DC Streamlined 203k Mortgage Loans

Find a great house, but needs some work? A fast-tracked 203k mortgage loan can help you purchase the home you want and address needed repairs.

Streamlined 203k mortgage loans

What Are 203k Rehabilitation Loans?

203k mortgage loans are FHA loans that combine the cost of the home purchase and allowable renovation costs. They’re beneficial to buyers who choose a property that requires rehabbing or updating.

There are two versions of the 203k loan; the standard program allows for repairs that include major structural changes and larger repairs or more extensive rehabbing:

  • The Streamline 203k program is better for light remodeling or updates as minor as appliance replacement. The Streamline 203K is popular because it eliminates much of the burdensome paperwork associated with 203K loans, and it simplifies the process for borrowers;
  • The standard (or “full”) 203k covers major renovations like structural work and can be used for projects with updates totaling more than $35,000. The 203k Streamline is for non-structural work with updates totaling no more than $35,000.

Streamline 203K loans are combined with the original loan balance, resulting in one adjustable or fixed rate loan.

FHA loan limits change according to updates from HUD and the location of your home. Check the 2024 limits to make sure the program will work for you, and reach out to an experienced lender to confirm guidelines and qualification criteria.

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Bullet Points

  • Understand the limits of a 203k loan
  • Make sure your property is eligible
  • Check programs for updates
  • Investigate alternatives

Caren L

While other ​agents said, “​T​his is what you need to do;” The Isaacs Team said, “​W​e can do this for you!” Our process was smooth and quick, and they designed a strategy and negotiated a sale well above our asking price; and a purchase price below asking – both in the same market.

How Does It Work?

The Streamlined 203k process calls for an escrow account to be created to fund repairs. This account survives settlement of the mortgage loan, allowing the purchase of the property to complete prior to the start of construction.

A contractor is hired to make repairs specified prior to the closing of the loan. The bid can not be changed. The contractor receives a deposit, also agreed upoin in advance, and final payment when the work is complete.

For repairs above $15,000 in total, a 203k inspector makes sure the work is complete to FHA standards. If the total cost of your repairs is less than $15,000, you won’t need to have the completed work inspected, but it is advisable to have a general home inspection for your own peace of mind.

FHA Guidelines

FHA requirements apply to the 203k rehabilitation program. and an additional set of rules are applicable to the home improvement portion of the loan.

FHA loan requirements:

Credit score: Mortgage lenders may accept borrowers with credit scores as low as 580. Some will approve lower scores case-by-case;

Minimum down payment: 3.5% for borrowers with credit scores of 580 or higher; 10% min. down for scores below 580;

Debt-to-income ratio: Up to 45%;

Mortgage insurance premium: Upfront MIP payment of 1.75% (added to the loan), plus an annual rate of 0.55% (added to monthly payments);

Property use: Primary residence. The home being purchased may not be a second home or investment property;

FHA loan limits: Subject to FHA loan limits (adjusted annually and by location)

203k-specific loan requirements:

Age: The dwelling must be at least 12 months old;

Cap: Repairs are capped at $35,000. More expensive projects require a Full 203k loan program;

Contractor Compliance: Contractors must be licensed in the District of Columbia. All repairs must comply with DC building codes, and permits must be pulled for work as required by the District. The contractor’s bid must follow FHA guidelines;

Deadline For Completion: Construction must be completed within six months of the home purchase closing;

Scope of repairs: Not all home repairs can be financed into a 203k loan

Are All Properties Eligible?

Not all, but the guidelines are fairly generous:

  • The property must be a one- to four-family dwelling that has been completed for at least one year
  • The number of units on the site must be acceptable according to the provisions of local zoning requirements
  • All newly constructed units must be attached to the existing dwelling
  • Cooperative units are not eligible
  • Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place In addition to typical home rehabilitation projects, this program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling
  • An existing multi-unit dwelling could be decreased to a one- to four-family unit. An existing house (or modular unit) on another site can be moved onto the mortgaged property; however, release of loan proceeds for the existing structure on the non-mortgaged property is not allowed until the new foundation has been properly inspected and the dwelling has been properly placed and secured to the new foundation
  • A 203(k) mortgage may be originated on a “mixed use” residential property provided: (1) The property has no greater than 25 percent (for a one story building); 33 percent (for a three story building); and 49 percent (for a two story building) of its floor area used for commercial (storefront) purposes; (2) the commercial use will not affect the health and safety of the occupants of the residential property; and (3) the rehabilitation funds will only be used for the residential functions of the dwelling and areas used to access the residential part of the property.

