To address some inaccurate information.................
Only the Standard/Rehab version requires a minimum of $5K in rehab. The Streamline version does not have a minimum rehab requirement.
Only the Streamline version is limited to $35K max rehab. The Standard/Rehab version is limited by the FHA max mortgage limit for that county, the improved appraised value (can go as high as 110% of the improved appraised value), borrower's qualifications and what the borrower actually wants to spend.
B of A is NOT the only lender who can do the Standard/Rehab version.
Use of a contractor is NOT required according to HUD guidelines. Self-help arrangements where the borrower is doing some or all the work is permited, as long as the borrower is skilled and qualified to do such work, subject to lender approval. However, lender overlays may require the use of a contractor.
A "cushion," actually called the contingency reserve is only required according to HUD guidelines on the Standard /Rehab version. This contingency reserve can be as low as 10% of the cost of rehab up to 20% of the cost of the rehab and is used for emergency funds, unexpected expenses upon lender approval.
Excess rehab funds by default are used a a principal balance reduction but can be used for additional improvements, subject to lender approval.
The 203k is NOT exclusively used for homes that are not livable. It is also used for properties that meet current living standards but the borrower wants to improve it (such as adding an addtion).
Asset Managers and REO listin agents are more open to acepting offers where 203k financing is being used. This is mainly occuring onthe east coast but we are seeing this in the midwest and in some parts of the west coast. If not in your area yet, it's coming.
As with any product, seek out qualified professionals for assistance. Certified 203k Contractors are located on the 203k Contractor Directory at http://203kContracors.com
Contractor Directory for the FHA 203(k) Loan