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With historic rates and property values so low, many Rhode Island borrowers are looking to purchase a “fixer up”.  Below is a  streamlined 203k limited repair guide prepared to assist you in the process. 

1.  Make offer on home contingent on buyer being approved for renovation loan.  The sales agreement should be the purchase price plus renovation amount.

 – Once your offer is accepted:

• Seller should allow inspectors, contractors, access to the property to estimate the cost of the remodel/renovation.
• Within seven to ten days of the agreement, the buyer should obtain an inspection of the property by a professional home inspector to make sure there are no unforeseen problems.
• Sales contract should be contingent upon approval of loan and the appraisal.

 2. Obtain a Work Write-up.

• You should work with a professional contractor to construct a Specification of Repairs/Work Write-up that includes some cost estimates for the completion of the home improvement/repair projects.  Costs should not exceed $35,000 to qualify for the 203k streamline loan.

Eligible repairs under the 203k streamline program:

There is a minimum requirement of $5,000 in eligible improvements on the subject property. All health, safety and energy items have to be addressed prior to completing any general home improvements. Eligible improvements include anything that will become a permanent part of the property.

• Repair/Replacement of roofs, gutters and downspouts
• Repair/Replacement/upgrade of existing HVAC systems
• Repair/Replacement/upgrade of plumbing and electrical systems
• Repair/Replacement of flooring 
• Minor remodeling, such as kitchens, which does not involve structural repairs
• Painting, both exterior and interior
• Weatherization, including storm windows and doors, insulation, weather stripping, etc.
• Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwave ovens
• Accessibility improvements for persons with disabilities
• Lead-based paint stabilization or abatement of lead-based paint hazards  
• Repair/replace/add exterior decks, patios, porches
• Basement finishing and remodeling, which does not involve structural repairs
• Basement waterproofing
• Window and door replacements and exterior wall re-siding
• Septic system and/or well repair or replacement
• Driveway repair or replacement
• Black Mold

3.  We will order an appraisal while you obtain contractor bids.

• We will send a copy of your Work Write-up to the appraiser to order the “after-improved” appraisal.
• You should take your work write-up and obtain a contractor for each of the home improvement/repair projects.
• You ask the contractor(s) to provide a detailed written estimate for the work they will complete. (have them sign the estimate)
• Select the contractor’s estimate you want, sign it, and send me a copy.

4.  Have the Homeowner/Contractor Agreement executed.  I will provide a form letter.

• Once you select the contractor you wish to use and obtain their insurance and license (if one is required by municipal guidelines); note: a resume and list of references is required if not licensed.
• Sign where indicated and you and contractor initial every page at bottom.
• Contractors must provide their license or a resume and references
• Contractors must provide proof of insurance

 Important things to note about the 203k Streamline Program:

• All rehab work must be performed by a qualified, experienced contactor chosen by the you
• You may not use relatives as your contactors.
• A final inspection is required when the renovations/repairs are 100% complete.  The money will be released once the final inspection and title update is received by the draw department.
• Copies of all permits are also required prior to the release of the money
• All work must be completed within six (6) months. (HUD will not grant extensions)
• You can have up to 3 contractors under the Streamlined K program. If more than 3 types of contractors are required, a General Contractor must be obtained for the project.  (for example,  painter, electrician, roofer)
• No more than 2 payments are allowed per specialized contractor:
  • 1st payments are for material costs not to exceed 50% of repair costs.
  • 2nd payments made upon completion of all work
• Before work can start or first disbursement happens after close:  you need the contractor to pull and submit permits.

There are fees associated with and unique to a Streamlined 203k.  They include but are not limited to:

• Contingency Reserve – underwriter’s discretion, (but rarely required):  minimum 10%, but could be up to 20% of repairs amount – for bank owned properties a 15% Contingency Reserve is often required.
• Inspection and Title Update Fees $75 to $100 per update needed (per draw – usually two draws per contractor)
• Supplemental Origination Fee (the greater of $350 or 1.5% of the total cost of rehabilitation project)
• Permits or Other Fees

Once a purchase transaction closes:

• Lender sends out a package shortly after closing outlining how to request funds for materials to begin the project.
• About 10 days after closing, you will be assigned a “Draw Administrator” – this person will guide you through the process of getting the funds for work to be started and completed.  The lender will send a form to you after closing (Request to release funds) to get money from the escrow account for a contractor.  This form will need to be notarized so plan on know where you can get this done when the time comes to request funds.
• Prior to any draw from the escrow account, a title update is required to ensure that the mortgagee remains in first lien position.
• The individual title companies determine the amount financed for title updates. Any unused moneys will be used to pay down on the mortgage amount once the renovation/repair is complete.  Payments are not modified nor is the  loan re-amortized.  Instead the total number of payments due over the life of the loan would be reduced if enough monies are available to do so.
• The appraiser can complete inspections after work is done on a standard compliance form.
• All work must be completed within 6 months of the closing date.

To apply for a mortgage online, please visit http://www.guaranteedrate.com/lyndamckenzie or call me today at 401-524-9796.  I would be happy to refer a qualified realtor to help you find your new home or answer any questions you may have. 

Lynda Mckenzie
RI license#137627/NMLS#137627
Direct:  401-524-9796
E-mail: lmckenzie@guaranteedrate.com
Web:  http://www.guaranteedrate.com/lyndamckenzie
RI Licensed- 20102682LL