Ok I will bite because I am pretty much going through this right now. My loan officer said that almost everyone goes straight 203k because Streamlines are not as user friendly. For starters, streamlines say that you can borrow up to 35k, but that's including a mandatory contingency fund of 10-20% of the total cost of the job, so you really can't borrow as much as you initially think. FHA loans also have a lot of safety guidelines that the appraiser may come back to you and say needs to be done like porch steps/rails for outside steps/concrete repairs... just one of these can force your streamline to go 203k due to budgetary issues because you will have to do it through your loan... because once you go 203k, the mortgage company will expect the contractor to do just about everything the appraiser tells them (I was even told the contractor needed to add the smoke detectors). Also, most of the time these houses go 203k because the seller can't afford to repair, so you can't really ask them to pay for it either. Because some of these are things that could pass a homestyle conventional loan or not matter to a cash buyer. If you do get forced to switch to a regular 203k loan, you could lose some valuable time because then a HUD consultant has to get involved and you will have to get contractors back out for repairs you weren't expecting. Contractors don't live on normal people time schedules. They can take a week just to get out to the home and then 2-3 weeks to get back to you with numbers - if they get back to you at all. Streamlines also can't do any structural work. So if that open kitchen/dining room you have planned has a load bearing wall, you can't blow it out.
So, my advice:
-Go 203k regular, regardless of what the cost is. You have to pay for a HUD consultant, but the pay depends on the cost of the job and he's really beneficial to have. Before you even get contractors out at the property he will do a walk through and do like a pre-appraisal. He will identify things that may not pass FHA standards that either you will have to fix in your loan or ask the seller to fix. He will make a list of all the things you want to do plus what he thinks you will have to do and make a feasibility sheet/HUD estimate that outlines about how much the job should cost. This helps you not get ripped off so you can hopefully make your appraisal number.
-The HUD Consultant will have a contract that tells you the max amount of time it will take him to do the HUD estimate, but don't wait for him to finish it to start calling contractors, especially in the spring or summer months when they are super busy. Call ASAP and schedule for the day after you should have your paperwork in hand; don't be afraid to gently remind your HUD guy that you have contractors coming out in a few days - they are busy this time of year, too. It's up to you if you want to give the contractors the HUD estimate. My loan officer said give it to them so you don't have to haggle and see if you can get someone to sign off on it, and my HUD consultant said don't give it to them because he estimates a middle price and you might be able to get someone to go lower.
-Try to get a general contractor to do everything because of the way the draws (the way they get paid) work. The bank will only allow the HUD consultant to take money from the loan so many times and you get charged for this. Too many contractors and not everyone gets paid on time, which makes for unhappy workers. It's also less paperwork with fewer people involved. I ended up with 2 guys but I am doing a $62,000 rehab - total exterior plus asbestos piping in the basement. I ended up with an asbestos guy and a general contractor. A lot of general contractors won't do asbestos because the training and licences are expensive to keep up unless they do it all the time.
-Try to negotiate AT LEAST a 60 day closing date. For my huge job, 60 days was cutting it very close; I wish I had more time to shop around contractors. Contractors don't live on normal people time. Again, this is why it's better to go straight 203k because you should have almost everything covered before the appraisal. If you have to convert to a regular 203k from the streamline due to appraisal surprises, you may not make closing in time and fall out of contract.
-Be wary of liens on properties. I am going through a nightmare because 5 days before closing an IRS tax lein was discovered on the house (the seller's weren't paying taxes) despite the disclosure statement and clear title bit in contract. A lot of homes that are 203k need repairs that the sellers can't afford to fix or are foreclosures. You don't know the whole story about why the house needs repaired or updated so badly and both normal sales (mine was) and foreclosures can have nasty liens that delay closing. I'm worried about losing my contractor because some liens take a while to fix (mine could be 30-45 days past closing).
-Also, just a heads up: neither type of 203k loan can be used for fencing. I have a Golden Retriever, so if we close, the fence is going to be out of pocket.
Even with the headaches, I know that the house I am buying will be amazing once finished and I could never afford it otherwise. However, because of the lien issue, I may have to walk away and lose some money (appraisal, hud consultant, home inspection). When you do a rehab it's hard not to fall in love with the house, but things happen. Just be prepared. Hope for the best but plan for the worst.
Good luck!
