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  • 203(k) Renovation Guidelines

  • What Is the Difference Between a Streamline K and a Consultant K Loan?

    The renovation can be completed under either a Streamline K loan or a Consultant K program. Choosing which loan suits you best will depend on the amount and type of improvements your property needs.

    Streamline K:

    The Streamline K program is for homes needing limited repairs and requiring relatively little expertise to manage. The distinguishing feature of the Streamline 203(k) is that there is no consultant managing the project with multiple draws. Instead, this program is primarily designed for a "streamlined" project where the home can be occupied immediately after closing, and the contractor will receive one draw in the amount of 50% of the total contract and the final payment at completion. It has no minimum repair costs but has a cap of $35,000 (including rehabilitation fees).

    Consultant K:

    The Consultant K is typically used for homes that need repairs in excess of $35,000 or require structural repairs. There must be at least $5,000 worth of repairs, and loan limits are based on property type and location. The Consultant K program allows for more extensive work to be done, and requires more supervision throughout the process.

    Comparison of Features: Consultant K vs. Streamline K

    TopicConsultant KStreamline K
    Nature of project Substantial rehabilitation/renovation (seeConsultant K Eligible Improvements) Repair & remodeling (see Streamline K Eligible Improvements)
    Purchase/Refinance Either Either
    Repair cost Min $5,000, max as supported by appraised value No min.  $35,000 Max total costs (est.  $31,000 in repairs)
    Self-help (owner performing work)* Yes – Max $30,000 (owner can only perform $30,000 of the work but the work is not limited to $30,000 and they MUST be in the trades); 10% of repairs in cash reserves No
    Owner GC (multiple contractors)* No, Self Help Yes (Max – 3 contractors)
    Max number of draws Up to 5 (plus final release) 1 (plus final release) per contractor
    Initial draw/release for materials For kitchen cabinetry & finish flooring, roof and windows only Up to 50% of rehab total amount
    Max financed mortgage payments If property is uninhabitable up to 6 with DE UW approval 0
    HUD REO sales Yes Yes
    Contingency reserve Yes 10% (15% if vacant or if utilities are not on) Yes 10% (15% if vacant or if utilities are not on)

    *See General Contractor vs. Owner GC vs. Self-Help below.

    Who Can Perform the Repairs?

    General Contractor (GC) – Streamline K or Consultant K

    Requirements for a GC:

    • Signature on the work write-up acknowledging cost of repairs – Consultant K
    • Signature on detailed contractor bid including the breakdown of labor and materials for each aspect of contract – Streamline K
    • Copy of all applicable licenses: business, contractors, etc., as required by the state municipality
    • Proof of insurance
    • Three business references from similar jobs
    • Homeowner/Contractor agreement
    • Contractor’s acknowledgement and profile
    • W-9

    Owner/Manager – Consultant K or Streamline K

    The following conditions apply for Owner GC:

    • You may manage multiple (up to three) subcontractors but may perform none of the work yourself.
    • We require the same documentation as listed above for any subcontractor completing work on the project.

    Self-Help — Consultant K only

    Because we have a work write-up from a HUD consultant, borrowers can manage multiple subcontractors or perform some or all of the work themselves. The following conditions apply:

    • Any cost of rehabilitation in excess of $30,000 must be completed by other contractors or subcontractors.
    • Borrowers must provide a letter explaining their ability to perform the work. The letter should include previous experience in the field, previous experience working with the subcontractors, how they will have the time to manage and complete the job and proof of reserves to support the job.
      TIP: Nights and weekends are NOT sufficient.
    • Depending on the borrower’s explanation and the nature of the work to be completed, the Underwriter may require additional documentation to determine that the borrower can reasonably be expected to complete the work to the specifications required in the time allowed.
    • No funds are released to the borrower in advance of the work being completed and inspected.

    What Type of Properties Can Be Financed?

    Single-Family Residences
    • Single family attached, detached, and PUDs are eligible for 203(k) lending.
    Two- to Four-Unit Properties
    • All two- to four-unit properties require confirmation that the property will not be used for transient use (for example, nightly and weekly rentals).
    • There are limitations to the loan to value under this program if a non-occupant co-borrower is being used. Check with your loan officer on the details.
    Three- to Four-Unit Properties
    • All three- to four-unit properties have a debt service requirement. They must be self-sustaining. The net market rents from all of the units must equal or exceed the monthly mortgage payment.
    • Three (3) months of PITI reserves are required on three- to four-unit properties.
    Condominiums The 203(k) program allows rehabilitation of a condominium unit based on the eligibility conditions listed below:
    • Rehabilitation is limited only to the interior of the unit. Mortgage proceeds are not to be used for the rehabilitation of exteriors or other areas that are the responsibility of the condominium association, except for the installation of firewalls in the attic for the unit.
    • Only the lesser of five units per condominium association, or 25 percent of the total number of units, can be undergoing rehabilitation at any one time.
    • The maximum mortgage amount is based on not over 100 percent of after-improved value.
    Mixed-Use Properties Mixed-use is a property that contains both commercial and residential units. A 203(k) can be used on a mixed use residential property provided it meets certain requirements. Ask your loan officer for details.
    Eligible Improvements For the Consultant K, there is a minimum requirement of $5,000 in eligible improvements on the subject property. There is no minimum requirement for a Streamline K. Repairs and improvements must comply with HUD's Minimum Property Standards, which will be determined by the HUD appraiser or the Consultant. The repairs must also meet local building, zoning and all other applicable codes.
    • Any deficiencies in thermal efficiency or smoke detectors must be included in the repairs.  Smoke detectors are required adjacent to each sleeping area.
    • Any additional repairs noted by appraiser must also be addressed.  More detailed breakdowns for Eligible vs.  Ineligible Improvements for Streamline K and Consultant K are provided in the appropriate sections of this guide.

