When getting an Arizona FHA 203k streamline loan one of the more popular questions I am asked is “how does the payment process work?” and when outlined, it isn’t all that complicated (or at least it doesn’t seem like it…)
With the FHA 203k streamline program the repair funds are held in escrow by the lender – and the borrower has 3 months from their closing date to complete all of the work on the project. There can be no more than 2 payments (called the First payment and Final payment) and the must be paid directly to the contractor who performed the work. The first payment (sometimes called a draw) is limited to a maximum of 50% of the total repair cost.
For the First Payment at Closing:
When requesting the first payment at closing to be disbursed, the following will be required:
- Initial disbursement forms
- 203k maximum mortgage worksheet
- All bids and estimates for the project
- The name of the contractor to be paid and the exact amount of each check to be disbursed at closing. The underwriter will review and approve this.
- All signed homeowner/contractor agreements (or a self help agreement if the borrower is doing the work)
Once you have all of this information provided, typically the closing/construction department will require at least 24 hours to review the request — which means leave a little leeway on your closing date, it can be somewhat fluid.
For the Final Payment
- All loans require a final inspection regardless of how much repair money was allocated.
- Before the final release, the borrower must sign a completion and affidavit for disbursement form.
- Final payment is disbursed upon completion of all work – can’t disburse if work is still “in progress”
So with the FHA 203k streamline loan, there are two payments — the first and the final.
Easy enough, right?