FHA 203K Streamline loans offer a great solution for home investors that are looking for the best deals among bank owned properties and plan to occupy their homes. 

What are the best deals out there? 

There are plenty of bank owned properties on the market that have missing plumbing, freeze damage, missing cabinets & appliances, fixtures, etc. Typically, properties with inoperable plumbing, electric, critical missing fixtures, broken/rotten windows, etc will not be approved for conventional financing or regular FHA insured financing.

The loan servicing companies are stuck with the red tape in their servicing contract & many times don't make obvious repairs that would enable potential buyers to finance the properties with popular FHA and Conventional loans. 

Many markets are running out of cash buyers to bid on foreclosed homes that need work.  The so called "hard money" lenders want at least 25-30% down, shorter terms and a higher interest rate to make a loan on these properties. Cash borrowers or borrowers with cash leveraged with a hard money loan will not bid on these properties at normal levels.

A borrower that is willing to do what it takes to purchase the home with an FHA renovation loan, can come up with a bargain equal to what professional home renovators require! 

If you are such a borrower, here are a few tips that might apply:  Find a real estate agent that has a pretty good idea what FHA minimum property standards are, so you don't have to look at homes that are a waste of time. If you want to avoid the cost of a HUD consultant, the agent should have a reasonable idea about repair costs, because the FHA 203K Streamline renovation loan that does not require a consultant has a $35,000 limit for repairs, including a 10% reserve.  It is best to pretend the limit is $30,000.

If it is a close call and the property is in my general area, I often look at it myself to help determine if it fits the 203K Streamline program or has to go with the regular 203K program.  The experience from my old career as an FHA appraiser comes in handy now and then:)

Some wholesale purchasers of FHA renovation loans limit allowed repair time to 3 months instead of the HUD specified 6 months & they require a 10% reserve in all instances to cover unexpected costs of items required to be brought up to HUD minimum property standards & perhaps bump it to 15% for repairs on a home with dicy conditions.  It is an underwriter's call.  It doesn't happen often.

Planning on doing your own work and being reimbursed?  Please don't try, even though it is technically possible.  Many investors will no longer allow it.  Even if you find one that says they will, you will only be reimbursed for materials and the value of your labor has to be "discovered" by competitive bids. The bid amount is added to the loan reserve amount (to hire the work done, if you don't get it done).  Did I mention, you would have to prove you are competent technically to perform the work?

 Hiring contractors:  When possible, stick with Home Depot, Menards, Lowes, etc.  They have contractors with stacks of resumes, testimonials of prior clients, evidence of insurance and proper licenses for the specialty work, if applicable.  FHA 203K is a blizzard of paperwork and the average contractor will short out and delay your purchase (and you may lose out to another bidder).  Plan on using the contractors that are set up to comply with the paperwork.  Don't even think about making an exception to this rule:)

Keep it simple:

If you are contemplating a streamline 203k, it is best to keep things simple.  The borrower is acting as his/her own general contractor & there is no consultant.  Many lenders limit the number of specialized trades to two for the streamline 203K.  A specialized trade is separately licensed, such as an electrician and a plumber.  

If it can't be kept that simple, the regular 203K program is there for you.  It is a bit more expensive since there is a consultant fee ($700 on average) HUD actually maintains a fee cap list that varies per repair amount. 

Typically, the real world bids cannot exceed the consultant's estimate.  Sometimes that requires negotiation between the consultant and bidders, primarily to make sure they are talking apples to apples on specifications, etc.

If you are seeking bids from contractors, the first thing you should ask is if they have ever done 203K work before and would like the opportunity to bid on more.  Make sure they are willing to meet with the consultant and furnish the necessary evidence of licensing, insurance, bonding, whatever is required in your area.  If you commit to them and they get bogged down on another job, wll they make the time to get the underwriter the extra document requested?

FHA 203K Process direct from HUD and unfiltered

FHA 203K Streamline Mortgagee Letter

Renovation loans are often the perfect solution for buyers interested in getting a good deal on a bank owned property (REO-Real Estate Owned).  Often times REO properties are in rough shape and have to be priced so low that they attract cash buyers, because conventional or regular FHA financing terms are unavailable and the loss mitigation agents are not authorized to put serious money into these REO's in order to make them comply with regular loan programs.  They are concerned with title issues and liability. Typically, they will not allow buyers to make repairs prior to closing.

Investors generally pay cash, often borrowed at high rates and short term.  With a HUD Insured 203K loan a purchaser that intends to occupy the property long term can go toe to toe with deep pocketed investors, bidding for properties that are good renovation and quick resale candidates for them (HUD does check up on occupancy, so follow the rules).

Thinking of staying in your current home and remodeling?  Check out the normal sources for home equity loans.  It was possible to get cash out financing up to 100% of appraised value a little over a year ago. That is history.  Most lenders are now at 80%.  Those that venture to 90% of home equity lines of credit want very high rates, astronomical, if credit score is low.

The FHA 203K may allow you to borrow enough to pay off your current financing and cover all your proposed remodeling, since the appraisal will be based upon the value of your home with the improvements.

All of this is possible with one fixed rate loan.

Please note that many lenders exceed the HUD minimum requirements by lowering the work time frame from 6 months to 3 months. Generally, a 10% reserve for streamline 203K just as it is required for regular 203k even though HUD doesn't officially require it.

 Twin Cities 203K Consultant:

Paul Lesieur (click for info)