    Eligible / Ineligible Repairs for Streamline 203(k) (Not all inclusive)

    EligibleIneligible
    • Repair/replacement roof, gutters and downspouts
    • Repair/ replacement/upgrade of existing HVAC systems
    • Repair/replacement/upgrade of plumbing and electrical systems
    • Repair/replacement of existing floors
    • Minor remodeling, such as in the kitchen, which does not involve structural repairs
    • Exterior and interior painting, including lead-based paint stabilization
    • Weatherization, including storm windows and doors, insulation, weather stripping, etc.
    • Repair/replacement/upgrade of appliances (may include free-standing ranges, refrigerators, washer/dryers, dishwashers and microwaves)
    • Improvements for accessibility for persons with disabilities
    • Basement finishing / remodeling / waterproofing (not requiring structural repairs)
    • Repair/replace/add decks, patios & porches
    • Window & door replacements & exterior wall re-siding
    • Septic and/or well repair or replacement
    All items ineligible for Consultant 203(k), plus:
    • Major rehabilitation or major remodeling, such as relocation of a load-bearing wall
    • New construction, including room addition
    • Repairs of structural damage
    • Repairs requiring detailed drawings or architectural exhibits
    • Any rehabilitation activities that require more than two payments per specialized contractor
    • Landscaping or similar site amenity improvements
    • Work that would cause the borrower to be displaced from the property for more than 30 days during the time of rehabilitation
    • Work items that would necessitate a consultant to develop a work write-up
    • Any repair or improvement requiring a work schedule longer than six months
    • Foundation work
    • Pool repairs

    Eligible / Ineligible Repairs for Consultant 203(k) (Not all inclusive)

    EligibleIneligible
    • Structural alterations and additions
    • Garage (attached/detached/new)
    • Remodel kitchen or bathroom
    • Install appliances
    • Changes to eliminate deterioration and reduce maintenance
    • Repair swimming pool (up to $1,500)
    • Modernize plumbing/heating/air conditioning/electrical systems
    • Install or repair well/septic system
    • Install or repair roofing/gutters/downspout
    • Install flooring/tile/carpet
    • Energy conservation improvements
    • Major landscaping/decks/fencing
    • Improvements for accessibility (e.g., handicapped ramp)
    • Interior and exterior painting
    • Improvements that are a permanent part of the real estate
    • New tennis court
    • Gazebo or bathhouse
    • Additions or alterations to provide for commercial use
    • Photo mural
    • Television antenna or satellite dish
    • New swimming pool
    • Outdoor fireplace/hearth/barbecue pit
    • Luxury items

    Consultant Responsibilities

    The 203(k) Consultant is an FHA-approved inspector who oversees the rehabilitation project from start to finish. The Consultant plays a crucial role in the 203(k) process. It is the responsibility of the Consultant to meet with the borrowers and inspect the property. During the inspection, the Consultant will determine what repairs are required to bring the property up to FHA minimum standards. The borrower should also discuss with the Consultant the optional improvements they would like to incorporate into the 203(k) loan amount. The Consultant will prepare all applicable architectural exhibits, feasibility study and the specification of repairs.

    TIP: The Consultant cannot act as the Contractor who completes the Repairs.
    FeesCost of Repairs
    $400 <$7,500
    $500 $7,500 - $15,000
    $600 $15,001 - $30,000
    $700 $30,001 - $50,000
    $800 $50,001 - $75,000
    $900 $75,001 - $100,000
    $1,000 >$100,000
    TIP: Additional fees may be charged by the Consultant for each additional unit that is part of the property under the same FHA case number (i.e., 4 unit properties).

    Specification of Repairs

    The specification of repairs must include the FHA-defined 35 areas of concern and include a cost breakdown. It must include the Consultant's recommended contingency reserve amount and the number of recommended inspections. The cost breakdown must list the cost of materials and the labor costs separately. If the borrower is performing some of the work, the labor costs cannot be eliminated from the estimates.

    Completing the Work Write-Up

    In addition to the feasibility study and the specification of repairs, additional disclosures are required. Additionally, other items including termite reports, well and/or septic certifications, roof certifications, foundation certifications, or architectural plans may be required to develop a complete picture of the work to be done. (For example, if a termite inspection reveals damage, the Consultant may need to revise the estimate of repairs required for correction.) The Loan Officer will coordinate with the Consultant to determine which certifications the consultant requires and who will order them.

    Inspections / Certifications

    Where required by the Appraiser or Consultant, the following inspections, reports and clearances may be required:

    • Wood-destroying organism report
    • Well cert (unless well replacement is part of rehabilitation)
    • Septic cert
    • Additional HVAC or system certifications
    • Additional architectural exhibits as required

    The Draw Process

    The Consultant will conduct inspections in order to approve each draw. The Consultant is required to approve any change orders. Finally, the Consultant will certify that the repairs are complete and all remaining funds may be released. Before a final disbursement is made, the borrower must sign a statement acknowledging that the work has been completed in a workmanlike and satisfactory manner. A final inspection and/or appraisal is required (depending on what type of 203(k) was used) regardless of the improvement or repair, and must be done at completion before the final disbursement is released. The final disbursement will include the repair contingency collected. Any leftover funds are applied to the principal balance of the loan.