The 203k Streamline Needs a HUD Consultant.
The 203k Streamline is gaining some steam and increased Realtor acceptance. However, with the increased popularity comes misconceptions. The 203k Streamline is meant for minor cosmetic work and has a cap of $35,000 in repairs, a homebuyer and contractor is all that’s needed……or is it?
Any repair amount greater than $35,000 is still possible, but the loan gets classified as a 203k Standard loan.
The 203k Standard can do more in depth repairs such as room additions, and again can go well above the $35,000 than the 203k Streamline repair loan limit.
Due to the higher repair limit and increased complexity, the 203k Standard has a higher interest rate and fees and it also requires an approved HUD Consultant to oversee the project which yes is an additional fee, but well worth it.
Many times the 203k Streamline repairs bump up against the $35,000 maximum leaving no room for error. When a 203k Streamline project ends up going overbudget, which happens often, the loan must be flipped over to a 203k Standard which can put the entire transaction in jeopardy. Not all banks do both the 203k Streamline and the 203k Standard which creates problems and not all borrowers can qualify for the higher loan amount and interest rate that accompany the 203k Standard. So how do we avoid these problems?
Using a HUD Consultant on a 203k Streamline isn’t required, but it should be. The HUD Consultant knows contracting in and out, as well as the 203k. You can head off problems in the beginning by using a HUD Consultant to inspect the property which will give you piece of mind knowing that a qualified individual has let you know if the property can be submitted as a 203k Streamline or not based on the HUD Consultants findings.
Mortgagors may not use the Streamlined (k) program to finance any required repairs arising from the appraisal that do not appear on the 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).
The HUD Consultants fee is similar to the Home Inspector that your Realtor recommends to their clients.
If you have a HUD Consultant inspect your property, you don’t need a Home Inspection, and their fees are similar.
Knowing up front if your dream fixer property fits in the 203k Streamline “box” upfront should be required thinking and a HUD Consultant can save a homebuyer, Realtor and seller, headaches and aggravation if they are given the opportunity to inspect on all 203k Streamlines.