Borrower's Guide to the FHA 203k Loan
an excellent resource for contractors, lenders, and borrowers
Streamlined "k"
Many lenders are now treating every 203k as a "STREAMLINED k" initially. In most cases it will remain a Streamlined "k"
Procedure: The contractor goes out to see the property first and provides a bid on the work they decide needs to be completed. Whenever the cost of repairs exceeds $15,000 a consultant, plan reviewer, or appraiser MUST be brought in to do a final review once all the work has been completed.
Most every lender calls for a home inspection on the Streamlined "k" projects to get a feel for the condition of the structure, they might also likely call for a pest control report. The Sreamlined k is all about picking and choosing the work they want to do. The Full 203k has minimum requirments for the work. In both cases if the apprasier will call something then we need to include the work in the write up.
If you don't see a reason to order a termite report then DON'T. Most lenders say if the apprasier doesn't call for a termite report on a Sreeamlined k they don't want it. It is a buyer preference. If you get one, you must clear it.
Learn to read more than just section 1 and section 2 items as the written paragraphs are filled with information that may affect your project compliance. They sometimes call for a structural engineer and if that happens you are no longer a Streamlined "k".
The biggest problem I see with the streamlined k if you don't use a consultant to do the home inspection or "make the bid" is that the home inspector or contractor misses something that the appraiser catches on the appraisal inspection. That is deadly to the process. The guideline clearly states that if the appraiser finds anything that should have been called by the contractor or home inspector this project is not forced to a Full 203k and now you call a 203k consultant out to the project and this could delay your closing if they can't get our right away. They have to complete a write up and that typically results in a 21-25 page report.
If we have been called in for a "plan review" to be sure there isn't anything else that needs to be added to the scope of work. We will create a draw request, and other necessary contracts and turns them in to the lender. This is an option not a mandatory requirement.
The loan closes and the work is completed. The nature of a Streamlined "k" allows the contractor two draws if they choose to exercise that feature they can get from 35-50% of the contract amount at the start of the project, and one draw upon completion when the Consultant does a final inspection (if over $15,000 in construction cost) and turns in a "compliance inspection report"
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Click here Mortgagee Letter 2005-50 to get the complete lowdown on the Streamlined "k" directly from the FHA Guideline
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