Exploring 203k Loans? What to Know Before Starting!
The questions and answers found on this page are all related to the FHA 203k Renovation Home Loan. From 203K Financing to Project, Property, Down Payment, Appraisal, and Credit questions, you’ll find it all. These real life questions span from current present day and as far back as 2010. Well over a decade of advice and guidance but still very helpful for today’s 203K Loan home buyers and homeowners.
FHA 203K FINANCING Questions
QUESTION: Malcolm
Is it better to get a FHA loan first then get a FHA 203k loan later within 1-2 months of purchasing the home.
ANSWER:
Hi Malcolm, if you get an FHA 203k loan first then there would be no need to get another loan 1-2 months afterwards. It’s an All In One Loan, Purchase plus Improvement funds combined.
QUESTION: Chris
If there’s a financial issue can you sell a home that was bought with a 203k loan before the 12 month period. And if so what are the penalties?
ANSWER:
Hi Chris, FHA Loans including the 203k don’t typically come with penalties for early pay off so that shouldn’t become an issue.
QUESTION: TONY
I am trying to get honest info on a 203k rehab loan. I have excellent credit and cash to put down. Could a conventional mortgage allow for cash out for repairs
ANSWER:
Hi Tony, yes, there are conventional renovation loans similar to the 203k rehab loan which are also an option for you and the renovation specialist here on this site offer those as well. I hope that honest answer helps.
QUESTION: Katie
My husband and I are using a 203k loan to renovate a house we recently purchased. An opportunity came up for us to move out of state and we want to sell the house before the 12 months is up. Is it possible to sell the home before we have owned it for 12 months?
ANSWER:
Hi Katie, the 12 months is a deterrent for those such as investors who might want to use the 203k program for what it’s not intended for but for home owners circumstances do come up before that time elapses which will allow the loan to be paid off sooner.
QUESTION: Ty
Do you need to take a first-time home buyers class before going to speak with a 203k lender?
ANSWER:
Hi Ty, although a first-time home buyer class can be helpful it’s not a requirement to get an FHA 203k loan.
QUESTION: Amy
We are hoping to buy our first home, but had a chapter 13 bankruptcy. What is the waiting period after discharge? Discharge was March 19, 2019, and all payments were on time.
ANSWER:
Hi Amy, the waiting time needed for FHA financing after a bankruptcy has been discharged is one year for chapter 13 and two years for chapter 7. There are more details on those 203k credit requirements but your 203k loan lender can fill you in on what those are.
QUESTION: Angie
Hi! My husband and I have already been pre-approved for the standard FHA loan, but after researching all the things that are required to pass the HUD appraisal, I am thinking this could be a problem (house has no gutters, chipped paint just to name a few). Since we are already approved for the regular FHA loan, is there any reason that we wouldn’t be able to move to the 203K?
ANSWER:
Hi Angie, absolutely, you can move from a standard FHA loan to an FHA 203k as long as your working with a 203k lender, that would be the advantage as not many FHA lenders offer you both options.
QUESTION: Jeff
We recently closed on a 203k. It’s been 2 weeks and were being told were waiting for a servicing company to pick up the loan. Is this typical? Is 2 weeks typical? The house has been purchased already, and the sellers were paid. We just dont have the rehab/escrow setup yet. Then, once that’s setup, how long until the first draw?? Contractor started already and we need to get some money moving!!
ANSWER:
Hi Jeff, each lender can have different timelines but a reasonable amount of time to set up the escrow account should be about a week but given Covid and staffing shortages two weeks may be more in line at the moment. Along with that there is a shortage of lenders who are currently doing them at this time.
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QUESTION: Shannon
When you have a 203K, do you close on your home, and then do you have up to a year to do the repairs? How does that work?
ANSWER:
Hi Shannon, Yes, all work starts and gets done after your loan closes and you can have up to 6 months to get everything completed.
QUESTION: Kimberly
I’m in search of renovating the home I’m in and wondering how do I go about getting a 203K loan to get the process going? It’s an older home and outdated need quite much renovation. Please let me know how I get the loan process going for the 203K loan. Looking at about $35,000.
ANSWER:
Hi Kimberly, getting the process going on the 203k loan is an easy one and similar to other home loans except with the added renovation funds. The first step is to contact the renovation loan specialist for your state, and they will guide you through the process.
QUESTION: Victoria
We are buying a house for $269,900. It is already pre-approved for the FHA 203k rehab loan. We’re pre-qualified for $275,000.00 for a VA loan. If we are able to qualify for the FHA203k rehab loan, does the re-hab money come out of the $269,900.00, or is it added to the purchase price?
ANSWER:
Hi Victoria, the rehab money that is needed for improving the property is a added to the contract / purchase price.
QUESTION: BKT
I completed a loan modification more than a year ago where about one-fourth (or $50K) of the principle was deferred. At some point in the next few years I’d like to renovate a dilapidated detached two-story garage-like structure that is at the back of my property into a by-right ADU for the purposes of renting and generating income (FYI: When I purchased my home in 2007 using a 203k, an inspector quoted $75K as an estimated renovation cost for the garage). In addition to the ADU, I’d like to make significant renovations to the main house (I do not have a quote for these renovations). My question is, how does all of the above play into the amount of a 203K loan I may qualify for?
ANSWER:
Hello BKT, with the timeline you detailed, it’s too soon to know how your new 203K Lender guidelines will come into play with a Loan Modification in your credit profile. The typical wait period is 12-months but many lenders have their own guidelines and overlays so you’ll need to keep that in mind as you move forward.
Pertaining to the ADU, this is something else that can’t be answered without more details. A true ADU cannot be used to generate income since they are considered part of the main dwelling unit (a single-family residence). If you have the proper zoning for multi-family dwellings, then a Second Unit could be an option but you’d need to check with your local governing jurisdiction.
QUESTION: Linda
I THINK THAT A 203k IS WHAT I AM LOOKING TOWARDS FOR RENOVATIONS BUT CAN I ALSO GET CASH OUT, IF NEEDED.
ANSWER:
Hi Linda, Whether purchasing or refinancing the additional funds that come with your 203k loan are reserved for your renovations so cash out to the borrower wouldn’t be an option. Hope that clarifies.
QUESTION: Cindi
If I am applying for a refinance and home improvement loan which type do I want and would I need a down payment for this? What are the current rates and APR% ?
ANSWER:
Hello Cindi, a 203k refinance loan combines both types of loans. So, there is no need to decide between a refinance and a home improvement loan. Your new 203k loan would pay off your existing loan(s) if any and preferably at a lower rate than your existing rate plus with the additional funds for home improvements. No 203k down payment is needed on a refinance but if your new loan balance exceeds the maximum loan to value then you might need to bring in funds to close. If it’s a purchase then yes, a minimal 203k down payment is needed. As far as current 203k Loan rates and APR’s your lender would be able to answer those questions.
QUESTION: Joseph
If I’m already per approved for a $200,000 FHA loan, is it to late to apply for 203k loan? If not what are the steps and do my lender have to rerun my credit.
ANSWER:
Hello Joseph, the answer is 'NO' it’s not too late to apply for a 203k loan unless you have a property under contract, it’s passed your loan contingency and you’re getting ready to close then that’s a different story. So the first step is to make contact with a 203k lender to re-apply. Your new lender will need a credit report issued under their name but there might be ways to get your current one re-issued to them. It’s best to ask your specific lender on that matter if it concerns you. The good news though is by using a 203k lender it will give you the option to use the FHA 203k with renovation funds or the FHA 203b that doesn’t come with any, without having to start the process over again and with the same lender.
QUESTION: Nancy
I am getting approved for a loan of $155,000 but my question is if I go with the 203K loan, how much can the house be, do they take the x amount of dollars to pay for renovations from what you get qualified for?
ANSWER:
Hi Nancy, if you get approved for $155,000 loan then the purchase price of the home with renovation dollars combined will need to be no more than $155, 000.
Example: $100k purchase price plus $55k in renovation cost equals $155k total or any other variation just as long as you are within the max you qualified for.
QUESTION: Diane C
What is the average time to close a 203k loan? How long does a lender need to provide loan approval for a 203k loan? Who traditionally holds escrow funds for the rehab, the lender or the title company? Is there additional fees for holding escrow/additional disbursements/title updates?
