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What about FHA Loans with a cosmetic repair allotment. Is this possible?

What about FHA Loans with a cosmetic repair allotment. Is this possible?


The other day a client found a house that a builder started but didn't finish. The builder/owner was offering a credit towards completing the repairs through escrow and during our conversation about the house, I told her she should also talk to her lender about FHA Loans that offer a credit towards cosmetic repairs.

Here is how it works, compliments of Paul Laterza Sr. Mortgage Consultant NMLS# 281572 Mortgage California


I’m pleased to announce the release of our in-house FHA Streamline 203K product!

This is an FHA first mortgage with additional funds available for cosmetic repairs. We are offering this product as a direct lender and mortgage banker. The streamline 203K has the same credit and underwriting guidelines as an FHA loan with the exception of the eligible improvements. With up to $35,000 in additional funds to repair the subject property, there are only 2 disbursements.  There is not a minimum rehabilitation loan amount but there is a minimum loan amount of $75,000.  FHA loan limits apply and the total maximum loan amount, including repairs, cannot exceed the maximum allowed by the county. 

Type of eligible improvements:

·         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


·         100% cosmetic

·         cannot be used for structural alterations or reconstruction

·         Self Help option is not available

·         Work must be started within 30 days of close of escrow and completed within 6 months of closing

·         Borrowers cannot be displaced from the property for longer than 30 days

·         Contingency reserves: A contingency reserve of 10% is required


LTV/Loan amount determination lesser of:

·         ·         Sales price or “as is” appraised value plus repair costs minus sales concessions or

·         ·         110% of “as completed” appraised value

·         ·         To determine loan amount multiply by 96.50% (for Purchase)using the option above for value


Appraiser completes appraisal:

·         When ordering an appraisal, the appraisal dept must be informed the loan will be a 203K Streamline loan.  Only one appraisal is required as long as the appraiser comments on the following:

·         “as is” establishing the value of the property prior to any rehabilitation

·         “After Rehab” or “as completed”  appraisal establishing the value of the property after the rehabilitation work has been completed

·         A final completion inspection will be required if renovation is >$15,000

·         HUD REO’s may require a 2nd appraisal


Other notes:

·         Borrowers must use a contractor and have a W-9 from the contractor and a copy of contractor’s license.

·         If cost of the renovation is >$15,000 a completion inspection is required by FHA Inspector 

·         Work must be started within 30 days after closing and must be completed within 6 months.


Example: Purchase of a 1-Unit property with 96.50% LTV/CLTV

Purchase and Renovation costs

Sales Price

$ 120,000.00


$  24,500.00

Contingency (10%)

$    2,450.00

Soft Costs (permits, consultant fees, inspection fees, PITI, etc.)

$    2,420.00

Supplemental Origination Fee (greater of $350 or 1.5% of the renovation costs

$        440.55

Total for Purchase and Renovation


“As-completed” value (determined by appraiser)


Value to use for determination of LTV must be the lesser of the total cost of renovation or the “as-completed” value.  In this example, $149,810.55 is less than $160,000, therefore the value you must use when determining the maximum loan amount is $149,810.55

Maximum Loan amount at 96.50




For more information, Paul can be reached at:


Paul Laterza Sr. Mortgage Consultant NMLS# 281572 Mortgage California

Telephone (925) 639-1112 | Private Fax (408) 335-1098 paullaterza@mortgagecalifornia.com www.mortgagecalifornia.com/paullaterza



Elisa Uribe    Realtor #0142707

Opening the Door to Opportunity

Wells and Bennett Realtors


Office :510-485-7272     Fax: 866-230-9144

If someone you know seeks an experienced, honest Realtor, I'm never too busy for your referrals.

Published Tuesday, June 28, 2011 6:12 PM by Elisa Uribe

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Basement Finishing System said:

Thanks for the information, it's been useful.

August 29, 2012 2:10 AM

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