FHA 203k Streamline: A Great Way to Buy a Bank Owned Property! July 19, 2008
Posted by Patti Shawgo in Interesting Stuff, Mortgage Stuff, Real Estate, Rehabbing.trackback
A big problem is starting to appear. More and more properties that are going into foreclosure are missing appliances, lighting fixtures, cabinets, etc. Anything that is removable and worth some money is starting to disappear before a property goes into foreclosure.
Well, this can become a huge issue for prospective home buyers. Bank owned properties are almost always sold as is, where is. Meaning the bank is not making ANY repairs. However, to get financing, the property may need to have some of these missing items in order to have a clean appraisal. Especially now that FHA is fast becoming the loan of choice for many buyers, what’s are you to do?
There is a fantastic program that FHA has called an FHA 203k Streamline loan. This sibling to the standard 203k Rehab loan is the perfect solution to many bank-owned property sales. With any FHA 203k loan you can finance the cost of property repairs into the loan. With a streamline 203k loan, it just makes the process, you guessed it….streamlined!
If a property needs less than $35,000 in work and has no structural repairs, it is a great candidate for the 203k streamline. It’s easier than a regular 203k loan in that you don’t need a HUD 203k consultant, you can usually close faster than a traditional 203k loan, and there are less fees involved as well. But, and I can’t stress this enough, you need to know going in what repairs you want to do and be fast about getting estimates and picking your contractors if you want to close in a speedy manner.
Another important factor to note, is that the appraised value is based on the after-improved value. So if you are buying a property at $200,000, it doesn’t need to appraise at it’s current state at $225,000 for you to be able to finance the repairs. The appraiser is going to look at what you are planning to do with the property and give you a value for the property once those repairs are complete.
With the rise of foreclosures and the condition that many of these properties are in, I think you will be hearing a lot more about these kind of loan options going forward. Just remember…you heard it hear first!
Can you answer a question for me Patricia?
We’re involved with a property that is a short sale, we are the buyers. Believe it or not this short sale may well get ratified and close – tough in this area. The last one we took a stab at we waited 6 months on it, yet it still went to foreclosure.
My question is regarding the instant equity in the home, and financing. We are already approved for our loan. I do not have yet a current appraisal, so I will use theoretical numbers. The seller had purchased the home in 2006 for almost $490k. There is nothing wrong with the home to the best of my knowledge; in fact, the sellers have made improvements to the home since their purchase. We are purchasing the home for $350k.
That said I’ll use some safe numbers. Lets say the house appraises for only $400k. We buy it for $350k the difference of $50k is instant equity, is that right?
If we were to put 10% down instead of the 20% required to avoid PMI, that amount would be $35k. Equity in the home together with the $50k is then $85k, is that right?
Could we then therefore actually put down only the 10%, given the amount of instant equity, and still avoid PMI due to having the 20% equity owned in the home in the amount of $85k, (which is actually $5k higher than the $80k).?
Forgive me please if these are silly questions, we are rather overwhelmed. Thank you so much for any input you can provide here.
The 203k streamline is clearly a less costly way to go over a full blown 203k consultation however we, as trainers for consultants, recommend that the lender utilize a consultant to do a plan review and verify that your contractor hasn’t missed obvious things required by the program, and let the consultant do the final draw inspection. Most of the consultant’s I know actually bring customers to their lenders from calls they get off the HUD consultant list. I don’t think you should discount that networking opportunity. I know I have taken three customers to my lender in the past few months in my show of appreciation. Good luck with your 203k business.
Can you recommend some resources to find 203(k) qualified contractors in Virginia.
ShmooInVA:
You can use any contractor you want that is licensed to do repairs for a 203k streamline rehab. If you are doing a regular 203k loan and using a 203k consultant, they can help you figure out quotes from different contractors and give you guidance on the construction front. I can help you with the loan part on a 203k in Virginia, but you can also find a 203k consultant by searching here: https://entp.hud.gov/idapp/html/f17cnsltdata.cfm
i’m looking for a regular 203k loan, but all i hear is that they are unavailable now, only streamlined. do you find that to be true?
Thanks for the comment, but that’s not true at all! If a place can do a 203k streamline rehab, there is no reason they couldn’t do a regular 203k loan. It might just be that they do not have a lot of experience in it. I’ve heard that some mortgage brokers, who largely only recently have been able to do FHA loans at all, cannot do 203k rehab loans. But I most certainly can, and there is a great need for that program right now.
I’m not sure if you could help me, but I thought I would try anyway. I am looking into purchasing a home, but I am hesitant because the house recently flooded. Before the house flooded I was under contract with this home, unfortunatley when they de-winterized it the house flooded. The house is a split entry home and the flood started from upstairs and went down to the basement. The bank does not want to deal with any repairs so they wanted me to make them another offer. How concerned should I be about mold build up and the possibility of not being able to get rid of any mold and preventing it from coming back. By the way I was originally going to get an FHA loan, but now with this situation I need to get a FHA 203K Streamline. If you could give me any advise I would greatly appreciate it.
Hi,
I was interested in getting information about a $50000 forgivable loan program from the goverment. Any help would be appreciated.
thanks
David
Acquired Home Services Inc. Provides HUD 203(k) Inpspection and Consulting Services In VA, MD and DC. 703-754-3766
Our inspectors can usually have the work write up ready in 24 hours.
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