ANSWER:
Hi Diane, the average closing times for just about all residential mortgages have increased due to some new waiting period guidelines that recently came into effect in October 2015. With that said it’s definitely possible to close a Renovation loan in 45 days if the scope of work is identified quickly if not then 60 days is a safer bet. Because, identifying the scope of work and agreeing on a price for that work between you and the contractor(s) can take a while and the lender can’t order an appraisal without knowing that information.
The time needed for loan approval would be less than the closing times mentioned but how much less depends on the lender because some lenders will require a full file with an appraisal before going to underwriting and some will submit with just a bid, it’ll depend on the lender’s policy. Pre-approvals can be done much sooner as typically there is no property identified yet.
On a Rehab loan, the lender holds escrow funds for the rehab unless they have something different setup outside of industry standard practice. As for fees, there’s always a cost for extra work (in any line of work), you’ll have to consult with your lender about what those costs are and if they’re financeable in your scenario. Generally speaking, most fees associated with a rehab loan are financeable.
QUESTION: Soon-to-be New Homeowner
I have been pre-approved for a 203k loan and a bank has agreed to purchase the loan once completed. I am currently awaiting a response from the underwriter. The home I am purchasing needs 8-10k in repairs. No major repairs are needed.
My concern is if all goes well and we close and the loan goes through then what? The home needs some work completed before I move in. But I cannot afford to pay mortgage and rent.
Also, I believe work cannot begin until the first renovation check is cut which can take up to 4 weeks. Are mortgage payments due immediately? Also, does the renovation process have to wait for the initial partial payment to begin? I am afraid of being forced to pay the mortgage but still have to live somewhere else, i.e. pay rent. Any information will be helpful.
ANSWER:
Hello soon-to-be New Homeowner, it would seem that your 203k Loan Officer may not have properly counseled you on possible options and the process.
“On a standard/non-streamline 203k, you may finance mortgage payments for the number of months you’re unable to inhabit your home. This option though isn’t available on a streamline 203k so payments would start at their scheduled time.
As for your comment about the start of work, timing of payments, etc. this is “Lender specific” but generally work should start within the first week of closing unless otherwise noted in advance. For example, for permits. So, for the most part delaying any work shouldn’t be necessary If the work and payment disbursements were already planned and agreed to before closing as it should be. This is where it would be best to address any concerns with your specific lender.
QUESTION: Eva
I am in the very early stages of pursuing a 203K loan. I understand that I should get pre-qualified for the loan first. After that step, are there certain rules to follow when searching for a home, i.e. is there a maximum price the home can be listed for? Is there anything that would disqualify a house for the 203K loan? Also, could the seller have any say-so on whether a 203K loan can be used to purchase the home? Thanks in advance!
ANSWER:
Hi Eva, good to hear you’re pursuing an FHA 203k renovation loan because there are advantages. You are correct, getting pre-qualified or better yet pre-approved is the first step.
On searching for a home…Once you are given the green light by your renovation loan specialist you are pretty much free to pursue the search of your home just like any other residential financing.
On the price of the home…No maximum on list price just a maximum loan amount based on the county where the property is located.
On anything that would disqualify a house…That is when a 203k/renovation loan would have its advantages because the condition of the home is no longer as much of a factor like other type of residential financing.
On whether the seller has a say on a 203k loan being used…A seller could prefer one type of offer over another but their bottom line would still be the same, how much they will get, how long it will take and making sure the offer is strong enough to close.
One thing is for sure and that is the hurdle of property conditions are no longer as big of a factor for both buyers and sellers with this type of financing.
QUESTION: Debra
If you Rent with options to buy and the house needs fixing can you still get a 203k to help.
ANSWER:
Hello Debra, if you are, or plan to rent a house with an option to buy, the answer is yes, a 203k loan can be used when it’s time to purchase the property. And, If you’re going to put some portion (on top of the normal rent) of your monthly payments towards your 203k down payment, then you should document the terms of that agreement along with some type of proof of market rent. By having these things in place, it will make it a much smoother transaction for both you and the lender when it comes time to start the buying process. If you can, speak with a renovation specialist 6 to 12 months ahead of the buying process just to make sure you have all your ducks in a row with that particular 203k lender you choose.
QUESTION: Peter
In June of this year I purchased a house jointly with a friend. I would like to buy the friend out. Do we have to own the house together for one year before I can buy him out in order to get a 203k loan? Can I use the 203k to buy him out as well as do renovations? Sincerely, Peter.
ANSWER:
Hello Peter, an FHA 203k Refinance is considered a “Rate & Term” refinance loan. In other words, “no cash out” with the exception of paying off your existing loan(s) and funds for your home improvements /renovations. If you have owned the home less than a year, then guidelines will limit and tie the value to the purchase/acquisition cost. After one year of ownership though the new appraised value can be used. But, regardless of when the refinance takes place there’s still the issue of “no cash out”. So, either the ‘Co”-borrower/owner equity is calculated as a property related debt which can be allowed or a separate cash out loan must be taken out before or after your 203k refinance.
QUESTION: Anitra
Hi my name is Anitra
Is there a lending limit or price limit for a home?
I would like to purchase a home that is in foreclosure and needs repairs and unfortunately, I am unable to get a conventional loan because of the condition of the house. The asking price is $395,000. Thanks, Anitra
ANSWER:
Hi Anitra, there is no price limit but there is a maximum loan limit, and that loan limit depends on what county the subject property is located. You can ask your Loan Officer/Lender or try this free tool where all you would need to do is put in the state and county of the property you are interested in to get the FHA Maximum Loan Limits.
QUESTION: Deb
Hi I WAS WONDERING IF I DO OBTAIN a 203K LOAN ON A HOME I ALREADY AM LIVING IN AND PAYING A MORTAGE FOR DO I HAVE TO PUT MONEY DOWN WHEN GETTING THE 203k LOAN? AND ARE CLOSING COSTS JUST LIKE A TYPICAL LOAN AND CAN THEY BE ROLLED INTO THE FINANCE? THANK YOU, DEB
ANSWER:
Hi Deb, having to “put money down” or in your scenario “money to close” because it’s a refinance not a purchase would depend on the value of your property in comparison to your loan amount. The good news is that you don’t need much equity (in comparison to a conventional loan) to avoid bringing money in to close when doing an FHA 203k refinance. On closing cost for 203k’s there are the typical one’s that you would have on a regular mortgage loan plus some additional one’s related to funds for improvements and yes they can be rolled into the total amount financed.
QUESTION: Stephanie
I recently refinanced my FHA loan and just now found another home we are interested in moving to give us more space for our family. The home we found is in desperate need of a new roof and needs to be completely updated on the inside (kitchen, bathrooms, etc). We are unable to sale our current home because we are still underwater but could rent it. Is it possible to have 2 fha loans at once? What would be some of the qualifications for an fha 203k loan (income needed, credit score, can you have a cosigner, etc).
ANSWER:
Hello Stephanie, Although it is possible to have 2 FHA loans “generally” FHA will not insure more than one mortgage during the same time one is already outstanding for any borrower with some exceptions such as:
-Relocation
-Increase in family size
-You are vacating a jointly owned property
-You were a non-occupying Co-borrower.
Plus, additional guidelines can apply as well on top of an exception such as having a minimum amount of equity (25%) on your current residence that has the existing FHA loan on it that you are planning to rent out. So, it is possible but best to get a consultation for a better understanding and to find out if your scenario would fall into one those exceptions. On qualifications, if you can qualify for an FHA loan then you should be able to qualify for an FHA 203k loan.
QUESTION: Steve
I am looking into a 203k loan and I was wondering if you have to have mortgage insurance for the duration of the loan or will that stop after the proposed work is done?
ANSWER:
Hi Steve, FHA Mortgage Insurance can be for 11 yrs. or for the whole term of the loan depending on the down payment/LTV – loan to value. That would mean it would “not” stop after the proposed work is done.
QUESTION: Isabella
Can I refinance using 203k fha loan if I am currently under a owner finance contract? Thanks
ANSWER:
Hi Isabella, A property that has owner financing can be refinanced including it being done with a 203k loan. But, questions such as…is there a recorded lien against the property and how long have you had ownership will be some of the factors in determining if it can be done and what the maximum loan amount can be. A 203k specialist can explain more.
