What's the Big Deal About the 203(k) Streamline Program?

Written By: Catherine Hall, 203(k) Streamline Expert and Advisory Board Member (MortgageCurrentcy.com). Visit her website at 203kInABox.com.

This is the first in a three part series that will be presented to introduce the program to some and re-acquaint others with an FHA product that is receiving a lot of attention in this “New Home Buying Market”- and rightly so. It is a great product and one that every member of the homeownership industry should take the time to understand – at least their potential role in the process.

PART I- THE PROCESS

What is a 203(k) mortgage?

The FHA 203(k) product/program provides a buyer with the ability to buy a home that is in need of significant repairs with an FHA insured loan and get the repairs completed after closing. When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203(k) program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, 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.

Who could use this program?

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