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Frequently Asked Questions
What are the "closeout requirements" under the Streamlined (K) program?
The mortgagee electronically certifies the closeout via the FHA Connection and is not required to forward the closeout documents to FHA. As with all FHA case binders, the originator must retain the file, either in hard copy or electronic format, for two years following endorsement of the mortgage. Proper close-out means that the mortgagee has certified that it has reviewed and verified for accuracy of the following without limitations: mortgagors acknowledgement of satisfactory completion, evidence of release of lien(s), mortgagees inspection report(s), change orders, mortgage accounting of the escrow funds and record of disbursements.
Can this program be used for repairs and improvements on purchases of HUD REO homes?
Like the regular Section 203(k) program, Streamlined (k) may be used for single family housing sold by HUD. REO properties that have been designated by FHA's Management and Marketing contractor (M&M) as "insurable" with repair Escrow ($5,000 or less in required repairs)or "uninsurable" (with more than $5,000 but no more than $35,000 in required repairs) are eligible for the Streamlined (k) program provided that the repairs qualify as eligible work items.
What if the REO property requires lead-based paint stabilization?
The Streamline (k) program may be used for the financing of REO purchases where a pre-1978 property has been determined to contain lead-based paint and the M&M Contractor has completed a stabilization plan and cost estimate to stabilize (mitigate) the deteriorated paint. The purchaser must sign a 203(k) rehabilitation financing lead agreement requiring that a clearance examination and report be included in the work write-up and conducted before release of the final construction disbursement and before occupancy. The credit from HUD, received at sales closing by the purchaser, associated with the lead-based paint stabilization plan is not included in the $35,000 Streamlined (k) limit. The Streamlined (k) program may be used for all eligible repair items as shown above, including the cost of leadbased paint stabilization not paid for by HUD when is sells a property requiring lead-based paint stabilization. A state or Environmental Protection Agency (EPA) certified lead-based paint inspector, certified risk Assessor or sampling technician, must perform the clearance examination.
Can the Streamline (K) program be used for refinancing a current mortgage?
The Streamline (k) program is also available for mortgage refinance transactions including those where the property is owned free-and clear. Only credit qualifying "no cash out" refinance transactions with an appraisal are eligible for the Streamlined (k) program. The form HUD 92700 provides instructions for calculating the maximum mortgage for Streamlined (k) loans for purchase and refinance transactions. The requirements to use the lowest sales price within the last year does not apply to the Streamlined (k) program.
May the mortgagee establish a contingency Reserve?
The lender requires a 10% contingency reserve on all Streamline (k) program. Funds held in contingency reserve must be used solely to pay for the proposed repairs or improvements and any unforeseen items related to these repair items. Any unspent funds remaining after the final work item payment(s) is made, must be applied to the mortgage principal.
Can we combine the Streamlined (K) with an Energy Efficient Mortgage (EEM)?
The EEM program, as described in ML 05-21, may be used in conjunction with the Streamlined (k) program. The amounts permissible under the EEM program as well as the qualifying requirements are in addition to those available under the Streamlined (k) program and, thus, combined may exceed the $35,000 Streamlined (k) repair cost limit. Both the cost of EEM improvements as well as weatherization items (not to exceed $2,000) may be added to the total FHA loan amount.
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