QUESTION: Les
MY QUESTION IS: I’M IN THE LAST YEAR OF A CHAPTER 13 BANKRUPTCY MY WIFE IS NOT INCLUDED WE WANT TO GET REPAIRS DONE TO OUR HOME WE TALKED TO A 203K LOAN OFFICER AND WERE TOLD THAT IT WOULD NOT BE A GOOD IDEA FOR REASON BEING WE ARE NOT ADDING ANY SQUARE FOOTAGE TO THE HOME AND IT WOULD ONLY RAISE THE VALUE A FEW THOUSAND DOLLARS WE WERE TOLD WE COULD SELL OUR PRESENT HOME AND BUY A DIFFERENT HOME WITH MORE UPDATES MY WIFE REALLY DOESN’T WANT TO SELL BUT WILL CONSIDER IT WE ARE TRYING TO GET APPROVED FOR A FHA REFI LOAN ALSO BUT WE WILL ONLY SAVE A COUPLE HUNDRED DOLLARS A MONTH SHOULD WE SELL,REFI,OR TRY THE 203K LOAN
ANSWER:
Hi Les, congratulations on progressing through the Chapter 13 and being in the final year. If you’ve maintained timely payments on the Chapter 13 and the rest of your credit profile and credit score is acceptable to your potential lender, an FHA 203K may be a good fit for you.
Now, whether or not you will need your home to increase in value depends on how much equity you have in the home now. If you currently have a minimum amount of equity (less than 5% ), you may need to pay the difference in cash at the closing. The program does not require that your value increase “dollar for dollar” but the added value is certainly a factor when calculating your maximum loan amount.
A refinance (regardless of the type of loan) may help bring those payments down since interest rates are very low right now. Plus, if you have an existing FHA loan, it might be a good idea to look at an FHA Streamline which is available with or without an appraisal.
To answer your final question of “sell, ref or try for the 203K”, only you and your family can answer that one. Look closely at your finances, the equity in your present home and your goals for the future. The answer is in there somewhere.
QUESTION: Curt
Long time home owner refi’d a year ago to lower costs. Decided to buy a smaller house to lower my payments even more this year and was told by multiple real estate agents my current house would sell no problem for at least what I owe on it. Did a 203k FHA owner occupied loan on new house and remodel is now complete.
Current house has been on market for 6 months and is obviously not going to sell for what I owe on it. Now I’m in a pickle.
I can’t get a loan mod or anything on current house b/c of buying the other house. Cannot just walk away from current house b/c of “buy and bail” issues I’ve learned about (and I don’t want to walk away anyway b/c I don’t think it’s right).
I also am nervous about selling the new house now b/c of “flipper” laws and the fact that I’m supposed to live there for a year at least I hear?
I think the best thing for me (and society/govt) is for me to sell the new house right away and just stay in my current house and deal with the payments and being upside down.
Is that okay? Can I sell my newly purchased 203k financed owner occupied house right away? My INTENTION was to live there and I did NOT lie on anything on the new house loan, but now I think I need to sell it.
Any advice would be sooooooo appreciated. I need to know what to do as I’m supposed to move into the new house within 30 days per the 203k rules, but I’m hoping to sell it in under 30 days if that’s okay to get out of this mess.
ANSWER:
Hi Curt, the stress and concern you have are definitely evident in your comments and is unfortunate the market conditions are not cooperating to alleviate it on your former property. Although it would have been better to sell first then buy, the 203k lender who approved your new purchase obviously was okay with that scenario.
The “one year” of owner occupancy you have heard about is primarily for those homeowners who later decide to rent out their property. Paying off a 203k loan early through a sell or refinance is allowed and under those circumstances should be understandable.
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QUESTION: Laura
How long does it take to close a 203K streamline? start to finish…with the following factors finances are in order, credit approved, bids, down payment.. etc. this property is in Oregon. I have been quoted 45 days.
ANSWER:
Hi Laura, A processing time of 45 days on a 203k streamline is within range even as prepared as you are which is great. Now that doesn’t mean it can’t get done sooner which a 203k lender can accomplish but there are many factors.
Depending on the extent of work for the property, Full or Streamline 203k, lender work load and the unexpected it probably would be a good idea to schedule and prepare for more time rather than less.
QUESTION: Michael
I was recently told by a Wells Fargo renovation specialist that if I am purchasing a home from a family member I can not do the 203k. Is this true?
ANSWER:
Hi Michael, When buying a property from a family member most lenders regardless of the type of loan do have restrictions. The reason why is because it would not be considered an “Arm Length Transaction” (Meaning – non-related parties). With that said it doesn’t mean you would be totally excluded from a 203k or any type of FHA financing as long as it is a bona fide sale.
There are some additional criteria that can apply for those lenders who can do it. Such as a larger down payment dependent upon if the property is the primary residence of seller / family member. Your best bet in this particular scenario would be to contact a 203k Specialist.
QUESTION: Jeffrey
Is it possible to keep an older HELOC loan alone. I would like to refinance a first mgt. in the 203k if the second would subordinate why wouldn’t this be possible?
ANSWER:
Hi Jeffrey, the answer is “Yes” it is possible you can keep your HELOC (2nd. loan) open and left alone if it’s still within the maximum combined loan to value and qualifying guidelines. That’s not to say that the 203k lender, the state you are in, as well as the lender holding the second will allow subordinate financing when refinancing into a 203k loan but it is possible.
For the most part it would be rare and probably not very advantages leaving an adjustable second loan open but your 203k specialist can help you weigh out your options.
QUESTION: Stephanie
Trying to understand 110% of after improvement value. I worked with a mortgage company for months on a 203K refi. After the appraisal was completed as an after improvement value of 151,000 underwriting stated they also needed an as is value. The as is value was 105,000 due to the horrible real estate market in our area. My home had dropped 21,000 under tax assessed value. This put me underwater by apprx. $8500. The total cost to refi, home improvements plus 10% contingency and closing costs would have been 163,000. As I understand that owing more than the value is not a good situation. I don’t understand how the current debt to market value was an issue if the total for the loan was going to be less than 110% of the after improvement value. I offered to put down 8500.00 and they still could not do it. They were ready to set the closing date when underwritting discovered they needed a current value and brought up the problem. Can someone please explain this to me?
ANSWER:
Hi Stephanie, On a 203k refinance the 110% of the after-improvement value is only one of two main ways to calculate your base loan amount and then the lower amount of those two is then used. Afterwards that amount is then multiplied by a factor which reduces it even further.
It sounds like your lender should have explained better about the 110% after improvement value plus gotten a complete appraisal (an “As Is” and after improved value) from the get go as well. Never the less your loan should still be doable but probably more than the $8,500 will be needed to close.
Feel free to use the FHA 203k loan calculator for refinancing which maybe will help give you a better understanding of the 110% and other figures as well or better yet contact the 203k specialist for your state.
QUESTION: Cristy
I am trying to find out about the limits on the 203K loan in Idaho. I want to buy a house for $95000 and then put between $40000 and $60000 into it. The total purchase price will still be below market value. Am I over the cap for this loan?
ANSWER:
Hi Cristy, FHA loan limits with or without funds for renovations are the same and are easy to find if you go to this blog post: FHA Loan Limits There you will find out the maximum loan amount for the property you are interested in.
QUESTION: Hayley
How long does the Quality control take before the closing of a 203k loan?
ANSWER:
Hi Hayley, Quality control related only to the rehab portion to close is dependent on the lender which can have their own procedures so the time needed will vary.
Your best bet would be to talk to the lender who is actually doing your loan to get a more accurate answer on the QC time you are referring to.
QUESTION: Johanna
I have a contract on a foreclosed home and have secured a 203k with a lender. How long do I have to hold onto the 203k before I can refinance to a conventional loan?
ANSWER:
Hi Johanna, Actually, you can refinance out of an FHA 203k loan at any time as long as a conventional appraisal would support it.
As a reminder though a 203k loan is a first mortgage, all in one loan, fully amortized that come with fixed rates comparable to other first mortgages without any improvement funds but for whatever reason and at any time it can be paid off with no penalties.
QUESTION: Denita
When you defer your payment on a 203k loan, I know this is finance in your loan amount. Is the payment taken out of your escrow repair account?
ANSWER:
Hi Denita, Yes, the up to 6 months of payments are allowed to be financed on a standard 203k loan and are taken out of the escrow repair amount.
QUESTION: Tim
We are interested in using the 203k loan to purchase a home. We are in a current mortgage at our current home that is a regular FHA loan and we would like to purchase the new home with a 203k before we sell our current home. Is that allowed?
ANSWER:
Hi Tim, normally FHA will not permit a borrower to have more than one FHA insured mortgage at a time. Although, there are a few exceptions when you are permitted to have a second FHA loan such as being transferred by your employer or an increase in family size as a couple of examples. There are other instances that can apply as well so ask your 203k Specialist that can be found at The FHA 203k Lender list to go over them with you.
