I get so many questions about Rehab loans, especially for Foreclosures in Hilltop and around Downtown Tacoma, that I took a few minutes to talk to a lender friend of mine at Wells Fargo about how exactly how FHA 203k Streamline loans work. If you have any further questions, post them in the comments and we’ll get you an answer.
What is an FHA 203k loan? This a loan which can be used to renovate a previously occupied home back to acceptable living conditions of the buyers choice. The 203K renovation loan is limited to 35K in improvements. The cost of the impovements are added the loan which is financed.
What is the minimum score required to qualify? 620
How much of a downpayment does the person need to have? 3.5%
Can you tell me a story about a client that did one and how it worked?
Purchase price $195,000
Loan amount $235,000
Renovations financed in: Updated electrical panel and wiring, Updated water main, Sewer Main, and pipes in Kitchen and bath, New bath with claw foot tub and wainscoting, Re-Seal and stain hardwood flooring, Replace hot water heater, new paint throughout, New kitchen cabinets, flooring, sink and faucet, disposal, stone countertops, tile backsplash. $29,658.56All Improvements were done by 2 Local Contractors one out of Tacoma, the other out of Bremerton. If you want the names and numbers, I would be happy to provide them. You could also use Home Depot Renovation Services and shave 2-3 weeks off the process.
Energy Efficient Mortgage Update: New Heating system and heat pump with air conditioning $10,875.35
Home Appraised after improvements? $290,000!!!!
Borrower bringing to closing $12,100.00
(seller paid closing costs and we could only finance $8,000 of the EEM improvements)New payment after improvements $1,617.80 PITI
30 year fixed rate at 5.250% – If he had chosen a 5/1 ARM rate it would have been 4.125% $1491.12 PITI
What are common misconceptions about FHA 203k loans?
That they require a Higher credit score or more strict underwriting guidelines – they are the same as our other FHA loans – Min score 600 with basic good credit in the last 24 months and verifiable, stable income.
That they are hard. – 203K loans are like FHA deals with extra steps – Setting expectations up front makes for a smooth transaction..
Allow enough time on the closing date. 60 days if they use Home Depot Reno services 90 or so if they don’t. Contractors tend to have challenges with completing paperwork properly. 🙂Can buyers do their own repairs? Is there a preferred contractor for repairs through Wells Fargo? Yes, the buyers can but they must be able show experience in that field. For example someone who is a contractor and did drywall work for a builder would not be able to roof or repair plumbing on a house they are buying etc.
How long does it take to close an FHA 203k Loan? 45- 60 days
Is the interest rate different than on a regular FHA Mortgage? No. Is there still Private Mortgage Insurance? Yes.
If you have more questions for him post them in the comments or you can find his contact information here. If you would like to start looking at homes that might be good cantidates for a rehab loan, contact me.
