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|FHA 203k refers to the loan program that aims at rehabilitation and repair of a single family home. The program targets mainly to the lower income communities, but other kinds of homeowners can also get affordable financing solutions through FHA’s Streamline 203 (k) Mortgage program, with an additional loan amount of $35,000.
The main objective of the program is to provide financial support for the purchase and repair or renovation of an owner-occupied residential property through a nationwide network of approved lenders. The lender does not have any risk to finance under the section as the 203k rehab or streamline loans are fully insured by the United States Department of Housing and Urban Development (HUD).
FHA 203k Loan
Not all properties are eligible for FHA 203k loan program. The property must be non-profit in nature and the buyer must have intention to live in that property. The loan requirements for a condominium project may vary, which one can learn from the guidelines published by HUD.
The application process starts with a homebuyer locating the property and making a preliminary feasible analysis. The homebuyer and real estate agent should work together to analyze the extent of rehabilitation work required, amount of money required to complete the work and the market value of the property after the rehabilitation. This should be done before signing the sales contract, which also includes a provision that the buyer is under consideration for Section 203 (k) financing.
Next contact a HUD field officer and obtain a list of approved lenders serving in your locality. A consultant will prepare work write-up and cost estimate, and you would be required to supply a HUD case number to your lender. Your contractor and you will meet a fee consultant to ensure that all loan requirements have been properly displayed on the architectural exhibits. Appraisers are assigned to provide appraisal reports on a specified form. The lender reviews the application and issues a conditional commitment based on the appraised value of the rehabilitated property.
Firm commitment is issued after the borrower provides information necessary to request a credit report and other documents that establish their ability to repay the mortgage. The lender prepares for mortgage loan closing after issuing the firm commitment. After closing, the copies of mortgage documents are submitted to the HUD office for mortgage insurance endorsement. If everything is found according to the FHA 203k loan requirements and HUD guidelines, a Rehabilitation Escrow Account is created. Funds are released upon the inspection of the work by HUD-approved inspectors.
FHA 203k Streamline Loan
Streamlined 203 (k) Limited Repair Program allows borrowers to finance beyond the normal loan limits under the Rehab plan. The maximum amount you can obtain additionally under the program is $35,000, which can be used to improve or upgrade your home. There are restrictions on allowable repairs and improvements under the program. The complete details can be found on HUD Mortgagee Letter 2005-50.
Moreover, the new plan is also available for mortgage refinance transactions. With the instructions provided on the form HUD-92700, you can easily calculate the maximum mortgage or refinance amount using a calculator. The form HUD-92700 is also known as 203(k) Maximum Mortgage Worksheet.
For more on down payment, timeline, checklist and many other aspects, you can refer to the website of either Federal Housing Administration (FHA) or the United States Department of Housing and Urban Development (HUD).