The Streamlined (k) program is intended to facilitate uncomplicated rehabilitation and/or improvements to a home for which plans, consultants, engineers and/or architects are not required. The Streamlined (k) program includes the discretionary improvements and/or repairs shown below:
· Repair/Replacement of roofs, gutters and downspouts
· 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
Properties that require the following work items are not eligible for financing under the Streamlined (k):
· Major rehabilitation or major remodeling, such as the relocation of a load-bearing wall;
· New construction (including room additions);
· Repair of structural damage;
· Repairs requiring detailed drawings or architectural exhibits;
· Landscaping or similar site amenity improvements;
· Any repair or improvement requiring a work schedule longer than six (6) months; or
· Rehabilitation activities that require more than two (2) payments per specialized contractor.
Mortgagors may not use the Streamlined (k) program to finance any required repairs arising from the appraisal that do not appear on the list of Streamlined (k) Eligible Work Items or that would:
· Necessitate a “consultant” to develop a “Specification of Repairs/Work Write-Up”;
· Require plans or architectural exhibits;
· Require a plan reviewer;
· Require more than six months to complete;
· Result in work not starting within 30 days after loan closing; or
· Cause the mortgagor to be displaced from
the property for more than 30 days during the time the
rehabilitation work is being conducted.
(FHA anticipates that, in a typical case, the mortgagor would be able to occupy the property after the Mortgage loan closing).
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 is eliminated and the ceiling is now raised to $35,000. This no minimum is different than the regular 203k. This revised maximum repair/rehabilitation amount recognizes the cost of making older homes more energy efficient. Note that as described below, when the repairs exceed $15,000, the mortgagee must perform or obtain an inspection to determine that all listed repairs were completed.Can this program be used for repairs and improvements on purchases of HUD Homes?
Like the regular Section 203(k) program, Streamlined (k) may be used for single-family housing sold by HUD. REO properties that have been designated by FHA’s Management and Marketing contractor (M&M) as “insurable” with repair escrow ($5,000 or less in required repairs) or “uninsurable” (with more than $5,000 but no more than $35,000 in required repairs) are eligible for the Streamlined (k) program provided that the repairs qualify as eligible work items outlined under eligible improvements above.
The Streamlined (k) program may be used for the financing of REO purchases where a pre-1978 property has been determined to contain lead-based paint and the M&M Contractor has completed a stabilization plan and cost estimate to stabilize (mitigate) the deteriorated paint. The purchaser must sign a 203(k) rehabilitation financing lead agreement requiring that a clearance examination and report be included in the work write-up and conducted before release of the final construction disbursement and before occupancy. The credit from HUD, received at sales closing by the purchaser, associated with the lead-based paint stabilization plan is not included in the $35,000 Streamlined (k) limit. The Streamlined (k) program may be used for all eligible repair items as shown above, including the cost of lead-based paint stabilization not paid for by HUD when it sells a property requiring lead-based paint stabilization. A state- or Environmental Protection Agency (EPA) certified lead-based paint inspector, certified risk assessor or sampling technician, must perform the clearance examination.
When the HUD sells a single-family REO property, the M&M Contractor determines whether repairs are necessary to stabilize any lead-based paint. HUD’s regulations for pre-1978 housing require the stabilization of paint except for paint determined not to be lead-based paint. HUD may reduce the sales price by the amount of a credit equal to the its contribution toward the cost of lead-based paint stabilization. Any lead-based paint stabilization costs in excess of this credit become the responsibility of the purchaser.
The Streamlined (k) program 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 for the Streamlined (k) program.
If the borrower has owned the property for less than a year, the acquisition cost must be used to determine the maximum mortgage amount.
The Streamlined (k) program 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 mortgagee must provide the appraiser with information regarding the proposed rehabilitation or improvements and all cost estimates so that an after-improved value can be estimated. A description of the proposed repairs and/or improvement must be included in the appraisal report as well as the contractor’s cost estimate. The appraiser is to indicate in the reconciliation section of the appraisal report an after-improved value subject to completion of the proposed repairs and/or improvements.
· Contractor bids: While Lenders 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. Lenders must also ensure that the selected contractor(s) meet all jurisdictional licensing and bonding requirements.
· Payments in advance of construction: The 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 Lender 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.
· Payments for Inspections:
o For repair costs not exceeding $15,000, the Lender is not required to perform, or have others perform, inspections of the completed work. However, the Lender may choose to obtain or perform inspections if it believes such actions are necessary for program compliance and/or risk mitigation. Lenders may also ensure that the repairs and/or improvements have been completed by obtaining contractor’s receipts or by a signed Mortgagor’s Letter of Completion. If the Lender determines that an inspection(s) by a third party is necessary to ensure proper completion of the proposed repair or improvement item, the Lender may charge the borrower for the costs of no more than two inspections per each contractor.
For repairs in excess of $15,000,
the Lender must perform or obtain an inspection of the
completed work by a third party.
The mortgagor must 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 mortgagor will select the contractor(s) who will provide estimates for work to be done. The Lender reviews the mortgagor’s proposed work plan and cost estimates to ensure the planned work meets all program and repair recommendations as noted on the appraisal report. The mortgagor must provide the Lender with a written cost estimate(s) and references from a duly licensed and bonded contractor(s) for each specialized repair or improvement. If “self-help” arrangements are utilized, the mortgagor must provide written estimates from the suppliers of the materials. Those repairs and improvements must meet any local codes and ordinances and the mortgagor and/or contractor must obtain all required permits prior to the commencement of work.
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
Lender must review the contractor’s credentials, work experience
and client references and may require the mortgagor to provide
additional cost estimates if necessary. After review, the
selected 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)
and the Homeowner/Contractor Agreement(s) must be placed in the
insuring binder. The contractor must finish the work in
accordance with the written estimate and Homeowner/Contractor
Agreement and any approved change order. As in the regular
203(k) program, the Rehabilitation Construction Period begins
when the mortgage loan is closed.
To eliminate the need and cost for an inspection of the completed repair(s) or improvement(s) when not exceeding $15,000, the Lender may accept receipts or proof of completion of the work to the homeowner’s satisfaction from the contractor. Before a final release is made, the mortgagor must sign a statement acknowledging that the work has been completed in a professional and satisfactory manner.
The Streamlined (k) program does not mandate a contingency reserve be established. However, at the Lender’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.
The EEM program, may be
used in conjunction with the Streamlined (k) program.
The amounts permissible under the EEM program—as well as the
qualifying requirements—are in addition to those available
under the Streamlined (k) program and, thus, combined may
exceed the $35,000 Streamlined (k) repair cost limit.
Both the cost of EEM improvements as well as weatherization
items (not to exceed $2,000) may be added to the total FHA
203K Streamline Eligible Borrowers:
Owner Occupants - Purchase - Refinance
Investors NOT allowed
Types of 203K Streamline Loans:
30 or 15 year fixed rates
One year ARMS
Single family dwellings
Mixed Use (Storefront)
1-4 Unit buildings- you can
increase or decrease the number of units with this loan.