The Section 203(k) Rehabilitation Mortgage Insurance Program allows individuals or families to purchase or refinance and rehabilitate a home that is at least one year old with a single mortgage loan.
A portion of the loan proceeds is set aside in an escrow account and released as rehabilitation is completed. The cost of the rehabilitation must be at least $5,000 and the total mortgage amount on the property, including the cost of the repairs, must fall within the FHA mortgage limit for the area. The extent of the rehabilitation covered by Section 203(k) financing may range from relatively minor (though exceeding $5000 in cost) to near total reconstruction provided that the existing foundation system remains in place.
The types of improvements that borrowers may make using Section 203(k) financing include:
* structural alterations and reconstruction
* modernization and improvements to the home's function
* elimination of health and safety hazards
* changes that improve appearance and eliminate obsolescence
* reconditioning or replacing plumbing; installing a well and/or septic system
* adding or replacing roofing, gutters, and downspouts
* adding or replacing floors and/or floor treatments
* major landscape work and site improvements
* enhancing accessibility for a disabled person
* making energy conservation improvements
* What is the Streamline 203k program in New Jersey
The loan program offers the borrower one mortgage loan, to finance both the acquisition and the rehabilitation of the property.
To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work.
This program can be used to accomplish rehabilitation and/or improvement of an existing one-to-four unit dwelling in one of three ways:
How a FHA 203k loan works
A portion of the loan proceeds is used to pay the seller, or, if a refinance, to pay off the existing mortgage, and the remaining funds are placed in an escrow account and released as rehabilitation is completed.
The cost of the rehabilitation must be at least $5,000 and a maximum of $35,000.
The value of the property is determined by either:
(1) the value of the property before rehabilitation plus the cost of rehabilitation, or
(2) 110 percent of the appraised value of the property after rehabilitation, whichever is less.
What is the Streamline 203k program in New Jersey
FHA 203k loan purchase
You've found the perfect home but it needs some work. A 203K loan is your answer. It's one loan both for the purchase and rehab.
Let's say you want to purchase a property for $100,000 and the property needs $35,000 for rehab. The total of $135,000 will require a 3.50% down payment or $4,725.
The offer is the purchase price of the home only. Do not include the cost of repairs anywhere in the sales contract or offer. In the above example, the purchase price on the sales contract or offer would be $100,000.
At closing, the seller of the property is paid off and the $35,000 are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.
FHA 203k loan refinance
You must own the property for at least six months before you can qualify for refinancing.
You are required to use at least one contractor to do the repair work.
Self-help renovations are not allowed unless the borrower can prove they have proper expertise.
When choosing a contractor, FHA guidelines state you must get an estimate which is broken down into specifics regarding the costs of each project. Contractors must sign an agreement to do all the work included in the estimate for the amount and within the time specified.
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The following repairs can be financed with this program:
* Repair/Replacement of roofs, gutters and downspouts
* Repair/Replacement/upgrade of existing HVAC systems
* Repair/Replacement/upgrade of plumbing and electrical systems
* Repair/Replacement of existing flooring
* Minor remodeling, such as kitchens, which does not involve structural repairs
* Exterior and interior painting
* Weatherization: including storm windows and doors, insulation, weather stripping, etc.
* Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwaves
* Improvements for accessibility for persons with disabilities
* Lead based paint stabilization or abatement of lead based paint hazards
* Repair, replacement or the addition of exterior decks, patios and porches
* Basement remodeling which does not involve structural repairs
* Basement waterproofing
* Window and door replacement and exterior siding replacement
* Well or septic system repair or replacement
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