If in your case none of the exceptions apply, another potential option you could consider would be to refinance your existing home into a conventional mortgage, then apply for the FHA loan on the new home. Certain guidelines would apply as well to get that accomplished but this might be an option for you.
QUESTION: Gregg
Hi, currently, we have a 15 year Freddie Mac fixed loan at 4.25%. We owe $211,000 on our house and it would appraise out at $225,000 – $230,000. Could we do a 203k remodel loan for $35,000 if we wanted to redo our kitchen? If so, would it be a second mortgage, 203k remodel loan? Or would we have to refinance everything to a 203k loan? Thanks!
ANSWER:
Hi Gregg, it sounds do-able but more information is needed. The 203k loan is not a second mortgage it is a first mortgage only. The paying off of your current mortgage loan(s) along with the renovation funds would all be included. So “Yes” you would have to refinance everything into the 203k loan.
QUESTION: Christine
I purchased a property using the 203k loan program to completely re-hab a home. Enough work has been completed to get an owner occupancy agreement from the building inspector. Is it possible to get the balance of what is in escrow applied back to my loan balance so I can refinance or does all of the work need to be complete?
ANSWER:
Hi Christine, there are actually two answers to your question: If you intend to refinance using an FHA loan, the answer is “NO”. Your 203(k) loan must be completely closed out before you can acquire another FHA loan. The term “closed out” means that you’ve completed all the work you agreed to do and an inspection of the work has been performed and cleared. The lender will then apply any remaining funds to the loan balance so that the case can be closed.
However, if you intend to refinance into a loan product other than an FHA product the answer is “Yes” the loan payoff amount can be reduced by the amount of funds remaining in the repair escrow then after payment in full the case can be closed.
QUESTION: CHASE
Hello, I completed an FHA 203k loan on the home I purchased about a year ago. The entire 203k project was completed about 6 months ago. If I were to sell this home in the next 6 months- would I be able to do the same process (FHA203K) on another home? Is the FHA203k loan a one time deal, or can you do it multiple times, and is there any kind of time limit I would have to wait before doing the process over again on a new home?
ANSWER:
Hello Chase, the FHA 203k loan is not a one-time deal and although there is no time-line using it again, the purpose and intent of the program is for “Owner Occupancy”.
QUESTION: Pam
We are in the process of purchasing a foreclosure using the 203K streamline program. Our mortgage broker seems unsure of what items are needed for this process. We have completed all the FHA 203K streamline paperwork and so have our contractors. In the paperwork it mentions the need for a 203K Disbursement Draw Form that needs to be completed for disbursement of monies. We are unable to locate that form anywhere and our mortgage broker seems unable to find it. We are hoping to close within the next week (already past our 1st closing date due to paperwork issues). Can you point us to the location of this disbursement form we need for our contractors & us to use? Thanks for your help!
ANSWER:
Hi Pam, Let me start by saying YIKES! Because it sounds like you are in the hands of a mortgage broker that doesn’t have a grasp of the paperwork needed on your 203k loan. The good news is that “disbursement draw forms” are more for the Full 203k not so much for the streamline. The lender should release one-half of the repair escrow to the contractor at closing and the other half when the work has been completed, inspected and approved by the lender.
Never the less you can find a copy of the “HUD 9746-A” that is provided and prepared by the HUD Consultant on the full 203k version at: http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_13001.pdf
QUESTION: Kenneth
One of the terms for qualifying for FHA203k as I understand it is no other mortgage payments more than 30 days late in the prior 12 months. When is that determined?
Specifically, what if I apply for FHA 203k, get approval, get the rehab work started and then default on another existing mortgage? Is the 203k approval final at the time rehab work is started? Or can it be revoked in light of the default?
ANSWER:
Hello Kenneth, A 30 day mortgage late older than 12 months could be acceptable but like most everything in the mortgage application process, there is no cut and dry guideline it’s more dependent on the circumstances. Assuming the credit scores are still high enough for the lender after having a mortgage late, time periods are usually determined from the date of the credit report.
Now whether an existing mortgage stays in place after closing on a new FHA home loan with or without renovations the new loan is final the day it closes and you become the owner.
QUESTION: Chase
Hello, I really hope that someone might be able to answer a few questions I have about my 203k loan. One thing I have learned about this loan is it is difficult unless dealing with someone who has a lot of knowledge about it.
So, I bought my home 12 months ago with a regular FHA loan and FHA 203k loan, a total amount of 132000. The selling price was (house $75k)+(203k loan $57k)=(total132k).
So I’ve been in the house for a couple months now after the renovations. I have owned the house now for 12months and I am ready/need to sell. My house will sell somewhere around 215k.
My question is when I do sell and I go to pay capital gains? What price will my gains be based on? A (The 74k sell price) B (the combined of sell price and 203k)
I know renovations can be deducted but in short what am I looking at paying in these taxes? Or does anyone know what they are based on?
ANSWER:
Hi Chase, agreed!!! Working with someone who has knowledge on the 203k products can make a big difference.
Unfortunately, your questions are more tax related so they should be directed to a tax professional not a 203k specialist. The 203k loan though is for owner occupied property owners so according to the IRS any capital gains on a personal residence could be exempt up to either $250k or $500k plus an adjusted cost basis can be used…here is the IRS link from where that information came from: http://www.irs.gov/publications/p523/ar02.html
By the way I noticed in your comment you said: “I bought my home 12 months ago with a regular FHA loan and fha203k loan, a total amount of 132000. The selling price was (house $75k)+(203k loan $57k)=(total 132k)”.
So not to confuse visitors at this site who might read your comment a clarification is needed. There is no splitting of FHA loans. It’s either one type of FHA loan or the other…it is either a regular FHA loan that does not have renovation funds or an FHA 203k which includes the renovation funds. So, actually you ended up doing an FHA 203k loan for a total of $132k. If you were told differently than that explains the first part of your comment about working with someone with knowledge on the 203k.
QUESTION: Darren and Alice
We own a home in Monument, CO and have a 5%, 30 year VA loan on it. We owe $215K and it appraised this year for $228K. We would like to do a major addition to double our home size that our contractor said would cost approximately 180K-200K to do. Our house is the smallest in the neighborhood at 1800 sqft so we would only be bringing it in line with the other homes around us which are 3-4K sqft, and we’re confident the appraisal after the reno would be more than sufficient. We are interested in a renovation loan that would become a home mortgage loan after reno is completed. Our credit score is 789, 72K annual income, and we would be bringing 150K cash toward the reno/home loan. What could the 203K loan program do for us? We’re interested in getting a lower interest rate than what a conventional mortgage lender is quoting us right now, 4.65%. Thank you.
ANSWER:
Hi Darren & Alice, One recent thing to consider in your situation will be the new maximum FHA Loan Limits for El Paso County which is where the property is located. The limit will be: $271,050.00 for a single family home after October 1st. 2011 unless there is an extension on the current limits. Because you plan on bringing $150,000.00 into the transaction it would appear that your loan amount would be within the new loan limits…$215,000 current balance + $200,000 in renovations LESS $150,000 in cash you are bringing in = $265,000 plus closing costs/pre-paids) so you should still be fine.
As far as the 4.65% your bank is quoting you, there is a good chance with today’s rates you could get something lower (depending on the costs associated with the rate) but just keep in mind that FHA loans must have mortgage insurance “initially” regardless of how much you are bringing in, putting down or the current equity the property will have.
What the 203k loan program can do for you and your situation though is give you a ‘single closed loan’ which will include the renovation and costs with an interest rate fixed for up to 30 years that will not change after the renovation is completed.
QUESTION: Kristen
I would like to get a 203k for a renovation but am confused on if I can use the $65,000 I have in equity at all for the down payment. Do you have to take the loan out for the full loan amount and not use any available equity? Do you have to pay PMI or is there any way to avoid that? Also is a 401k loan counted towards debt to income ratio?
ANSWER:
Hello Kristen, You mentioned $65k in equity, a down payment and do you have to take the loan out for the full loan amount and not use any available equity…so that is a bit confusing also not sure if you are referring to a purchase or refinance.
If you mean can you pull money out of a property for a down payment on another, then sure you can do that.
If you mean can you use/substitute the current equity of the property you are purchasing as a down payment then no.
Definitely more clarification is needed so contact the 203k Renovation Specialist from the 203k Loan Lender List for your state but here are the other answers to your remaining questions.
