Can you spend more than $35,000 for repairs on a FHA 203(k)?

Of course you can.

I picked up a couple of loans this week from south Florida. Both are educated repeat borrowers and were knowledgeable concerning their renovation needs for their proposed purchases. Each had numerous conversations with local lenders who told them that $35,000 was the most that FHA allowed for repairs on a 203(k) loan. After several conversations with my customers, I realized that not one of their lender contacts had any idea that a Standard 203(k) loan existed.

Many lenders today originate only the Streamline 203(k). The Streamline was created in 2005 to handle smaller rehab projects that could be handled by two or three specialized contractors (roofs, siding, windows, decks, etc.). Over the past five years, many lenders began originating the Streamline 203(k) because the loan does not require an FHA 203(k) Consultant, has a $35,000 cap on renovation cost, and funds can be disbursed with two draws. However, many lenders only make the Streamline product available to their customers and choose not to deal with the more detailed and time-consuming Standard 203(k).

The Standard 203(k) allows for up to five draws, six months to complete repairs, and the renovation cost is capped in relationship to the appraised value/maximum FHA loan limits for the area. My largest repair escrow has been $138,000; the Florida deals will be between $60,000 and $80,000.

Getting the word out about the (k) is good for all parties, but not taking the time to understand the program's parameters is just a sad note for our already beaten-down industry. I wonder how many borrowers have been getting the same limited funding advice and thus have walked away from a potential home that needed more than $35,000 in repairs.

If you choose to call a local lender, ask them whether they supply both the Standard 203(k) and the Streamline 203(k), and remember we are only a phone call away at http://www.203kkc.com/.