When getting an Arizona FHA 203k streamline loan one of the more popular questions I am asked is “how does the payment process work?” and when outlined, it isn’t all that complicated (or at least it doesn’t seem like it…)

With the FHA 203k streamline program the repair funds are held in escrow by the lender – and the borrower has 3 months from their closing date to complete all of the work on the project. There can be no more than 2 payments (called the First payment and Final payment) and the must be paid directly to the contractor who performed the work. The first payment (sometimes called a draw) is limited to a maximum of 50% of the total repair cost.

For the First Payment at Closing:

When requesting the first payment at closing to be disbursed, the following will be required:

1. Initial disbursement forms
2. 203k maximum mortgage worksheet
3. All bids and estimates for the project
4. The name of the contractor to be paid and the exact amount of each check to be disbursed at closing. The underwriter will review and approve this.
5. All signed homeowner/contractor agreements (or a self help agreement if the borrower is doing the work)

Once you have all of this information provided, typically the closing/construction department will require at least 24 hours to review the request — which means leave a little leeway on your closing date, it can be somewhat fluid.

For the Final Payment

1. All loans require a final inspection regardless of how much repair money was allocated.
2. Before the final release, the borrower must sign a completion and affidavit for disbursement form.
3. Final payment is disbursed upon completion of all work – can’t disburse if work is still “in progress”

So with the FHA 203k streamline loan, there are two payments — the first and the final.

Easy enough, right?

Related Posts

• FHA 203k Streamline: Contractor Requirements
• FHA 203k Streamline: How Much Money Can You Get?
• FHA 203k Streamline: Why Choose The FHA 203k Streamline?
• FHA 203k Streamline or HomePath Renovation Loan: Which Is Best?

When using the Arizona FHA 203k streamline to finance your home, you will usually need to get a contractor to perform the work. The general process of finding a contractor and working with the lender and contractor looks like this:

1. Lender reviews the contractors license, bonding, insurance and credentials
2. Contractor estimates and provides the lender estimates that clearly state the nature and type of repair cost for labor and completion of the work.
3. Lender reviews the estimates. The lender may call the borrower, loan officer and/or contractor to discuss the estimate and ask any additional questions they may have.
4. Lender then can accept the estimate or ask for more estimates.

While it may seem like a long process – it really isn’t all that bad. Most lenders require that you use contractors to complete the rehab work unless the borrower can provide proof that they can perform the work (for example, if they are a general contractor, that is always a good sign they are capable…) but when the borrower is the one who completes the work the following apply:

• Borrower must provide documented proof of expertise required to complete the work
• Borrower ensures that the work will be completed within a “timely manner” (generally no longer than 3 months)
• Borrower must execute a “self help” agreement
• Borrower provides written estimates of supplies required to complete the work and must include labor in cost estimate in case a contractor is hired to complete the work.
• Borrower may not be compensated for his/her labor. No “sweat equity” is allowed.

Is it possible for a borrower who is capable of doing the work be allowed to do the work?

Yes.

And now you know the rules of what will be required by the lender!

Related Posts

• FHA 203k Streamline: How Much Money Can You Get?
• FHA 203k Streamline: How Do Payments Work?
• FHA 203k Streamline: Why Choose The FHA 203k Streamline?
• FHA 203k Loan in Arizona: Good For Rehab Projects

We have received the “more-than-normal” questions about the FHA 203k streamline program recently – probably due to the high numbers of bank-owned properties that are currently for sale all across the valley.

If you have been shopping for homes, it is no mystery that when a property is currently owned by a lender, often times, it needs a “little bit of work”. How do you know if a property will pass an FHA inspection for a “regular” FHA loan? Well, if it needs a “little bit of work” and the work entails one of the things below, your property will probably qualify as-is for a “regular” FHA loan because these are considered cosmetic things.

Arizona FHA Loan Cosmetic Repairs

• Missing Handrails
• Cracked or damaged exit doors that are otherwise operable
• Cracked window glass
• Defective paint surfaces in homes constructed post 1978
• Minor plumbing leaks (such as leaky faucets)
• Defective floor finish/covering
• Evidence of previous (non-active) wood destroying insect/organism damage
• Rotten or worn-out counter-tops
• Damaged plaster, sheet-rock or other wall and ceiling materials in homes
• Poor workmanship
• Trip hazards
• Crawl space with debris
• Lack of all-weather driveway surface

Does the house you are considering need repairs? Are they considered cosmetic or something “more than cosmetic”? If they are more than cosmetic, it doesn’t mean that you can’t get an Arizona FHA loan, it just means that you will want to look at the FHA 203k streamline program as one of the best options available for homes that need a little more work done than just cosmetic work.

Related Posts

• Basic Steps to Acquiring a Government-backed FHA loan
• The Cost of an FHA Loan
• FHA 203k Streamline: How Do Payments Work?
• FHA 203k Streamline: Contractor Requirements