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FHA 203k Loan in Arizona: Good For Rehab Projects

March 18, 2011 1 Comment

Many people who are shopping for Arizona homes have found that many of the properties available for sale are either bank owned properties (lots of Phoenix banks have lots of inventory) or short sales. One person I spoke with recently was shopping for Tempe homes for sale that needed a little work. When buying a bank owned property or a short sale, chances are that the home is going to be in need of at least a few repairs — and many times, the most popular loan option for this scenario is the FHA 203k loan.

FHA 203k Program Highlights

The FHA 203k streamline loan has become in demand with the slowdown in the housing market. When a property is owned by the bank, chances are that the property may be in need of a little work and the FHA 203k streamline program is a great option. Some of the frequently asked questions we see about the FHA 203k loan include:

What is the FHA 203k mortgage?

The FHA 203k mortgage loan is a rehabilitation loan that works much like a development loan. The one who is buying the home is able to buy a home that is in need of repairs and is able to mortgage the repair work in the mortgage to fix items in the house. The FHA 203k loan consists of the purchase price of the home plus the construction costs for the work to be performed after close.

An FHA 203k Example Situation:
$100,000 purchase price of home
$20,000 Repairs Needed (see a list of the most common FHA 203k repairs)
$120,000 Total Loan Amount

The offer is the purchase price of the house only. You don’t need to include the cost of repairs anywhere in the sales contract or offer. In the above example, the purchase price on the sales agreement or offer would be $100,000.

Is the FHA 203k loan harder to qualify for than a traditional FHA loan?

Getting an FHA 203k loan is roughly the same as getting a regular FHA loan. What does it take to qualify for an FHA loan? Generally speaking, a credit score above 620, a good job and a down payment of 3.5%. Of course there are more details to being able to qualify, but those are the general highlights.

How do I find a contractor to do the repairs?

It is suggested that you work with a general contractor that can perform all needed repair work. Your loan officer can easily help recommend one they will need to know at least one good contractor. It is also vital that the contractor be practiced in FHA guidelines so that they can include any FHA required items in their contract.

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FHA 203k Streamline: How Much Money Can You Get?

August 25, 2009 1 Comment

The FHA 203k streamline program was designed for people who are interested in buying a home that is in need of a few repairs that are not “structural” and would require major work. The FHA 203k program is designed for homes in need of major work, the FHA 203k Streamline is just designed for work like carpet, paint, kitchen, gutters, etc.

Here are the most common FHA 203k Streamline repairs.

So how much money can you get for repairs with the FHA 203k Streamline program? A total of $35,000.

Total.

FHA 203k Streamline: How Much Money Can You Get? %spacebasename

Now, at first glance, that might seem like you can spend $35,000 on contractor labor and supplies – but that isn’t so. That $35,000 includes bank fees.

FHA 203k Rehab Cost Must Include ALL Of The Following AND Can’t Exceed $35,000:

  • Cost of the construction supplies
  • Cost of the labor of the contractor
  • 10% contingency fee
  • $100 final inspection fee
  • Up to 1.5% supplemental origination fee

If you add all of these together, you will get a number that says that the total cost of materials and labor can’t exceed $31,257.

So make sure that when you budget for the FHA 203k Streamline program, you know that $35,000 isn’t really $35,000 – it is really $31,257 after you subtract all of the fees.

Which is kind of the way everything seems to be. A fee here, a fee there… yeah, we have a fee for that.

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FHA 203k Streamline: Contractor Requirements

August 19, 2009 2 Comments

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.

FHA 203k Streamline: Contractor Requirements %spacebasename

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!

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FHA 203k Streamline: Why Choose The FHA 203k Streamline?

August 19, 2009 1 Comment

As more and more bank owned properties are bought here in Arizona, many people are starting to become aware of the various loan programs designed for homes that are in need of repair. The most popular ones are the FHA 203k Streamline, the FHA 203k loan and the Fannie Mae HomePath loan programs.

FHA 203k Streamline: Why Choose The FHA 203k Streamline? %spacebasename

When it comes to the two FHA loan options, many people ask me “why would someone want an FHA 203k Streamline loan vs. a FHA 203k “regular” loan? And the simple answer that I give is this: if the cost of repairs is anywhere close to the $35,000 allowed by FHA for the FHA 203k streamline program, go with the streamline.

If it is much, much more than that – you will need to pick the “regular” FHA 203k loan program.

But the answer is really slightly more in-depth than that — and here are just a few other reasons people choose the FHA 203k streamline loan program:

  • Architectural exhibits are not required with the FHA 203k streamline
  • The lender is responsible for making sure the cost to repair is reasonable
  • General contractors and/or consultants are not required
  • Some lenders don’t require that you get at least $5,000 in repairs (some do)

Now there are certain situations where it is clear that you are going to need far more than $35,000 to rehab a house – but I have found that in most cases, the $35,000 for repairs is more than enough – which makes choosing the FHA 203k streamline an easy choice.

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