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FHA 203-k Streamline Q & A, Page 1

Can the FHA Streamlined 203k program be used for refinancing the mortgage?

The Streamlined (k) program is also available for mortgage refinance transactions including those where the property is owned free-and clear. Only credit-qualifying “no cash out” refinance transactions with an appraisal are eligible for the Streamlined (k) program. 
If the borrower has owned the property for less than a year, the acquisition cost must be used to determine the maximum mortgage amount.

What are the FHA appraisal requirements under the FHA 203k Streamlined program?

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

What are the mortgagee’s requirements for examining the contractor bids? For paying the contractor prior to beginning construction? For inspections of the work? 

  • Contractor bids:  While Lenders are not contractors, participation in this program requires that they examine the contractor’s bid(s) and determine that they fall within the usual and customary range for similar work.  Lenders must also ensure that the selected contractor(s) meet all jurisdictional licensing and bonding requirements.
  • Payments in advance of construction:  The Lender-at its discretion-may provide the contractor with up to 50 percent of the estimated cost of any work item prior to beginning construction.  Such payments should only be made where the Lender is satisfied with the reputation of the contractor(s) and the contractor is not willing or able to defer receipt of payment until completion of the work or the payment represents the cost of materials incurred prior to construction.
  • Payments for Inspections:      For repair costs not exceeding $15,000, the Lender is not required to perform, or have others perform, inspections of the completed work. However, the Lender may choose to obtain or perform inspections if it believes such actions are necessary for program compliance and/or risk mitigation.  Lenders may also ensure that the repairs and/or improvements have been completed by obtaining contractor’s receipts or by a signed Mortgagor’s Letter of Completion.  If the Lender determines that an inspection(s) by a third party is necessary to ensure proper completion of the proposed repair or improvement item, the Lender may charge the borrower for the costs of no more than two inspections per each contractor. 
  • For repairs in excess of $15,000: The Lender must perform or obtain an inspection of the completed work by a third party.

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