I can use it for a condo?

Yes, under these conditions:

  • 203(k) mortgages can be used for individual units in condominium projects approved by FHA
  • The 203(k) program was not intended to be a project mortgage insurance program, as large scale development has considerably more risk than individual single-family mortgage insurance
  • Owner/occupant and qualified non-profit borrowers only; no investors
  • Rehabilitation is limited only to the interior of the unit. Mortgage proceeds are not to be used for the rehabilitation of exteriors or other areas which are the responsibility of the condominium association, except for the installation of firewalls in the attic for the unit
  • Only the lesser of five units per condominium association, or 25% of the total number of units, can be undergoing rehabilitation at any one time
  • The maximum mortgage amount cannot exceed 100% of after-improved value
  • After rehabilitation is complete, the individual buildings within the condominium must not contain more than four units.
  • By law, Section 203(k) can only be used to rehabilitate units in one-to-four unit structures. However, this does not mean that the condominium project, as a whole, can only have four units or that all individual structures must be detached. Example: A project might consist of six buildings each containing four units, for a total of 24 units in the project and, thus, be eligible for Section 203(k). Likewise, a project could contain a row of more than four attached townhouses and be eligible for Section 203(k) because HUD considers each townhouse as one structure, provided each unit is separated by a 1 1/2 hour firewall (from foundation up to the roof).
  • Similar to a project with a condominium unit with a mortgage insured under Section 234(c) of the National Housing Act, the condominium project must be approved by HUD prior to the closing of any individual mortgages on the condominium units.

2024 Proposed Changes To FHA 203k Loans

HUD is considering improvements to 203k loan programs.

Changes being discussed include:

Rehab Cost Limit Increases: Increasing the maximum allowable rehabilitation costs for the Limited 203(k) program from $35,000 to $50,000, or $75,000 in high-cost areas like Washington DC;

Consultant Fees: Allowing fees charged by HUD consultants to be included in the financed mortgage amount for the Limited 203(k) program as they are in the Standard program;

Lengthening The Rehab Term: Increasing the allowable rehabilitation period for the Standard 203(k) program from six months to ten months (Limited 203k from six months to seven months);

Draw Increase: Increasing the allowable initial draw amount to include up to 75% of material costs (up from the current 50%);

Other: Streamlining the program’s fee schedule for HUD consultants.

2024 Proposed Changes To All FHA Loans

HUD is considering elimination of its FHA Mortgage Insurance Premium for Life-of-Loan

Long overdue:  At a January 2024 House Financial Services Committee (HFSC) hearing, HUD Secretary Marcia Fudge noted the agency would consider eliminating life-of-loan MIP (mortgage insurance premium) requirements for FHA-backed mortgages.

Dropping MIP for existing FHA loans was not specifically discussed. Existing FHA mortgagees currently pay the higher old MIP rates after the 2023 reduction for new borrower.

Borrowers currently pay both a 1.75% upfront charge at closing (often wrapped into the loan amount), plus an annual charge collected as part of the monthly payment–currently for the life of the loan. Unlike Private Mortgage Insurance, the MIP does not go away when the borrower reaches 20% equity in their homes; it is collected until the loan is paid off.

2023 Changes To New FHA Loans

HUD reduced MIP for new borrowers in 2023, but left existing FHA homeowners burdened with MIP at higher rates since the change was not retroactive.

For new loans:

  • Loan longer than 15 years: MIP dropped from 0.85% to 0.55% with a base loan amount of $726,200 or less;
  • 15-year fixed 10% or greater down payment: MIP expires after 11 years, plus cost drops from .80% to .50%;
  • Loan amounts over $726,200.: A 0.75% MIP is now charged, down from 1.05%. With a down payment of 10% or more, the MIP term is 11 years, and the cost ranges from 1% to 0.70%.

