’s Letter of Completion.  If the mortgagee determines that an inspection(s) by a third party is necessary to ensure proper completion of the proposed repair or improvement item, the mortgagee may charge the borrower for the costs of no more than two inspections per each contractor.
• For repairs in excess of $15,000, the 203k lender must perform or obtain an inspection of the completed work by a third party.
•  If the mortgagor is performing the work under a self-help arrangement, in which case the  borrower may be reimbursed for materials purchased in accordance with the previously obtained estimates; the borrower may not be compensated for his or her labor

Does the 203k lender have the right to establish a Contingency Reserve?

A FHA 203k Streamline does not mandate a contingency reserve be established.  However, at the mortgagee’s discretion a contingency reserve account may be set up for administering the loan.  Funds held back in contingency reserve must be used solely to pay for the proposed repairs or improvements and any unforeseen items related to these repair items.  Any unspent funds remaining after the final work item payment(s) is made, must be applied to the mortgage principal.

What fees can be included in the loan amount?

Expenses that may be included in the Rehabilitation Escrow Account may not exceed the $35,000 limit, are 203k inspection fees, building and other permits, the 203k supplemental origination fee, title update costs and the amount of any 203k contingency reserve required by the FHA 203k lender.

Can you defer or add your monthly mortgage payments into the escrow account on a 203k Streamline?

No, only on a standard 203k can your payments be included into the escrow account and be paid directly from the account to your lender during construction. Keep in mind you must occupy the property within 30 days of closing on a 203k Streamline, thus you should not have double housing payments issue during the construction process like you might see in a standard 203k.