203k Renovation Loan Details and FAQs in Colorado
Not all properties are eligible for the 203k loan, so it’s important to consider which property types are included in the 203k program.
- Detached Homes
- Owner Occupied Homes
- 1-4 Unit Properties
If the property type you are seeking is eligible for the 203k renovation loan, you most likely will qualify for this loan if you can qualify for an FHA loan. However, there are a few exceptions so please do contact Banner Mortgage if you are unsure whether or not you are an eligible borrower.
If you are considering a 203k loan, another consideration is which type of 203k renovation loan you seek. There are two types, the Streamline 203k Renovation Loan and the Full 203k Renovation Loan.
Streamline 203k Renovation Loan includes the following types of repairs:
- Repair, replace, update
- No structural changes allowed (including window and door openings)
- Must be able to occupy the home in the first 30 days after closing.
- Maximum repairs cannot exceed $35,000 including 15% contingency fees.
- Contractors must have liability insurance.
- Licensed contractor must be used unless no license is required.
- Initial draw is 35%. Remainder is paid after all contracted work has been completed, permits cleared and final inspections completed.
Full 203k Renovation Loan includes the following types of repairs
- Structural changes, such as adding square footage to the home.
- Comprehensive Specification Repairs (SOR) completed by contractor
- Requires drawings and blueprints
- Must have 203k Consultant from HUD (Selected by Banner Mortgage)
- General Contractor REQUIRED
- Draws are upon completed work and permits. Maximum of 5 draws
What’s included in a Streamline 203k loan?
Essentially, anything that does not permanently alter the structure, such as adding square footage or relocating a load-bearing wall is included. Landscaping is not included, and any work that would require more than 6 months of work is not included. Below is a detailed list of what types of repairs or work is included in a Streamline 203k Renovation Loan:
- Repair/replace/upgrade roofs, gutters and downspouts, existing HVAC systems, plumbing and electrical systems, existing flooring
- Minor remodeling repairs that are non-structural
- Exterior and interior painting
- Appliances including free-standing ranges, refrigerators, washers, dryers, dishwashers and microwaves
- Improvements for accessibility for persons with disabilities
- Environmental mitigation such as water, smoke or mold damage
- Modifications involving disturbance of pre-1978 paint surfaces
- Lead based paint abatement
- Repair or replace exterior decks, patios, and porches
- Basement finishing and remodeling that do not involve structural repairs
- Basement waterproofing
- Window and door replacements
- Exterior wall re-siding
Work that CANNOT be included in a Streamline 203k Renovation Loan
- Major rehabilitation or major remodeling, such as relocation of a load-bearing wall
- New consstruction, including the addition of rooms
- Repair of structural damage
- Repairs requiring detailed drawings or architectural exhibits
- Landscaping or similar site amenity improvements
- Any repair or improvement requiring a work schedule longer than 6 months
- Rehabilitation activities that require more than 2 payments per contractor
Important information and frequently asked questions about the 203k Renovation Loans
It is imperative to get the contractors’ bids to Banner Mortgage, your 203k Specialist right away. We cannot order the appraisal for you until all bids are received from your contractor(s). The bids for 203k work are more tedious than the average bid. Ensure your contractor understands that the work they are bidding is for a 203k renovation loan project and that the bid must include:
- An overall description of the work to be done.
- Detailed list of materials including: make, model, brand, type and cost.
- Must breakout materials and labor.
- Must include tax.
Once we have received a detailed bid from your contractor, we will work with him or her on gathering the necessary documentation for what is called the “contractor profile.” We have a checklist we send to your contractor to keep things organized and easy to follow.
“Can I, as the borrower, perform the work myself?”
No. Nope. No way. Not possible, but wouldn’t it be nice? The investors that buy your loan from Banner Mortgage consider doing the work yourself as an added rsik. Problems have arisen when the time frame, completion costs, or an injury occur with the project and the homeowner is doing the work themselves. Our investors are no longer willing to take that risk.
Permits vary from county to county and for specific questions you should cntact your local Planning and Zoning Office. All permits will be required to be drawn prior to the initial draw.
Homeowner – Contractor Agreement
The homeowner hires the contractor and signs a legally binding agreement with the contractor involved in the project. Contractor is required to sign a lien waiver as well as complete a full contractor profile. As mentioned above, Banner Mortgage will send these additional documents to the contractor.
As you can imagine, the appraisal process is a bit more tedious with a 203k Renovation Loan. Here are some quick notes on the appraisal on a 203k renovation property:
- Approved bid is submitted with the appraisal (Streamline 203k)
- Specification of Repair is submitted with the appraisal (Full 203k)
- Appraisal value is based on “As Completed” value and reflects the future value with the renovations.
- If there are any additional items the appraiser requires to be completed then bids/SOR updated to include those items.
- Once the appraisal and all Homeowner-Contractor documentation is received the loan goes back to Underwriting for final underwriting approval and a “Clear to Close.”
- Refinance transactins require an additional “As is” appraisal to determine if there is enough equity to roll in closing costs.