The Basics: Streamlined 203k Mortgage Loans

  • Mortgage balance can exceed the purchase price of the property
  • Allows for simple repairs
  • Borrowers’ home inspector or appraiser can create a list of recommended repairs and/or improvements
  • Takes advantage of FHA’s 3.5% downpayment and 640+ credit score qualification
  • Allows borrowing up to $35k for allowable work to the home
  • Also allows borrowing to make mortgage payments for up to 6 months
  • Adjustable rate and fixed-rate versions available
  • Borrower must hire licensed general contractors & pros for work
  • Investment properties ineligible, must be owner-occupied
  • Requires FHA MIP

Special Conditions And Terms

  • No minimum loan balance required
  • Borrowers must occupy the property
  • Property cannot be vacant for more than 30 days
  • Work must be completed within six months
  • Work must be professionally performed
  • If job requires a permit, borrowers must get a permit and DCRA inspection when work is completed
  • Work must commence within 30 days from closing
  • Borrowers can select among licensed contractors
  • The lender will review the contractor’s experience, background and referrals
  • Provide  lender with the contractor’s estimate and agreement(s) between the contractor and borrower
  • Borrowers can arrange to do some or all of the work under a “self help” arrangement
  • Do-it-yourself projects require providing the lender with documentation supporting the borrower’s knowledge, experience and ability to perform the necessary work.

Eligible Repairs For Streamlined 203k Rehabilitation Loans

  • Roofs, gutters and downspouts
  • HVAC systems (heating, venting and air conditioning)
  • Plumbing and electrical
  • Minor kitchen and bath remodels
  • Flooring: carpet, tile, wood, etc.
  • Interior and exterior painting
  • New windows and doors
  • Weather stripping & insulation
  • Improvements for persons with disabilities
  • Energy efficient improvements
  • Stabilizing or removing lead-based paint
  • Decks, patios, porches
  • Basement completion and waterproofing
  • Septic or well systems
  • Purchase of new kitchen appliances or washer/dryer

Ineligible Repairs For Streamlined 203k Rehabilitation Loans

  • Landscaping or yard work
  • Major remodeling
  • Moving a load-bearing wall
  • Room additions or add-ons to the home
  • Fixing structural damage

What Are The Alternatives To A Streamlined 203K?

Fannie Mae’s Homestyle Renovation Mortgage

It’s a type of renovation loan or rehab loan similar in manu respects to the FHA model. The HomeStyle loan allows home buyers to renovate an existing home and pay the renovation off monthly with the mortgage.

HomeStyle loan allowing home buyers to borrow up to 75% of the home’s after-repair value (ARV) for the renovation portion of the loan. The loan doesn’t have a maximum cap per se, but all Fannie Mae mortgage loans must be conforming loans, so effectively there is a cap. In high-income areas like Washington DC, the 2024 cap for conforming loans is $1,149,825.

HomeStyle loans are available for a wide variety of property types, including those the Streamlined 203k by FHA doesn’t allow, such as second homes and investment properties. HomeStyle can be used for:

  • Single-family detached home
  • Townhome
  • Condo unit/co-op unit
  • Duplex, triplex or quadplex
  • One-unit second home
  • One-unit investment home
  • One-unit manufactured home

Down Payment Requirements:

Typically similar to requirements for other Fannie Mae mortgages, with a minimum down payment of 5%, or 3% for those qualifying for the HomeReady program.

Down payment for multifamily property or some other property types can increase downpayment requirements:

  • Second home: 10% (90% LTV)
  • Investment property: 15% to purchase, 25% to refinance
  • Duplex: 15% (or 85% LTV)
  • Triplex/quadplex: 25% (or 75% LTV)

Down payments under 20% require private mortgage insurance (PMI) until 20% equity in the home is reached.

What’s Not Allowed:

Fannie Mae HomeStyle renovation loans do not allow:

  • Demolishion of the home
  • Structural changes exceeding 50% of a manufactured home
  • COnstructing a second home on a new property
  • Impermanent improvements like furniture, some types of landscaping, moveable storage sheds or outbuildings. 

Borrowers can wrap the following costs into the loan:

  • Closing costs
  • Reserves (project contingency)
  • Permits and license fees
  • Rental costs during the renovation process

Remember: Costs are subject to conforming loan maximums and subject to PMI.

The Full 203K Rehabilitation Mortgage Loan

Another option is the FHA Standard 203k mortgage loan. This version allows a much greater level of renovation, including the rebuilding of a home retaining the existing foundation. There is no maximum cap on a Standard 203k.




Information provided on this page is intended as a helpful guide and posted for educational purposes only. It is not to be construed as mortgage lending, legal, tax or financial planning advice. We are real estate agents, not mortgage professionals. If you need help deciding on a mortgage product, please consult a qualified mortgage loan professional.

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