Yes, PMI which is called MMI (monthly mortgage insurance) for FHA loans is initially needed for all FHA loans. It’s the same as PMI except PMI stands for Private mortgage insurance and is used for conventional loans not FHA loans. So, there is no way to avoid it at least in the beginning of your loan.
And lastly, on your 401k loan it shouldn’t be counted towards your debt to income ratio.
QUESTION: Michael
I’m about to close on an all cash transaction for a house which cannot qualify for a conventional loan. I will need money for renovation, etc. How long should the process take to secure a 203K? Can I begin work, using my own money, before the process is completed? Thank you.
ANSWER:
Hello Michael, You should figure the 203k loan process on average will take about 30 to 45 days give or take depending on what type of 203k loan it is (Streamline or Full).
Regarding using your money and getting work done before the 203k loan is processed and closed, that would be a “No” if you are thinking of getting reimbursed. If it’s unrelated to the 203k work that is scheduled to get done which will be paid with the proceeds of the 203k loan then that would be your choice. But typically, all work should commence after closing.
The 203k Specialist you can find on the FHA 203k Directory Lender List for your state could explain in further details the guidelines plus the pros and cons regarding your personal scenario.
QUESTION: Travis
How much should I expect to pay in closing costs on 160k total price 203k loan? [$150K + $10K in repairs] can the seller pay more than the usual 3.5% towards closing? My lender says 10k closing plus 3.5% down minus 3.5 that the seller pays. still 10K at closing. Is that out of line? Shouldnt I be able to find better? or ask for maybe 5-6% out of seller.
ANSWER:
Hello Travis, To be able to answer the question of how much to expect in 203k closing costs more details would be needed such as whether it’s a Full or Streamline 203k, will you be paying any discount points for the interest rate you are getting, how much in prepays (taxes, insurance and interest) are being collected, along with some other information as well.
Because of those reasons mentioned it is hard to say if $10k in cost is high but the answer is “Yes” that the seller can pay more in assisting the buyer than the current 3.5% you mentioned. Sellers can contribute up to 6% of the sale price which should be negotiated beforehand but if need be the offer can be amended with the seller and lender approval.
If it’s not to late to switch lenders then contact the 203k Renovation Specialist for your state on this website and best of luck.
P.S – Although $10k in repairs are being made it doesn’t automatically mean it’s a Streamline 203k, depending on the type of renovations, it can still be a full 203k at that amount in case you were wondering why the question of “full or streamline 203k” would be asked.
QUESTION: Stephanie
Can any of the closing costs for a 203K, including the upfront 1% MMI premium, be put into the loan amount?
Are closing costs considered any part of the 3.5% down payment?
ANSWER:
Hi Stephanie, Closing costs on a 203k purchase are not financed into the loan amount but can be paid by the seller up to 6% of the purchase price. If it’s a refinance then yes you can finance 203k closing costs into the loan amount.
The 1% MIP – Mortgage Insurance Premium on FHA loans including the 203k can be financed into the loan for both purchase and refinance.
MMI…Is the monthly mortgage insurance which is not paid upfront but paid monthly on FHA loans.
The 203k Lender for your state can answer any further questions if you have more.
QUESTION: Hector
That 203k you can ask to the seller for seller’s concession?
ANSWER:
Hello Hector, The answer is “Yes” you can ask for up to 6% of the selling price for 203k closing cost on FHA loans including the 203k.
QUESTION: Anthony
We have a standard 203k loan. Loan closed 12/3/2010. We put in an initial extension request in April 2011 due to severe winter, requesting 3 months additional. Bank made me submit new 30 day timeline with request. We feel we completed all items on new 30 day timeline. Throughout the 30 days I submitted photos and writen updates for draw consultant. Never heard anything so assumed extension was fine. Three days prior to loan due date 6/3/2011 I was asked to submit another extension request with another timeline. Still the same extension date as first request. 2.5 month addional on laon.
Bank now tells me extension denied for lack of completeion. They want to review in another 3 weeks. Also, escrow is frozen, but they want contractor to continue working. Said they might make a draw exception. Is this the “new” normal banking system. Forgot to add 3 days before my reno loan is set to end they change draw consultants. I am baffled
ANSWER:
Hi Anthony, That is unfortunate to hear about your situation but more information regarding the chain of events would be needed to give you any solid advise. It is an FHA requirement that the work be completed in 6 months and FHA does keep tabs on open/pending 203(k) transactions. There’s some latitude and an extension is usually granted if the circumstances are beyond the Borrower’s control. The Lender though does have the right to change HUD Consultants in the middle of the project if they feel a need to do so.
If you feel you are not getting the service or answers you need from the “bank”, you could always go back to your originating Loan Officer or that Loan Officer’s Branch Manager to see what help they can provide.
Also, you can contact your local HUD Homeownership Center for additional assistance.
QUESTION: Reanna
Hello. I fell in love with a foreclosed Fannie Mae property in need of major repairs and improvements, but it went to an auction company before I could make an offer to the listing agent. Now I’m struggling to figure out how to line up a 203K loan in advance of bidding on the property at auction, since there are no contingencies on financing if I win the bid. I will contact a local expert to help navigate that mess, but in the meantime I am working with a contractor to draw up estimates on the work; he would be able to have everything laid out prior to starting the process, so hopefully that would shave some time off the processing timeline.
The lender I’m working with now is quoting me about 0.75% more on a 203K loan than on a conventional FHA loan. Is that pretty standard? Also, I had heard that you can refinance a 203K loan to a conventional FHA loan after the work is completed, but then someone else told me that you can’t refinance that quickly because the loan officer would then have to pay back the commission that he made on the original loan, since you would then be paying less. Is this true?
ANSWER:
Hello Reanna, FHA 203k rates depending on the lender as well as on specific days will typically range from a quarter percent (.25%) to a half percent (.5%) higher than a standard FHA 203b loan without any renovation funds. Three quarter percent (.75%) seems a little high unless your loan amount with repairs passed some type of threshold that you are not aware of so it would be a good idea to ask for clarification.
The answer to your other question is “Yes” you can refinance your FHA 203k into a Conventional loan but of course after all the work has been completed. As far as commission pay backs from the original loan due to early pay offs; that can be true but can vary with different lenders as well as what type of loan and pricing or interest rate you received on your loan. Plus, that is more of an internal lender issue.
As a courtesy I would suggest you share what your intentions are with your loan officer upfront.
QUESTION: Frustrated
We are purchasing a HUD home. We signed our portion of the contract and are still waiting for HUD to sign it. I expect we should be officially under contract in the next week. How soon should we have our estimates done for the 203k so that we stay on track with the 203k process of the loan.
My husband seems we have 45 days to turn in the estimates which I know is not true but I am having a hard time explaining this whole process to him.
ANSWER:
Hi Frustrated, Cost estimates can be done before or after a contract is accepted. To stay on track with the process of your 203k loan, cost estimates on the improvements should be done as soon as possible because it will be needed by the appraiser and the appraisal is something that is ordered in the beginning of the transaction.
The 45 days your husband is referring to is most likely the total time frame that HUD is allowing the purchaser to close the transaction not for estimates. So, you are right to be concerned your husband might be a little laid back on this occasion. Best of luck to you on the purchase of your HUD home.
QUESTION: Barb
My sons are planning to buy a home in Michigan, and are going with FHA 203K for improvements. He wanted to get a 15 year mortgage, but the lender he is working with told him that 15 yr mortgages don’t exist for FHA 203K loans, nobody does them, it’s not allowed – and he must take a 30 year mortgage. Also some question about fixed rate vs. APR (he wants a fixed rate). Is this true? If so, are there any alternatives? If not true, how can he find a list of lenders in Michigan that wil give him a 15 yr FHA 203K loan?
ANSWER:
Hi Barb, not all lenders offer the 203k loan on a 15 year fix rate program so although the lender your sons are working with don’t have it, there are other lenders who might offer that option. Of course your sons can turn a 30yr. fix into any term they want by paying more to the principle on a monthly basis if not your sons can do a refinance after the repairs / renovations are done into a regular FHA (not a 203k) or Conventional 15 yr. fix loan.
In any case a 30 year or 15year loan…your sons would be able to get a fixed rate and not an ARM – Adjustable Rate Mortgage. An APR (you mentioned) stands for annual percentage rate which has to do with the cost of an interest rate averaged over a 12-month span.
Contact the 203K Lender in Michigan to find out what options are available.
