fha Streamlined 203k information for KY loans
The Streamlined (k) program is intended to facilitate uncomplicated rehabilitation and/or improvements to a home for which plans, consultants, engineers and/or architects are not required. The total costs of repairs are not to exceed $35,000.
What repairs or improvements are eligible under the Streamlined (k) program?
The Streamlined (k) program includes the discretionary improvements and/or repairs shown below:
- Repair/Replacement of roofs, gutters and downspouts
- Repair/Replacement/upgrade of existing HVAC systems
- Repair/Replacement/upgrade of plumbing and electrical systems
- Repair/Replacement of flooring
- Minor remodeling, such as kitchens, which does not involve structural repairs
- Painting, both exterior and interior
- Weatherization, including storm windows and doors, insulation, weather stripping, etc.
- Purchase and installation of appliances, including free-standing ranges, refrigerators,
- washers/dryers, dishwashers and microwave ovens
- Accessibility improvements for persons with disabilities
- Lead-based paint stabilization or abatement of lead-based paint hazards
- Repair/replace/add exterior decks, patios, porches
- Basement finishing and remodeling, which does not involve structural repairs
- Basement waterproofing
- Window and door replacements and exterior wall re-siding
- Septic system and/or well repair or replacement
What improvements are INELIGIBLE under the Streamlined (k) program?
- Major rehabilitation or major remodeling, such as the relocation of a load-bearing wall;
- New construction (including room additions);
- Repair of structural damage;
- Repairs requiring detailed drawings or architectural exhibits;
- Landscaping or similar site amenity improvements;
- Any repair or improvement requiring a work schedule longer than three (3) months; or
- Rehabilitation activities that require more than two (2) payments per specialized contractor.
The Streamlined (k) program is not to be used to finance any required repairs arising from the appraisal that do not appear on the above list of Streamlined (k) Eligible Work items or that would:
- Necessitate a "consultant" to develop a "Specification of Repairs/Work Write-Up";
- Require plans or architectural exhibits;
- Require a plan reviewer;
- Require more than six months to complete;
- Result in work not starting within 30 days after loan closing; or
- Cause the mortgagor to be displaced from the property for more than 30 days during the time the rehabilitation work is being conducted. (FHA anticipates that, in a typical case, the mortgagor would be able to occupy the property after mortgage loan closing).
What are the minimum and maximum amounts for repair costs under this program?
There are no minimum repair costs. The maximum total repair costs are $35,000 subject to a maximum loan to value as listed below.
Will FCM close if a Temporary Certificate of Occupancy (T/C/O) has been issued from the local authority?
If a Certificate of Occupancy (C/O) is required from the local building department, FCM will require the C/O be issued prior to closing. If the local building department has issued a
Temporary Certificate of Occupancy (T/C/O), lender will close the loan with the following:
- The requirements from the town may not be a safety concern of lender's underwriter.
- All town requirements must be addressed in the final contract between the mortgagor and their contractor (Contract)
- All items on the Contract must be completed, including all town requirements for the C/O
- AND a final C/O must be issued before the final payment to the contractor is made.
- In the underwriter's opinion, all items must be able to be completed within 30 days of closing
Is there a final inspection required to be done once all work is completed?
Yes, an inspection to determine that all listed repairs and or renovations were satisfactorily completed is required regardless of the amount borrowed for the repairs or rehabilitation.
Can this program be used for repairs and improvements on purchases of HUD Homes?
Yes. Like the regular Section 203(k) program, Streamlined (k) may be used for single-family housing sold by HUD REO properties that have been designated by FHA's Management and Marketing contractor (M&M) as “insurable” with repair escrow ($5,000 or less in required repairs) or "uninsurable" (with more than $5,000 but no more than $35,000 in required repairs) are eligible for the Streamlined (k) program provided that the repairs qualify as eligible work items outlined above. Repair escrows are not allowed. Files fitting into the insurable with repair escrow of $5,000 or less will still need to be done as a Streamlined 203k.
What are the mortgagor's requirements for selecting the contractor? What are FCM's requirements for reviewing the contractor and the rehabilitation proposal?
If the repairs require more than one contractor, the mortgagor must utilize the services of a duly licensed and bonded general contractor. The general contractor will be under contractual obligation for the entire work to be performed from start to finish. The general contractor is responsible for hiring the different trades required to complete all of the work. "Self-help" arrangements, in which the mortgagor performs the work, will not be approved.
FCM will review the mortgagor's proposed work plan and cost estimates to ensure the planned work meets all program and repair recommendations as noted on the appraisal report. The mortgagor must provide FCM with a written cost estimate. Ali repairs and improvements must meet any and all local codes and ordinances as evidenced by a permit issued by the local authority (if applicable). The mortgagor and/or contractor must obtain all required permits prior to closing (if applicable).
The submitted cost estimate(s) must clearly state the type of repair and the cost for completion of the work item. FCM will review and verify the contractor's credentials and work experience and may require the mortgagor to provide additional cost estimates from other licensed and bonded contractors if necessary. FCM reserves the right to decline the use of a specific contractor at its sole discretion.
The selected contractor must agree in writing to complete the work for the amount of the cost estimate and must agree to complete all work in a professional and satisfactory manner within 90 days of closing. A copy of the contractor's cost estimate(s) and the executed Homeowner/Contractor Agreement must be received by FCM prior to closing.
How much time is given to complete the work?
The contractor must finish the work in accordance with the written estimate and Homeowner/Contractor Agreement within 90 days. If the work is not completed within 90 days of closing, a principal reduction will be made against the remaining unpaid balance of the mortgage.
Disbursements made to contractors/borrowers?
No more than two payments may be disbursed to the contractor. The first payment is made at the initial funding of the loan and is intended to defray material costs and shall not be more than 50% of the estimated costs of all repairs/improvements. When permits are required, those fees may be reimbursed to the contractor at closing and will be included into the initial disbursement.
The final disbursement will be made following completion of all work and release of any and all liens arising out of the contract or submission of receipts or other evidence of payment covering all subcontractors or suppliers who could file a legal claim. Before a final disbursement is made, the mortgagor must sign a statement acknowledging that the work has been completed in a professional and satisfactory manner. In addition, prior to the release of the final disbursement, a final inspection from the appraiser must be received my FCM verifying that the work has been completed in accordance with the approved estimates.
Additional costs charged to the mortgagor?
FCM will holdback an amount equal to two inspection fees (generally $150 apiece). Unused inspection fees will be credited against the unpaid principal balance within 30 days of the project’s completion.
How much is the contingency reserve?
The contingency reserve is up to 10% of all repairs or rehabilitation expenses. The amount of reserve is at the underwriter's discretion. All funds remaining in the escrow account after final payment to the contractor is made, including any remaining reserve amount, will be used as a principle reduction of the existing mortgage.