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With the new program, if a residential property requires repairs that are identified in a prepurchase home inspection and appraisal, any FHA-approved mortgagee can help. The prospective homeowner could acquire the property plus an additional $5,000 to $15,000 of loan proceeds specifically for the necessary repairs.
Streamline, however, only can be applied to repairing and/or replacing electrical and plumbing systems; roofs, gutters and downspouts; ventilation systems; and existing flooring. Weatherization and minor, nonstructural remodeling are included. Improvements for wheelchair accessibility as well as purchases of basic appliances with some additional monetary restrictions also could apply within the program's parameters.
Further, self-help arrangements are strongly discouraged. Unless mortgagors can show sufficiently that they have the expertise to complete the repairs, HUD requires that mortgagors use contractors' services.
HUD also has stipulations for appraisal requirements, payments and the maximum mortgage amount. For example, under Streamline, the mortgagee must request the assignment of a HUD case number and select an appraiser from the FHA's appraiser roster. In addition, no more than two payments may be made to the contractor. This first payment is intended to pay for material costs and must be no more than 50 percent of estimated costs for all repairs and/or improvements.
Being wary of property valuation after all improvements are made, HUD requires amortization of the Streamline mortgage upon the loan closing. HUD defines the closing as the settlement date that appears on the HUD-1 Settlement Statement. A Maximum Mortgage Worksheet [Form HUD-92700] is not required under the Streamline program.
More information can be found in Mortgagee Letter 2005-19.
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In light of Hurricanes Katrina and Rita, this may be a good time to reread the standard 203(k). After all, the program was developed "as a means for lenders to demonstrate their commitment to lending in lower class communities and to help meet their responsibilities under the Community Reinvestment Act."
Perhaps this is something we all need to contemplate.
Mel Levine is executive vice president of AmericaOne Finance Inc. He is a former certified public accountant and attorney, as well as the author of several books. He has written articles for national and local publications on a variety of subjects. E-mail him and AmericaOne at email@example.com.
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