QUESTION: Sandi
My daughter and her boyfriend are in the process of the 203k loan. It is just the matter of getting a closing date. The underwriter is making them jump through hoops, always adding things or asking for something. The latest thing is having proof of closing cost. My mother gave them some money (gift) but being the loan is in the boyfriend’s name, he is not allowing the gift because it is not “blood money”. He is also asking for proof of how he got the any of the money, being it his paycheck or receipt of something he sold. They already have more than $1200.00 into this house and can’t get a closing. They have to keep paying HUD to extend the paperwork until closing. What can they do?
ANSWER:
Hi Sandi, all loans FHA and Conventional (Fannie & Freddie) require a paper trail of funds and more so these days. This is probably something that should have been talked about beforehand with the loan officer or whoever is handling the loan so that they could have avoided some of these hoops.
See if the lender will accept another closing cost gift from someone related to the boyfriend or ask the lender if the transaction can be amended so that someone involved in the transaction (Lender/R.E agent, seller) can credit them for the cost necessary.
QUESTION: Shawn
Am considering a REO home that needs 203k loan. Own a home now, but it also needs work before selling, especially in this market. Would like to roll some debt consolidation in to free up money for the 2nd house payment. purchasing the house for 40,000, about 10,000 in repairs, will be valued near 100,000. Is this possible, are there rules against doing this in a 203k loan?
ANSWER:
Hi Shawn, if you are thinking of doing a cash out refinance on your current residence with an FHA 203k loan to pay off debts and make repairs then the answer would be no because the funds are to be used for repairs only but you could do a cash out FHA 203b or conventional loan to accomplish doing both tasks if that is what you are asking.
As far as using the FHA 203k to “purchase” and repair the second house that would depend on the status of the first property plus the new purchase needs to be owner occupied.
You are welcome to contact the 203k specialist for your state located at the 203K Lender Directory for more help or any other questions you might have.
QUESTION: Lisa
I am the Seller of a house that needs a 203K to sell. My concern is that the Buyer has included his $20,000 estimated remodel costs into the offer page to Seller, and is asking for the $20,000 credit on an addendum which is NOT referenced in the offer documents. This concerns me because it appears that I (the Seller) am getting $20,000 more than the net being offered to me, which in turn affects all the closing costs which are based on percentages, and potentially affects what I report as income received on my house to the IRS – it would appear to be under-reported income. From what I’ve read in your guidelines to writing the offer, ONLY the net amount to the Seller should be in the offer, but when I explained this to my realtor, and the Buyer’s agent, they disagree. How does this affect the Seller, and what do you suggest?
ANSWER:
Hello Lisa, somewhere down the line as the transaction progresses the $20k credit will be noticed and rectified if it is something that was done in error. In the meantime you can bring up your concerns you mentioned in your comments to others involved or not involved in your transaction (Lender, Attorney, Escrow officer, Title company, tax preparer) whatever the case might be in your state to make sure your obligation as far as cost and taxes are not based on anymore than what you think they should be.
QUESTION: Donna
I found a foreclosed house that I love and would like to know how long does the 203K process take? I also wanted to know what should be our first step?
ANSWER:
Hi Donna, the Typical time frame is 45 to 60 days from receipt of application documents….. but Timing and due diligence are needed for the loan program and your Lender will be an important partner in the process. It’s not unusual to complete the entire process within 30-days. However, getting the bids for the work to be performed could cause a potential delay since the appraisal cannot be completed until all the bids have been presented and approved. Also, depending on the amount/type of work to be performed, the Lender may require that you have the home inspected by a HUD Consultant.
The most important first step is to select your Lender and get them involved as soon as you have an idea about the repairs that may be needed and the offering price of the home. With that information, you can move forward with getting pre-approved and set up the program and procedures designed for your specific situation.
QUESTION: Sam
My wife and I were about to close on a REO property (PNC Bank owned) when the whole foreclosure paperwork issue stuck the nation. PNC has now delayed our closing 30 days. My lender (***) has told us we will now have to pay $2500+ for a rate lock extension of 30 days. Problem is we don’t even know if we will close in 30 days pending the outcome of the Banks investigation into it’s own foreclosure practices.
My wife and I are at not fault for this delay in closing yet neither *** or *** is willing to cover the rate lock extension. Has anyone else found themselves in this unfortunate situation. We don’t know what to do at this point and feel we are going to be forced to pay this extension fee even though we are not at fault for the delay. What can we do to get out of this fee?
ANSWER:
Hi Sam, that’s unfortunate to hear. Your purchase just had bad timing with the recent foreclosure freeze and although you were the first to mention it on this site you are probably not alone.
I would once again talk to your Lender, Seller and Real Estate Agent(s) to find an alternative or at the very least how the cost can be reduced or subsidized by anyone in the transaction. Along with that make sure any fees would only apply if the deal closes. If it hasn’t yet, your transaction will get back on track.
QUESTION: Tricia
We are the Seller of a home receiving a contract to purchase from a Buyer who will be applying for a Standard 203k loan. In your teaser, you start saying specific 203k verbiage the Buyer should include in his offer, but I have not been able to find the “finish this article” in any of your downloads. Could you please tell me here, as a Seller, what I need for the Buyer to state, in full, in his offer to buy my property. Thank you.
ANSWER:
Hi Tricia, There are different variations of a purchase contract so you might need to look a little closer to find more info on the financing being used. Typically what you would find as a seller in a contract is the type & terms of the buyer (s) loan and how long it will take to secure. If a 203k is being used it should be “noted” in the contract but no additional info would be stated than what a seller would typically see if the buyer was using a standard FHA or Conventional loan.
Some contracts are filled out better than others when it comes to the financing section and it isn’t un-usual for the terms or type of loan to change during the process so the focus usually for the seller should become…confidence on whether the deal can get done and how soon.
QUESTION: WC
What is a reasonable escrow timeline for a streamline 203k close?
ANSWER:
The recommended time frames for a 203k streamline are 45 days and 60 days for a full 203k. Of course, these are recommendations and could vary
but having more time would avoid any unforeseen delays which can apply to any transaction regardless of the type of financing.
QUESTION: Jeney
We currently have a 203k loan, and we’re so far behind our renovation schedule. We’ve filed for three-time extensions so far, and I’m almost certain we are going to be denied this last one we submitted. If we are denied, we will be stuck with a shell of a house, and a mortgage payment. All of our money is already tied up in the house, with sub-contractors, and materials we purchased. Is it possible to get another 203k loan with a different bank to finish the work? Is there a better route?
ANSWER:
Hi Jeney, Getting behind on renovations is not unusual which can be for various reasons.
The answer to your question is that your current rehab must be completed before you can consider refinancing into another FHA 203k or FHA 203b loan. The only other route would be hard money sources but you must have plenty of equity to go that route. If not, then just keep communicating with your lender and FHA cost consultant, if you have one, as that is probably the only alternative to keep the project moving forward.
QUESTION: Tony
Hey, just read over all of your replies and it’s great information. Had a quick question. We’re looking to buy a house that may or may not go FHA under the FHA program. If it doesn’t fly FHA, would we be able to move to a FHA 203k (streamlined or normal) with the current FHA appraisal or does it depend on the lender? For example, does the process have to start as an FHA 203k or can it be converted? Thanks in advance.
ANSWER:
Hi Tony, In the past (when direct communication with the appraiser was allowed) it was easier option to switch the loan over from a 203B to a 203K for the very reason you mentioned…the property wasn’t a “go” as it didn’t fall into the standard FHA guidelines. But it depends on the Lender on whether they can switch the loan over to an FHA 203K assuming your current lender does 203K Loans.
Typically, most FHA lenders don’t specialize in 203K’s, so it helps to start the Loan Process with an FHA 203k Lender in the event it does need to be switched over. Otherwise, you’ll have to start a new loan process with another Lender who specializes in the 203K.
If your current lender does 203K’s Loans then it shouldn’t be difficult to switch the loan over from a regular FHA 203B to 203K but there may be a hold up with the appraisal as the appraisal will need to be modified or redone to reflect the rehab/repair work to be done.
Have Questions? Ready To Get Started?
QUESTION: Joe
How long do I have to live in my 203K financed home before I can sell or rent the property without penalties?
ANSWER:
Hello Joe, FHA & Conventional owner occupied loans usually require the property to stay owner occupied for at least 1yr./12 months.
As far as selling there is no time frame as to when you can sell.
As far as penalties there is none on FHA loans as well as most owner-occupied conventional loans these days.
