For most people, a home is the largest investment of their lives. For many, buying a foreclosed home or one in need of significant repair is a way to save money on this monumental purchase. To save even more money, the buyer can purchase the
house with an FHA 203k loan, a loan that can be used to fund the necessary repairs to bring the house up to code.
There are two types of FHA 203k loan - the standard loan and the streamline version, which has certain limitations while not being subject to certain requirements that are not imposed on the standard loan. If you are considering using this type of loan to fund your home purchase, discuss the differences between the two types with an experienced real estate lawyer.
Eligibility for the 203k Streamline Loan
Obtaining and using a 203k streamline loan is a simpler process than using a traditional 203k loan. By saving you time, the need to work with a Housing and Urban Development (HUD) contractor, and not being required to have the rehabilitation work performed by the contractor, you can save a lot of money with a 203k streamline loan.
To be eligible for this type of loan, you must meet the following requirements:
Your credit score must be 640 or higher;
A stable employment history and the ability to prove your income;
No foreclosures, bankruptcies, or short sales within the past three years on your record; and
No more than one late payment in the past year.
In addition to these requirements, the property you are buying must be eligible for 203k financing.
The Differences Between a Streamline and Traditional 203k Loan
The primary difference between a traditional and a streamline 203k loan is the amount of money a home buyer can borrow. With the streamline loan, the buyer can only borrow up to $35,000 or 110% of the home’s purchase price. With the
standard version, the buyer can borrow much more money and the maximum he or she can borrow is determined by the limit imposed on his or her region or through a formula involving the home’s purchase price, current value, and after-repair value.
A traditional 203k loan is meant for substantial repairs, whereas the streamline version is primarily meant for cosmetic repairs. With the streamline version, the home buyer can do the repair work him- or herself. A traditional loan also has a lower credit score requirement for borrowers at 540.
Work with an Experienced La Crosse Real Estate Attorney
When you buy a home, you need to work with a real estate lawyer to handle the purchase details. Buying a home in need of significant repairs with a 203k loan means additional paperwork for you and your lawyer to handle, so be sure to choose a lawyer who has experience working with clients using this type of loan. Contact our team at Moen Sheehan Meyer, Ltd. today to set up your initial consultation with a member of our team.