FHA offers more than just purchase loans or home improvement renovation loans, they also offer the option to streamline refinance your current existing FHA mortgage.
Many homeowners choose to refinance with FHA for many reasons; one of them being that it is a lot quicker with the streamline feature that they have already established, requiring less paperwork. There are certain requirements that a borrower must meet first in order to be considered eligible for a refinance with FHA 203k. Below are a few important things to consider when refinancing with a 203k Refinance.
FHA 203k Home Improvement Refinance Requirements
The FHA 203k Streamline allows for homebuyers and homeowners to finance up to $35,000 into their mortgage to repair, improve, or upgrade their property. The 203k Refinance is available for homeowners who would like to refinance and also receive money for any needed repairs on their home. One of the reasons why the FHA decided to come up with such a program is because this will help increase the value in a home, since a 203k loan is ideally a 15 or 30 year mortgage.
For all properties financed with a 203k loan, both the lender and FHA have repair requirements that must be addressed, in addition to the type and extent of work the borrower would like to complete. FHA requires that properties financed under the 203k program meet certain basic energy efficiency and structural standards to comply with HUD’s Minimum Property Standards and all local codes and ordinances.
FHA’s energy efficiency standards include correctly-sized heating and air conditioning systems, as well as the type and extent of caulking, insulation and ventilation. The home is also required to have smoke detectors adjacent to each sleeping area.
Homeowners, whose home is in need of home improvement may refinance with FHA’s may be eligible for refinance through the FHA 203k streamline or the standard FHA 203k refinance program as long as it is currently a FHA-approved mortgage. The typical 203k loans are for properties needing structural repairs, whereas the streamline is available for non-structural.
To qualify for these loans, the borrower is required to have intentions of living in the home in need of repairs. The following eligible properties are:
- Existing construction (at least a year old)
- Single family, two-family, three-family, or four family dwellings.
- A mixed residential/commercial property may qualify as long as you are repairing only the home portion.
- Homes that need to be relocated to a new foundation.
- Tear-downs – houses that need to be destroyed or rebuilt (as long as a part of the foundation remains).
Underwriting Guidelines and Approval Process
In order to be approved for the refinance with the FHA 203k Streamline Refinance is that the new loan payment must be lower than that of the previous one. The homeowner must be able to show proof of employment, this is usually the only credit qualification required. Also, the previous mortgage must already be in place for at least 6 months in order for a homeowner to be considered eligible for a refinance. If a home is in need of an appraisal, the repairs needed does not need to be completed yet as long as it isn’t in need of lead paint repairs depending on the lender.
Keep in mind, closing costs may not be rolled into the new loan unless an appraisal is done on the property.
Loan-To-Value: A borrower may be able to do upgrades up to 110% after repair value.
In most cases the following are usually not required for a 203k refinance:
- credit reports
- termite inspections
However, depending on jurisdictions, these may be included in the process and the borrower may then be responsible for these fees and this may not be including the principal.
Green Lending – Energy Efficient Mortgage Feature
Energy Efficiency loans are featured programs that the FHA offers with their mortgage loans, many homeowners are able to apply energy efficient improvements to their current FHA mortgage loan when refinancing. The Energy Efficient Mortgage Loan program helps current or potential homeowners significantly lower their monthly utility bills by enabling them to incorporate the cost of adding energy efficient improvements into their new home or existing housing.
This FHA program eliminates the need for homeowners who are interested in making their home more energy efficient to take out an additional mortgage loan to cover the cost of the improvements they intend to make to their property. The program is available as part of a FHA insured home purchase or by refinancing your current mortgage loan.
The Energy Efficient Mortgage Loan program is available to anyone who meets the income requirements for FHA’s Section 203(b) and is able to make the monthly mortgage payments. The cost involved in adding energy efficient features to the home and an estimate of the energy savings must be determined by a home energy rating system or a qualified energy consultant. Up to $200 of the cost of the energy inspection report may be included in the mortgage. Cooperative units are not eligible. Individual condominium units may be insured if they are not in projects that have been approved by FHA or the Department of Veterans Affairs, or they meet certain Fannie Mae guidelines.
Eligible Energy Efficient Activities
Energy Efficient Mortgages can be used to make energy-efficient improvements in one- or two-unit existing and new homes. The improvements can be included in a borrower’s mortgage only if their total cost is less than the total dollar value of the energy that will be saved during their useful life. The cost of the improvements that may be eligible for financing as part of the mortgage is either 5 percent of the property’s value (not to exceed $8,000) or $4,000, whichever is greater.