QUESTION: Mark
When seeking financing, does the buyers have to go thru a bank or mortgage company that directly offers 203K financing or can they initiate the loan thru, say, their own local bank who inturn can go thru a 3rd party? In my area there are no known 203K financers within 60 miles and many buyers are nervous to go to outsiders. B of A in a city 60 miles away offers it but the local branch is not listed on HUD list of financers as offering 203K financing.
Can a buyer go to the local *** to apply who in turn goes to a larger branch to complete the financing?
Can a bank work with a mortgage company in another area to complete the 203K financing?
Is there somewhere where 203K financers in North Carolina are listed that the HUD listing?
ANSWER:
Hi Mark, An FHA 203k loan can be acquired through a Bank, Mortgage Banker or Mortgage Broker. The proximity of the lender shouldn’t matter, just make sure they have some experience in handling FHA 203k loans.
If you need a referral for your state feel free to contact a 203k lender on the site who are here to help homebuyers, homeowners and Realtors throughout the U.S.
QUESTION: Randy
Can a borrower use alternative credit with a 203K FHA purchase?
ANSWER:
Hi Randy, Although FHA guidelines are open to Alternative Credit, it really depends on the lender whether they will accept it or not. If a lender does allow it, they are more likely to accept alternative credit for a regular FHA loan than the FHA 203K.
QUESTION: Maggie
Can an investor use the FHA203K for repairs on a home they have purchased. I am getting ready to invest in a home. I am doing a Fannie Mae homepath loan and am unsure about where to get the money for the repairs. So I am kinda stuck in it all at the moment. I consider “hard money” since I am a Realtor and know my way around Real Estate and am in love with viewing homes and knowing what the “GEMS” could turn out to be. I really want to pursue this field. I just need to figure out everything before I make that final call. Thanks for your help.
ANSWER:
Hi Maggie, The FHA 203k loan is not for investors, only owner occupied properties are eligible. If your doing a Homepath loan then that means you are buying a Homepath home which owner and non-owner occupied financing is available, with some properties being eligible to finance the repairs. There are alternative conventional financing for fixer uppers but nothing as attractive as 3.5% down with repair money included as the FHA 203k.
QUESTION: Lean
Our broker is having problems finding a company that will accept the 203k part of our loan the seller is getting impatient with giving another extension they want us to close, but the property has MAJOR repairs that can’t be done without the 203k WHAT TO DO? In a crunch!
ANSWER:
Hi Lean, To understand your question better, you need to realize there isn’t a 203k part of a loan. It is either a whole 203k loan or it isn’t. So ,if your broker is looking to find a company to accept the 203k “part” then they won’t find it.
You need to work with a broker/lender who is FHA approved and can do the FHA 203k because most lack experience.
As far as what to do…The first step is getting an extension from the seller and explaining to them that a standard FHA or Conventional loan won’t work on a property needing major repairs. Then contact a source who can actually do the 203k loan. For the most part it would be like starting over again unless you already have an appraisal done subject to the repairs needed, contractor bid and if it’s a standard 203k and not a streamline 203k a work write up from the cost consultant. If those items have been done already then that can help the process along faster if not then it really would be like starting over again which would take anywhere from 30 to 60 days to complete.
FHA 203K PROPERTY Questions
QUESTION: Ben
Hi, I’m looking at a fixer upper home in East Orange, NJ and I noticed that it’s not one of the NJ cities that you service. Any info on why or how to use a 203k loan there would be great!
ANSWER:
Hi Ben, FHA financing including the 203k is available throughout New Jersey and the U.S. If the city is not listed on the state page it’s only because there are too many cities to list.
Best of Luck
QUESTION: R. Milord
Are locations in Queens, Nassau, and Suffolk County eligible for the FHA (203k) loan?
ANSWER:
Wherever FHA financing is eligible, so is the FHA 203k..
QUESTION: Steve
Can you get a 203k loan on a home you have been renting and now want to purchase?
ANSWER:
Hi Steve, Yes you can get a 203k loan on a home you are renting or leasing and now plan to purchase to live in.
QUESTION: Jerry Livingston
Can an FHA 203k rehab loan can be used to refinance a home that has been gutted and is currently vacant?
ANSWER:
Hi Jerry, If the plan is to live in the property once it’s been rehab then yes that should be fine.
Have Questions? Ready To Get Started?
QUESTION: Deborah
If I build a shell house without a mortgage, on property that I own can I get a 203K loan to finish it rather than a construction loan?
ANSWER:
Hi Deborah, If the property is over a year old then finishing it off with a renovation loan such as the 203k to make it livable or to accomplish getting a certificate of occupancy could work with or without having a mortgage on the existing property. The key is that it’s no longer considered new construction.
QUESTION: Kalina
Hi I am trying to purchase a home from my mom that is a shell. There are no interior walls bathroom or kitchen. There are currently 3 open permits. Is there anyway to close on the house with the 203k loan with open permits. The permits where recently opened when submitting the floor plans due to a final order. Please help.
ANSWER:
Hi Kalina, 203k loans can incorporate the deficient items into the renovation and the price typically reflects the current state of the property. If the work was completed and there was never an inspection, there’s a risk the work will have to be redone. Plan accordingly in your purchase and lean on your Realtor/contractor for feedback in the jurisdiction the home is located.
QUESTION: Heidi
Hi, we are trying to purchase a foreclosure home in need of repairs that we have allocated funds to repair. We submitted the offer and have already been approved for a conventional above the purchase price of the home. After the appraisal, which appraised the house prior to renovation to be about 30,000 over the purchase price, our lender indicated that the repairs would need to be done prior to purchase, since it is a foreclosure it isn’t clear that the bank would be willing to make the repairs. My question is how do we proceed, should we do a 203K or a renovation loan? What are our options. Thanks.
ANSWER:
Hi Heidi, your situation is a common one where sellers won’t or can’t make repairs to satisfy the lender request for improvements before close. That is when a renovation loan like the FHA 203k comes into play. So, your options would be this type of loan, take a chance and make the repairs upfront with your funds if allowed or the bank that is foreclosing cooperates.
QUESTION: Beth
I am buying a house with the 203k loan. Are you allowed to live in the house while the upgrades and renovations are being done?
ANSWER:
Hi Beth, You are more than welcome to live through all the dust and noise during your renovation but you can also finance a few months of payments to avoid all that chaos as well. It must be a full 203k version and of course must be decided beforehand.
QUESTION: Linda
Can I get a 203k loan for commercial property in florida?
ANSWER:
Hello Linda, 203k financing is primarily for residential 1 to 4 unit properties with some exceptions for mixed use properties which can be eligible depending on the percentage of commercial use but if approved the renovation funds must be used for residential functions.
QUESTION: Shawn
Hello My question is, I have a home I want to purchase from the seller for $5000.00+6000 in taxes owed. The renovations for the house will be around 70,000. I can afford to pay the seller the $5000 and set up a payment plan with the city for the taxes owed . Can I still get the 203k loan for the $70000 without living it? The house is uninhabitable in its current condition and I will still be in my apartment while it’s being renovated. I do plan on living in the home once it is fixed up. Please tell me yes, I can still get this house with the standard 203k loan.
ANSWER:
Hi Shawn, Although the 203k loan is for owner occupancy it’s not necessary to live in your property during the renovation period plus the 203k standard will allow you to finance up to six months of payments into the loan for that very reason. So, if you need time before moving in to make the property habitable then yes that is an option for you.
QUESTION: Kevin
I’ve found the “diamond in the rough” that I’d like to renovate and add an addition on to. Would I have to hire an architect to assist with planning out structural changes or changes in the house layout?
ANSWER:
Hello Kevin, Typically, some type of “plans” will be needed for any additions or structural changes but what type whether architectural, Construction, Engineering etc. would depend on the extent and scope of the work plus the requirements of the city or county where the property is located. Once that is known then the necessary “plans” can be submitted to the lender for review. Now because additions or structural changes are in store for the property that interest you, a standard 203k loan is what you will need, which would require a HUD cost consultant. That HUD consultant in return should be able to assist you in gathering up the necessary paper work related to the improvements.
QUESTION: Jenny
Hello! I know mobile homes are generally ineligible for 203k funds…but can a 203k loan be used to raze an old mobile home and rebuild on the existing foundation?
ANSWER:
Hello Jenny, Generally just finding an FHA 203k Lender who can finance Mobile Homes or Manufactured homes can be a challenge if any at all, let alone one that would accept the scenario you are describing. Because regardless of the type of property the most basic requirement is that a wall must be standing and a substantial portion of the foundation must remain so razing the house would not leave anything at all above the foundation intact.
