FHA Streamlined 203(k) Limited Repair Mortgage Loan Program

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The Streamlined (k) program is intended to facilitate uncomplicated improvements and/or rehabilitation to a home for which consultants, plans, architects and/or engineers are not required. The Streamlined (k) program includes the discretionary repairs and/or improvements shown below:

- Replacement/Repair of gutters, roofs and down spouts.
- Repair/Upgrade/Replacement of existing HVAC systems.
- Repair/Upgrade/Replacement of plumbing and electrical systems.
- Replacement/Repair of flooring.
- Minor remodeling, which does not involve structural repairs, such as kitchens.
- Painting, both interior and exterior.
- Weatherization, including storm doors and windows, weather stripping, insulation, etc.
- Installation and the purchase of appliances, including refrigerators, free-standing ranges, dryers/washers, microwave ovens, and dishwashers.
- Accessibility improvements for persons with disabilities
- Abatement of lead-based paint hazards or lead-based paint stabilization.
- Replace/Repair/Add patios, exterior decks, and porches.
- Basement remodeling and finishing, which does not involve structural repairs.
- Waterproofing the basement.
- Exterior wall re-siding and door and window replacements.
- Well and/or septic system replacement or repair.

Properties that require the following work items are not eligible for financing under the Streamlined (k):

- Major remodeling or major rehabilitation, such as the relocation of a load-bearing wall;
- New construction (including room additions);
- Structural damage repair;
- Repairs requiring architectural exhibits or detailed drawings;
- Landscaping or similar site amenity improvements;
- Rehabilitation activities that require more than two (2) payments per specialized contractor; or
- Any improvement or repair requiring a work schedule longer than six (6) months.


Given the need for homeowners to make minor repairs without exhausting personal savings, and in consideration of the increasing cost of materials, the minimum repair cost of five-thousand dollars is eliminated and the ceiling is now raised to thirty-five thousand dollars. This revised maximum rehabilitation/repair amount recognizes the cost of making older homes more energy efficient. Note that as described below, the mortgagee must obtain or perform an inspection to determine that all listed repairs were completed, when the repairs exceed fifteen-thousand dollars.

Streamlined (k) may be used for single-family housing sold by HUD, like the regular Section 203(k) program. REO properties that have been designated by FHA's Marketing and Management contractor (M and M) as "uninsurable" (with more than $5,000 but no more than $35,000 in required repairs) or as "insurable" with repair escrow ($5,000 or less in required repairs) are eligible for the Streamlined (k) program provided that the repairs qualify as eligible work items outlined in above.

Also, mortgagees are reminded that nonprofit purchasers of multiple HUD Homes using the Streamlined (k) program must comply with the financing and approval requirements described in Mortgagee Letter 00-8.

Where a pre-1978 property has been determined to contain lead-based paint and the M and M Contractor has completed a cost estimate and stabilization plan to stabilize (mitigate) the deteriorated paint, then the Streamlined (k) program may be used for the financing of REO purchases. The purchaser must sign a 203(k) rehabilitation financing lead agreement requiring that a clearance report and examination be included in the work write-up and conducted before occupancy and before release of the final construction disbursement. The credit from HUD, received at sales closing by the purchaser, associated with the lead-based paint stabilization plan is not included in the thirty-five thousand dollar Streamlined (k) limit. The Streamlined (k) program may be used for all eligible repair items as shown above, including the cost of lead-based paint stabilization not paid for by HUD when it sells a property requiring lead-based paint stabilization. A Environmental Protection Agency (EPA) or state certified lead-based paint inspector, certified sampling technician or risk assessor, must perform the clearance examination.

The M and M Contractor determines whether repairs are necessary to stabilize any lead-based paint, when the Department sells a single-family REO property. HUD's regulations for pre-1978 housing require the stabilization of paint except for paint determined not to be lead-based paint. HUD may reduce the sales price by the amount of a credit equal to the Department's contribution toward the cost of lead-based paint stabilization. Any lead-based paint stabilization costs in excess of this credit become the responsibility of the purchaser.

The Streamlined (k) program is also available for mortgage refinance transactions including those where the property is owned clear and free. Only credit-qualifying "no cash out" refinance transactions with an appraisal are eligible for the Streamlined (k) program. The form HUD-92700 provides instructions for calculating the maximum mortgage permitted for Streamlined (k) loans for refinance and purchase transactions.

The acquisition cost must be used to determine the maximum mortgage amount, if the borrower has owned the property for less than a year. The requirement to use the lowest sales price within the last year does not apply to the Streamlined (k) program.

The Streamlined (k) program may be used for discretionary improvements and/or repairs that may not have been identified in the course of a pre-purchase appraisal and inspection. The mortgagee must provide the appraiser with information regarding the proposed improvements or rehabilitation and all cost estimates so that an after-improved value can be estimated. The contractor's cost estimate as well as a description of the proposed improvement and/or repairs must be included in the appraisal report. The appraiser is to indicate in the reconciliation section of the appraisal report an after-improved value subject to completion of the proposed improvements and/or repairs.

Form HUD-92700, 203(k) Maximum Mortgage Worksheet must be used to calculate the mortgage amount. Also, the appraiser must provide an after-improved value since on-hundred and ten percent of that amount is used in calculating the maximum mortgage. Consultant and architectural fees, line items 6 and 7 of Section B of the worksheet are not applicable to the Streamlined (k) program. For Item 3 of Section D, please refer to handbook HUD-4155.1 REV-5, paragraph 1-7 which provides the various maximum loan-to-value ratios. Expenses that may be included in the total amount of the improvements, not to exceed the $35,000 limit, are building and other permits, inspection fees, title update costs, the supplemental origination fee, and the amount of any contingency reserve required by the mortgagee.

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