FHA 203K Rehab Loans (appraisal, foreclosure, mortgage, mortgage)

[Ralph_Kirk]

We're looking at some foreclosure purchases that are habitable but would need moderate work to be comfortable and reliable--for instance, the HVAC or galvanized plumbing may be on its last legs.

Has anyone used a FHA 203K loan to get such work done? I'm not sure I undrerstand how it work in with the mortgage financing. Anyone with first-hand experience?

[Nickel_City_Buyers]

Originally Posted by Ralph_Kirk

We're looking at some foreclosure purchases that are habitable but would need moderate work to be comfortable and reliable--for instance, the HVAC or galvanized plumbing may be on its last legs.

Has anyone used a FHA 203K loan to get such work done? I'm not sure I undrerstand how it work in with the mortgage financing. Anyone with first-hand experience?

With A 203K Loan you have to make sure your diligence is done before even apply. Some of the things you have to prepare for is the leg work and I'll be happy to explain. Make sure the work that needs to be done is a difference between cosmetic than required. Just because it has galvanized pipes doesn't mean they don't work. The bank has a grey area for what they consider habitable. They're going to offer 70% LTV (Loan to Value) of ARV(After Repair Value). So lets say you have a house worth $100k. The bank will give you $70k that includes repairs. So this house needs $25k in repairs your purchase price can't be more than $45k. Not including the 20% downpayment and other factors like insurance.

You also NEED 3 repair estimates from REPUTABLE contractors who have been in business for more than 5 years. Who are not only licensed but insured. They will get paid based on a draw based on the work that has been completed and Inspected. You have to pull certified permits from each angle that needs to be completed in the home.

I've only scratched the surface on what a 203k loan entails. It can be rewarding if the house is worth it, but you have to be prepared for A LOT of Patience and Disappointment. BTW if the house is in Foreclosure you're looking at, CASH is KING. What that means is a bank is more inclined to sell the property to someone who comes with cash than someone trying to obtain a mortgage. Just an Honest and Fair Assessment.

Good Luck with your Home purchase.

[Silverfall]

203K's work like a regular FHA loan with a 3.5% downpayment. It isn't something you do separately. It is the loan. The process is straightforward, but you need to hire a lender and contractor that are experienced with them. Otherwise the process becomes a nightmare.

You need to work within your approval amount. The streamline is for up to $35,000 in remodel dollars but you have to save 10% for overages, so really you can only spend $31,500 on actual remodeling work. You will also have some higher closing cost fees.

After you have an accepted offer, you will meet with a contractor that has done the 203k paperwork before and understands the process. They will get quotes and fill out the paperwork required for the loan. Once that is in, the lender orders the appraisal. There will be two. One is an as-is and one is the after completion. The lender wants reassurance that the improvements can be handled by the market.

Once you close escrow, the contractor will be given up to 50% of remodel monies for materials only. The other 50% gets paid once the work is completed and the appraiser goes back to verify the completion of the work. This is why you need to have a contractor do it that knows the process. If you are doing multiple things then the general contractor needs to be paying out their subs while they wait to get paid. The 203k only gives two payments. Work must start within 30 days of close of escrow and be completed within 6 months.

My clients have done several. I will use one lender and one specific contractor for them as it is a gigantic mess when someone doesn't know what they are doing.