FHA’s 203(K) Programs Easily Compared

Posted March 2, 2012

The Federal Housing Authority (FHA) offers two (2) types of home-improvement loans for homebuyers:

FHA’s 203(k): This program allows qualified homebuyers to roll the costs of major improvements and upgrades into their home mortgages. A 203(k) loan begins with a feasibility study, overseen by an approved consultant. During this process, the consultant determines whether the improvements would be justified upon completion. (Luxury items and improvements that do not become a permanent part of the real property are not eligible as a cost of the home’s rehab.) Along with the lender, the consultant monitors the project’s progress and performs a final inspection upon completion. Escrow is then closed out, and any remainder is paid down against principal; and,
FHA’s Streamline 203(k): FHA’s Streamline 203(k) Buy & Repair Mortgage is an ideal program for clients in need of minor cosmetic repairs on their potential new home. With a Streamline 203(k) mortgage, the rehab cost is calculated into the original loan balance, resulting in one loan. The mortgage balance can exceed the purchase price of the property. The appraiser or home inspector will compile a list of recommended repairs/improvements. Unlike the Major 203(k) program, Streamline 203(k) eliminates the need for a consultant and consultant’s fees.

Following are charts which compare the program highlights and the ineligible and eligible repairs and improvements under FHA’s 203(k) Buy & Repair Mortgage and FHA’s Streamline 203(k) Buy & Repair Mortgage:

*Program Highlights:*
	*203(k)*	*203(k) Streamline*
May be used for purchase or refinance of one-to-four (single-family), owner- occupied residences	*	*
Fixed-rate mortgage available	*	*
Reduces financing costs with one mortgage and only one set of closing costs	*
$5,000 minimum requirement for eligible improvements on the existing structures of the property	*
No minimum loan balance required		*
Maximum $35,000 total rehab cost		*
For less complex projects that require no plans or specs		*
Property must be at least one year old		*
Property must be occupied within 30 days of closing		*
Work must commence within 30 days from closing		*
Work must be completed within six months		*

Ineligible Improvements & Repairs:
	*203(k)*	*203(k) Streamline*
Barbeque pit	*	*
Exterior hot tub or gazebo	*	*
Sauna or spa	*	*
Outdoor fireplace or hearth	*	*
Photo mural	*	*
Installation of a new swimming pool	*	*
Television antenna or satellite dish	*	*
Landscaping or yard work		*
Major remodeling		*
Moving a load-bearing wall		*
Room additions		*
Fixing structural damage		*

Eligible Improvements & Repairs:
	*203(k)*	*203(k) Streamline*
Structural repairs or alterations and reconstruction (i.e., installation of additional bathroom(2), repair termite damage, etc.	*
Major site improvements that enhance property value; fencing, new walks and driveways and general landscape work may be eligible, but cannot be include in the first $5,000 requirement	*
Roofing, gutters and downspouts	*	*
Accessibility improvements for persons with disabilities	*	*
Reconditioning or replacement of plumbing, heating, air conditioning and electrical systems	*	*
Energy conservation and efficiency improvements, including weather stripping, insulation, and new windows and doors	*	*
Installation of well and/or septic system	*	*
Improved functionality and modernization (i.e., remodeled bathrooms or kitchen)	*
Minor kitchen and bath remodels, including new kitchen appliances		*
Elimination of health and safety hazards (i.e., stabilizing or removing lead-based paint)	*	*
Changes for aesthetic appeal and elimination of obsolescence (i.e., new exterior siding, covered porch, decks, patios, stair railings, etc.)	*	*
Flooring: carpet, tile, wood, etc.	*	*
Related fixtures and general painting also may be eligible, but cannot be included in the $5,000 requirement	*
Interior and exterior painting		*

Shannon Register, Broker/Owner

A native of Columbus, Georgia, and a graduate of the University of Georgia, Shannon has lived in the Houston area since 2004. She holds over nine real estate Certifications and Designations. Shannon is the host of "Houston Real Estate Radio" on am700 KSEV in Houston.

Leave a Comment