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Posted 06/28/2016

Which FHA 203k Loan Should You Choose For Home Construction: Standard or Streamline?

Comparing the 203k Streamline to the 203k Standard

Construction Spending Tops $380 Billion

Homeowners spend more than $380 billion on home construction on a seasonally-adjusted, annualized basis.

Some of those monies are used to build new homes; some are used to rehabilitate existing ones; and, some are used for tear-downs -- homes which are purchased for the purpose of being "torn down", then rebuilt to an owner's specifications.

There are many ways to finance a home construction projects but the two versions of the FHA 203k program have emerged as a popular choice among today's home buyers and homeowners wishing to make home improvements.

The two FHA programs are known as the "Standard" 203k, and the "Streamline" 203k.

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The FHA 203k: "Standard" and "Streamline"

The FHA is not a mortgage lender. Rather, it's an insurer of loans.

As an insurer, the FHA provides a backstop to mortgage lenders who make loan which meet the agency's standards for insurance.

For example, the FHA will insure a loan if the borrower's FICO score meet certain minimums (e.g; 580 or better); and, if the borrower is a legal resident of the United States; and, if the borrower's monthly income is reasonable with respect to the household's monthly debts.

The FHA publishes a series of such standards which, collectively, are known as the FHA mortgage guidelines. Loans which meet FHA guidelines can be insured, and loans which can be insured can be approved.

FHA guidelines also include provisions for certain "programs", which may fall outside of the typical mortgage applicant's need.

One such FHA program is its construction loan program, formally known as the "203k". The 203k comes in two varieties -- the Standard and the Streamline.

The FHA 203k can be used by owner-occupants of a home, local governments, and other eligible non-profits. It can be used to purchase and/or renovate a home with up to 4 units, and can be used in a multi-use building with certain exception.

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What Is The Difference Between Standard and Streamline 203k?

The two versions of the FHA construction loan -- the 203k Standard and the 203k Streamline -- work basically the same way.

However, there are a few differences.

First, the Streamline 203k is capped at $35,000 in repairs, and asks for less paperwork as part of the approval. The Standard 203k is not capped at $35,000 and paperwork requirements are a little more intense.

Another difference between the two 203k programs is that the Streamline 203k requires that the home be "habitable" throughout the period of renovation. If the home will be uninhabitable for any reason at any time, use of the Standard 203k is required.

However, borrowers using the Standard 203k can add up to six months of mortgage payments to their construction loan for the period during which the home is uninhabitable.

A third difference is that, with the Streamline 203k, payments to a contractor can be handled in two phases. The first payment can be made at the start of the project (i.e. 50% down to start the work); and, the second payment can be made at the project's conclusion (i.e. remaining 50% on the work).

With the Standard 203k, payments are made differently. There is an assigned "consultant" who monitors construction, making payments as each phase of rehabilitation is completed.

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Which 203k Loan Should I Choose?

The two 203k programs also vary in what type of work can be performed. The FHA program guidelines include a comprehensive list.

This is the work which is allowed via the FHA 203k Streamline:

  • 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¬†which does not involve structural repairs
  • Exterior and interior painting
  • Weatherization of windows and doors, insulation, weather stripping.
  • Purchase and installation of appliances
  • 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

And, this is the work allowed via the FHA 203k Standard:

  • Major rehabilitation, such as the relocation of a load-bearing wall
  • New construction, including room additions
  • Repair of structural damage
  • Repairs requiring detailed drawings or architectural exhibits
  • Landscaping or similar ‚Äúsite amenity‚ÄĚ improvement
  • Any repair requiring a work schedule longer than three (3) months; or rehabilitation activities that require more than two (2) payments per specialized contractor
  • Improvements that require a plan reviewer
  • Improvements that result in work not starting within 30 days after loan closing; or cause the owner to be displaced from the property for more than 30 days during the time the rehabilitation work is being conducted

In a capsule, the Streamline lives up to its name -- less paperwork for the borrower, easier for the lender to approve, and a simplicity in the draw schedule. The Standard 203k is meant for "bigger jobs".

Both loans can be a boon for those looking to buy and rehabilitate before moving in the house.

What Are Today's 203k Mortgage Rates?

The FHA 203k loan can help you purchase and/or rehab a home with less hassle and fewer costs than a traditional home construction loan. It also helps that FHA mortgage rates are low.

Take a look at today's FHA mortgage rates now. Your social security number is not required to get started, and all quotes come with instant access to your live credit scores.

Click to see today's rates (Jul 1st, 2016)

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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2016 Conforming, FHA, & VA Loan Limits

Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)