Home Repair Loans (Streamline 203k)


Acceptance of Contractors, Repairs, and Costs

The borrower will select the contractor or contractors who will provide estimates for work to be done.  Lenders may not approve “self-help” arrangements in which the borrower is performing the work, unless the borrower can sufficiently demonstrate to the lender that he or she has the necessary expertise and experience to competently perform the work (i.e., the borrower is an electrician and will perform electrical repairs or upgrades to the property securing the mortgage loan).   Such “self-help” arrangements are strongly discouraged unless the borrower’s ability to competently perform the work in a timely and workmanlike manner is self-evident and easily documented.

The lender will work directly with the borrower, reviewing the borrower’s proposed work plan and cost estimates to ensure the planned work meets all program and repair requirements.  Since this is a limited home repair loan, no general contractor is required.  However, the borrower must provide the lender with a written cost estimate(s) and references from a duly licensed and bonded contractor(s) for each specialized repair or improvement.

If “self-help” arrangements are utilized, the borrower must provide written estimates from the suppliers of the materials that the borrower will purchase.  Only “fixed price” contracts, which are subject to written change orders approved by the DE Underwriter in the event of unforeseen conditions, are acceptable for this mortgage program.  “Cost plus” or “time and material” contracts are prohibited.  The lender is responsible for ensuring that the cost of the repair is reasonable and customary for the area in which the property is located.  When the lender determines a repair(s) is eligible under the Streamline(K) limited home repair loan program, the preparation of architectural exhibits is not required.

The cost estimate(s) must clearly state the nature and type of repair and the cost for completion of the work item and must be made even if the borrower is performing some or all of the work under a self-help arrangement.  The lender must review the contractor’s credentials, work experience and client references and may require the borrower to provide additional cost estimates if necessary.  After review, the selected contractor(s) must agree in writing to complete the work for the amount of the cost estimate and within the allotted time frame.  A copy of the contractor’s cost estimate(s) and the Homeowner/Contractor Agreement(s) must be placed in the insuring binder.  The contractor must finish the work in accordance with the written estimate and Homeowner/Contractor Agreement and any approved change order.  As in the standard Section 203k home rehab loan, the Rehab Construction Period begins when the mortgage loan is closed.

Repair Change Orders

Once the home repair loan is approved and closed, the list of repair items cannot be changed unless the Direct Endorsement (DE) Underwriter approves a written change order.  Change orders are limited to unforeseen conditions that are discovered during the course of the rehab process (such as hidden damage caused by termites, mold or water damage).  Costs related to change orders cannot be used to increase the loan amount.   Change orders may result in the reallocation of mortgage proceeds among cost categories or in the substitution of work items covered by the proceeds.  Therefore, any change order permitting additional work must also delete a corresponding dollar amount of previously approved rehab work.  If change orders result in a net cost increase, the borrower is responsible for the additional costs.  If change orders result in a net cost decrease, the excess mortgage proceeds must be used to reduce the principle balance of the mortgage.  If, for any reason, the costs incurred during the rehab exceed the loan amount, the borrower is responsible for the additional costs.

Repair Completion and Payments

No more than two payments may be made to the contractor, or to the borrower if the borrower is performing the work under a self-help arrangement.  The first payment is intended to defray material costs and shall not be more than 50% of the estimated costs of all repairs/improvements.  When permits are required from a local or State building authority, permit fees will be reimbursed to the contractor at closing (1) if they are included in the contractor’s estimate or (2) if not included in the estimate but all proceeds are not needed for the completion of the improvement.  The final payment to the contractor will be made following completion of all work and release of any and all liens arising out of the contract or submission of receipts or other evidence of payment covering all subcontractors or suppliers who could file a legal claim.  When necessary, the lender may arrange a payment schedule, not to exceed two (2) releases, per specialized contractor (an initial release plus a final release.)  Lenders are to issue payments solely to the contractor, except if the borrower is performing the work under a self-help arrangement, in which case the borrower may be reimbursed for materials purchased in accordance with the previously obtained estimates; the borrower may not be compensated for his or her labor.

To eliminate the need and cost for an inspection of the completed repair(s) or improvement(s), the lender may accept receipts or proof of completion of the work to the homeowner’s satisfaction from the contractor.  Before a final release is made, the borrower must sign a statement acknowledging that the work has been completed in a workmanlike and satisfactory manner.

If you would like more information, you may contact your local Homeownership Center.

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