I am currently wrapping up a 203k rehab loan and have done a streamline as well in the past. It's a great program that has very heavy documentation requirements now. It used to be alot easier, but it is still worth the effort.
The basic premise of the loan is that in addition to the purchase of the home, you will also be borrowing funds for approved renovations. Lets say you are going to do 50k in renovations. Once you pass the 35k threshold, they mandate that you get a 203k consultant. This person helps the bank evaluate the condition of the property and they will review the work you are proposing to do. In addition to your wish list , they will inspect the property and advise if there are any additional renovations that must be perfromed,. Mandatory repairs will typically address violations, minor, safety hazards and issues such as leaky roof or missing stair rails etc.
So now that you have a list of renovations you will be doing, the next step is that you must get a 203k contractor to give you a bid. This is where the program can be a little restrictive becuase if they are not an approved contractor, they can not work for you. Once you recieve your bids, the consultant evaluates them and advises if they are fair. If they are fair, they are submitted to the bank. If not, they help you negotiate them. Additionally , the consultant works out a draw schedule with your contractor and ensures that the contractor never gets overpaid without completing work.
The bank in turn takes the asking price, plus the proposed renovation costs and evaluates if the finished property, will appraise at the final cost. If it does, they approve you.
Now the fun starts. You are typically allowed 5 draws and 6 months to finish the project. The contractor is allowed to get a some seed money up front and then he basically puts up the renovation costs out iof his pocket. He is re-imbursed based on percent completion minus 10% retention.
The HUD consultant is notified when a portion of the work is completed and he /she comes out to inspect for completeion and quality. Based on the inspection, the contractor gets funds released for re-imbursement. From time of inspection to an actual check being cut is typically 3 to 4 weeks. The checks are joint checks and the home owner always has to endorse. The checks never go directly to the contractor.
Once all the work is completed, the HUD consultant verfies that everything is in fact done. They issue a final letter stating so. 30 days after that final letter, the 10% retetion is released, (after the bank ensures that there are no outstanding leins associated with the renovation.)
It's a great way to get into an owner occupied home. We did it to purchase and renovate a multifamily. The key to this whole program is that the property is owner occupied and must be for a period of no less than 2 years.
Additionally if you are going to go this route, you should have an experienced consultant on board. Ideally you should have one lined up before you find your property. Having the experienced consultant on board early, will help you get all your paperwork to the bank in a timely amnner and should allow you to close in a reasonable time. If you don't have all your ducks in a row, it will take you months to close if your even succesful in closing. If you have any qestions, feel free to ask.
