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Tuesday, January 3, 2012

FHA 203(k) Streamline Quick Reference Guide

This is part four in the "Quick Reference Guide Series" that I started writing on Monday.  I have already covered FHA, VA, and Conventional loans with regard to general guidelines and the benefits to the home buyer.  In today's post, I will be covering my favorite loan, the FHA 203(k) Streamline.  The FHA 203(k) Streamline is a very under-utilized loan program and yet it helps the buyer get a home that ends up being much closer to the home they really want than any turn-key home they could buy.  It also makes it possible to write offers on homes that don't qualify for standard FHA financing as well as homes that aren't getting a lot of offers because the home needs work.  Done right, this loan can close just as quickly (give or take a few days) as a standard FHA loan and it has the potential to generate far more referrals.  We have a system that we use from start to finish that I won't go into here - feel free to call or email and I can let you know exactly what we do.  Here is the FHA 203(k) Streamline Quick Reference Guide:

The FHA 203(k) Streamline (also known as the government rehab loan) is a little used (underused) loan program that provides tremendous opportunity for Realtors and clients – this is one to focus on!!

The program guidelines are exactly the same as for the standard FHA loan:

Program guidelines:
            Loan-to-Value:  96.5%
            Debt-to-Income Ratio:  as high as 55%
            Minimum Credit Score:  none, but prefer 640+
            Mortgage Insurance: 
1)    Up-front = 1% of base loan amount (financed)
2)    Annual (paid monthly) = 1.15% of base loan amount
Reserves:  None required
            Bankruptcy:  Need re-established credit
1)    Chapter 7 – eligible 2 years from the discharge date
2)    Chapter 13 – eligible 1 year from the filing with Trustee’s approval
Foreclosure / short sale:  eligible three years from the foreclosure date or sale date.

The difference between this program and the standard FHA is that the home buyer can get up to $35,000 for rehab / repairs.  Here’s how it works:
1)    buyer gets accepted offer
2)    buyer gets bid from contractor (we have one we work with very closely
3)    Appraisal is done using the purchase contract and the bid and the value is “as repaired.”
4)    The loan amount is based on the lower of purchase price plus the bid price or the appraised value plus 10%.

Benefits to the buyer:
1)    The buyer can use FHA financing for homes that wouldn’t otherwise qualify for FHA financing
2)    The buyer can bid on homes that have less competition
3)    The buyer can get a house just they way they want it
4)    The Realtor will get more referrals from the raving fans who are their buyers.
D. Jed Wunderli
Certified Mortgage Planner
Alterra Home Loans

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