- Do you work with a lot of first time home buyers?
- Do you have clients who want to purchase a distressed property in need of repairs?
- Do your clients have money for the down payment but no funds to pay for the renovations?
- Would your clients like to move into an upscale neighbor and purchase a distress property while the prices are low but lack the funds to do the renovations?
- No bank is willing to loan your clients money to buy a property because their credit scores are below 700?
If you answered yes to any of the these questions your clients may be eligible for a 203K loan.
Buyers In Florida Are Discovering HUD 203K Construction Loans
Interest for 203K construction loans are on the rise as buyers are learning its benefits from lenders and realtors. This program not only creates great value for home buyers, but it allows buyers to put their own design, décor, and amenities into the home they are purchasing.
The HUD 203K program is a renovation loan that is combined with an FHA loan into a single loan and comes with all the benefits that FHA loans offer, including low interest rates and a low down payment, to mention a few. What’s more, the loans can be used for either purchase or refinance. In some cases buyers with credit scores as low as 640 can qualify
Single detached homes, multi-tenant (max 4 units), and mixed-use properties are all eligible for the 203K loan program. Condos were recently added to the list of eligible properties. Properties must be occupied by owners in order for the property to be eligible.
The list of allowable improvements is very broad. It includes room additions; kitchen and bathroom remodels; and electrical, plumbing, heating, A/C, and roofing repairs or replacement. It’s so broad, in fact, it even allows for houses to be taken down to the framing and rebuilt.
Three improvement lists are typically generated: the “wish list” by the buyer and one encompassing HUD minimum guidelines for health and safety that’s created by the 203K consultant. The property must be habitable upon completion. The two lists are combined into one list for contractors to bid on.
Initially two financial issues must be considered, the loan qualification and the valuation process. The buyer consults with the lender based on credit and financial review what the loan amount they will qualify for. If the loan qualification does not meet the total costs, then the construction bid may have to be altered. The construction bid must include any work required, to meet health & safety regulations set by HUD as identified by your 203K consultant.
Once a finalized construction bid is complete, your 203k consultant will forward The Bid Summary and all other documents required to your lender so an appraisal of the property can be ordered. The mortgage maximum needs to be calculated to underwrite a 203K mortgage loan. It’s principally based on the appraisal with improvements (construction). The mortgage maximum is based on the 110% of this appraisal.
203K Standard versus Streamlined
203K Streamline is tailored for simpler improvements like painting, new flooring, replacing new fixtures, or other enhancements costing less than $35,000 with a minimum of $5000. The advantages of this loan are that 50% of the funds are released upon close of escrow and no 203K consultant is required. But the customer will have to fund the remainder of the loan and be paid at the completion of the project. No moderate structural improvements are allowed. When structural issues are found the 203K Streamline becomes a 203K Rehab. If such an event were to occur a consultant must be involved, likewise if the project is complex enough the lender will require a 203k consultant. Lenders may require additional conditions based on the complexity of improvements.
The 203K Standard/Rehab is for rehab loans over $35,000. A HUD 203K consultant is required to oversee the entire project. Release of construction funds are paid through draws based on completed work. It’s best to contact a 203K consultant as soon as you decide that you want to participate in the 203K program