FHA Training : FHA’s Streamline 203k: A Useful Tool

Written By: Bonnie Wilt-Hild

 

As we all struggle with current market conditions, tightening credit standards and the disappearance of once available loan programs, it is more important than ever to educate ourselves on the loan programs still available.

Need FHA Training? CLICK HERE: http://www.FHA-Classes.org

As industry standards change daily, we constantly struggle to find programs that will allow potential borrowers to borrow the funds needed to complete purchase and refinance transactions that may not fall under realm of plain vanilla lending.

Given current market conditions and more particularly declining market values, it is important to find products that meet our borrower’s needs. High foreclosure rates along with the current credit crunch is making it difficult for some borrowers to obtain financing, period, let alone financing for repairs that a property that has been purchased at foreclosure might need.

In the most recent past, most rehabilitation lending programs where niche programs which were offered by small Savings & Loan’s or Thrift’s and were usually geared to real estate investors who had super strong credit histories not to mention significant assets. Rehab loans under these circumstances where generally not sold on the secondary market but offered by these institutions as shelf products.

One small bank that I was employed by offered such a program but actually discouraged rehabilitation loans to owner occupant borrowers. They want to deal strictly with investors, lending short-term money, say six months, and then have the loan paid in full. This type of lending mentality where the rehabilitation loans are concerned still exist today, with one exception, the 203k.

Although the 203k has been around for many years, it achieved its high popularity status in the early 90’s. It was around this time that FHA made some changes to the program which deemed it a little more user friendly. I underwrote a lot of them in the 90’s and I have to tell, I am a big fan of the program. But as Alt A programs gained popularity, no or limited documentation loans took hold and hard money lenders became more abundant, the FHA 203k seemed to go out of fashion. It was easier to do a Stated Income rehabilitation loan with a hard moneylender than it was to do a 203k so most loan originators guided borrowers away from the 203k even if the end result was a less then desirable loan program for the borrower.

Additionally, up until 2005, the 203k could only be originated and underwritten by approved 203k lenders, which eliminated a lot of loan brokers as well as lenders from the arena.

A lot has changed over the past year or two, both in the mortgage industry as a whole and with the FHA 203k. I have seen a definite revival of the program in the past 8 months and have on average underwritten at least 1 a month sometimes more. Not only has the 203k made a serious comeback, it has also been improved by FHA and is far more use friendly then ever. In 2005, FHA came out with a streamline version of the 203k which can be originated by any FHA approved lender or broker. It is designed to handle limited repairs to a property and by this I mean repairs up to $35,000.00 and is a owner occupant rehabilitation program. Guidelines under the streamline K are less paper intensive and for those of you familiar with the program, do not even require a 203k consultant.

When you consider declining market value and LTV restrictions placed on cash out refinance transactions where declining market conditions exist, the streamline 203k just might be the answer for both purchase transactions as well as refinance transactions for borrowers who wish to take cash out for home improvement purposes.

Need FHA Training? CLICK HERE: http://www.FHA-Classes.org

Program highlights:

Limited Repair & Rehabilitation (Streamline “K”)

● Purchase or a No-Cash-Out (full-document/credit qualifying) Refinance

● Allows borrowers to make basic repairs & minor remodeling

● Repairs/rehabilitation does not have to be noted or required by the appraisal

● No Minimum repair/rehabilitation cost

● Maximum repair/rehabilitation cost is $35,000

● Any FHA approved lender may originate; additional training/approval for underwriting lenders is not required

● Consultant (and plan) is not required

● Mortgagee Letter 2005-50 specifies both eligible and ineligible repairs, along with other guidelines (at www.hudclips.org)

● Can be used with REO/HUD homes

● General contractor is not required

● Must use contractors to complete repairs/rehabilitation (unless borrower can demonstrate needed expertise/experience)

● Advantages:

- Helps address the repair issues that could delay/prevent the sale

- Borrower can complete repairs after closing, and the cost is included in the loan (not out of pocket for borrower)

- Enables purchasers to update homes, correct health and safety issues, pay for higher cost items such as a roof

- FHA is less expensive than sub-prime loans (basically comparable mortgage payment), borrowers can buy, or refinance, homes that need some repair and/or minor rehabilitation.

***Information obtained from training material presented by the Atlanta Homeownership Center.

Keep in mind that the above information applies to the Streamline 203k only, not to the full 203k which would address major renovations greater then $35,000.00 in cost. For full 203k’s, lender approval and further requirements apply. However the streamline K is a great tool for any lender or broker and as one who has several years of experience with the program I can tell you it sometimes makes the difference between getting a case approved or not.

Additionally, it allows a lender to provide a wider range of products to potential homebuyers or homeowners as well as business partners, which just might make the difference under current market conditions.

Need FHA Training? CLICK HERE: http://www.FHA-Classes.org



About The Author

Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University (www.FHA-Classes.org) as well maintains a full-time mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans". If you're interested in becoming a writer for NAMP®, please email us at: contact@mortgageprocessor.org.


Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.