QUESTION: Vicki
My house is not in foreclosure yet but it will be soon if we don’t find a way to save it. My son lives with us to help. He can qualify for a loan but the house needs foundation work. Can he buy our house with a 203K loan? Our payoff is only a little over $50 and homes in our neighborhood are selling for over $150k. It’s a good investment and keeps the roof over our heads. I don’t know if it matters but we have a son still in high school.
ANSWER:
Hello Vicki, The foundation work is doable with a 203k Loan but everything else you mentioned will not work and is not allowed on just about any type of loan under those circumstances. A loan officer can explain in more details as to why. Hopefully something can be worked out with your current lender to save your property.
QUESTION: Lin
Do you have to purchase an “as is” house first than get it inspected by a contractor to know how much renovations would cost to get a 203k loan? Or can you get a cost for renovations from a contractor before you purchase the house? Also if the house needs plumbing and electrical and a furnace do you need to get individual contractors? or do you get one contractor to handle everything. how about a well or septic?
ANSWER:
Hello Lin, The renovation costs are estimated before you purchase the house, not after (but the improvements are done after you purchase) so a contractor would need to be involved beforehand. As far as how many contractors, you are allowed to have multiple, or one can vary from lender to lender. Plus, depending on the type of 203k (Standard or limited/Streamline).
QUESTION: Sharon
We recently put our older home on market and have found out we have major structural repairs that disqualify our selling in conventional market. We requested and received information re: how to update MLS listing to target 203k rehab buyers from a 203k loan specialist. We have shared this information with our listing agent. Today we got a call from him stating that “his lender” resources said we couldn’t sell our home under this program because:
1) “amount of the repairs” (full foundation lift estimated at $17000.00 + approx. $8000.00 potential repairs r/t lift).
2) “most of the repairs would need to be done prior to closing”
3) “we would need to have bids b/c of the value range”
4) “b/c of type of improvement needed (structural), some improvements are acceptable up to 10K for post closing”
This contradicts everything we have read and researched about the standard 203k rehab loan.
Can someone please clarify what responsibility a seller bears when marketing a home under the 203K program?
Also, if our home does qualify, is there anything we, as sellers, should do to facilitate the process, ie, get an appraisal, get an inspection…?
Any advice you can provide would be greatly appreciated.
ANSWER:
Hello Sharon, It would seem that you might be more informed than those you are directly and in-directly in contact with to sell your home, which is unfortunate. Because it does appear your home would be a perfect candidate for the FHA 203K Standard Renovation Loan.
If you do market your property to eligible FHA 203k buyers, which most homebuyers who can qualify for a home loan can be one then it’s good news for you. Because now those repair issues fall upon the homebuyer to take care of and virtually all repairs can be covered with a standard 203k rehab loan when it goes beyond the scope of the 203k streamline. Those repairs are all done after closing, not before once the buyer is officially the owner so no repair delays and no need for the seller to worry.
Appraisals and inspections are handled on the buying side so not much for the seller to facilitate there but pricing the property accordingly due to the improvements needed and giving a seller contribution for buyers closing costs is a step in the right direction. If you like encourage your agent or anyone else related to the sale of your home to take a tour of this website and then feel free to reach out to one of the 203K Mortgage Loan Specialists listed on the Directory.
QUESTION: Daniel
I am wanting to purchase my first home. I have been living in my sisters home for the past year. She does not reside at the home anymore and it is in need of repair. If I were to purchase the house would I be able to apply for FHA 203K?
ANSWER:
Hi Daniel, Pretty much any single-family home (up to 4 units) in just about any condition can be purchased with an FHA 203k loan. Although, there are maximum loan limits that do apply depending on the county where the property is located. In your particular case you are buying a home that belongs to your sister which could be an obstacle with many lenders because it’s not considered an “arm length transaction”. In other words, you are related/connected to the seller. So, it would be best to contact a 203k lender/specialist or two or three if need be, to find out their policy regarding that matter whether it’s a purchase or structured as a possible future refinance.
QUESTION: Maria
We are inheriting a house that is in need of major repair. Do we have to own the home for 6 months before we can apply for a 203K loan. Should we apply before our current apartment lease is up?
ANSWER:
Hello Maria, Technically, you don’t need to wait a single day after the property is inherited since “continuity of obligation” exists. This is usually defined by being on title previously for a required time by the lender (when & if required) but in your case, inheritance negates the time restriction. In regards to applying beforehand…it’s always a good idea to get a head start to avoid or overcome any unforeseen obstacles.
QUESTION: Kristina
Hi. I am having a little difficulty finding someone who can help me. I found a historic home that needs to be moved to a new location. I read on the HUD website that a 203 k loan can be used for such purpose, but when I called the Local HUD department the gentleman who said he wasn’t too familiar with the loan said the existing foundation would have to remain in place. I’m a little confused by what that means. If someone could please enlighten me on what this all means.
ANSWER:
Hi Kristina, When you get involved with moving a house from one site to another, you will find all sorts of conflicting information and some of it can be a real head scratcher. The best way to think about moving a house is to always remember that HUD (on the 203k Loan) will not permit you to start from scratch at the new site. The new site must have an existing foundation. It can be in need of repair and it can be expanded upon/increased as necessary to accommodate the house being moved to it…. but it must be existing.
An example would be purchasing a property with a house that literally needs to be torn down BUT the foundation is good. You could purchase that property and include the cost of the demolition plus the cost to move another house to the site as long as the existing foundation remains.
For the most part financing for a 203k is done with the expectation that the home already was completed and therefore has a foundation and that the foundation will stay intact, can be repaired or added on to but yet existing and will remain.
QUESTION: Cheryl
I am having trouble with this as well. I would like to purchase a home that needs to be moved also. The property I want to move it to has a house that we are currently demolishing. It is a mobile home that was added onto and the foundation consists of basically concrete blocks that were holding up the base of the addition. The home I would like to purchase has a pier and beam foundation. So would this be considered an existing foundation If we used the same concrete blocks?
ANSWER:
Hi Cheryl, The current foundation of the house where it’s being moved from does not play into the scenario only the foundation to where the property is being moved to. If there is an existing foundation in place there then you are on the right track to apply for 203k financing but more clarification and details would be needed. So, contact a 203k specialist for more information on what the 203k guidelines are on moving a home and existing foundations.
QUESTION: JAMES
Can the owner stay in the house while its under major renovation?
ANSWER:
Hi James, Yes, if you wish to stay in the house while its under major renovations you can but you do have the option of financing up to 6 months of payments into your loan to avoid living under those conditions unless otherwise specified by your lender.
QUESTION: Robert
I am from the Philadelphia area and i am looking to purchase my first investment property. I would prefer to use a 203k loan vs a Hard money lender, but all the 203k lenders i have spoke with tell me that they can not fund investment properties due to H.U.D guidelines but i have spoken to H.U.D and they currently have a waiver allowing investment/flippling to be done at this moment. Are their any lenders that are aware of this waiver and have underwriters that will approve a 203k loan for investment deals? If anyone can help (from any state) that can approve a loan in philadelphia plz contact me.
ANSWER:
Hi Robert, Good to hear you are on your way to buying your first investment property. There are different types of loans you can use to make that happen but the 203k renovation loan just wouldn’t be one of them. Because at this time there are no options for an investor to use a 203k loan for buying an investment property.
The waiver you are referring to is a property flipping waiver (for selling the property within 90 days) but not for an investor looking to buy using a 203k loan.
QUESTION: Latana
My husband and I are renting now and we see a lot of houses in our area, that look like they may need a lot of work done and may qualify for a 203k loan. So, should we get approved 1st. to see what amount we can afford or select a house 1st. I know the loan process is done simultaneously with the contractors bids, right? Little worried we will pick a house and not get approved for an amount that will cover all the renovation needs.
ANSWER:
Hi Latana, The answer is Yes, get pre-approved first then select a house. This way you will know the maximum amount you qualify for which needs to include the renovation portion. In other words if you qualify for a maximum of $200,000 as an example then the purchase and renovation portion must all fall within that maximum amount.
As far as the contractor bids, they can be done beforehand or during the loan process.
QUESTION: Christina
What homes qualify for FHA 203k? Do they have to be HUD homes or can it be a home that a family owns, and who started updating their home, but had family issues and are no longer able to complete repairs, such as they gutted the bathroom, but have not remodeled it yet. I have a client who is interested in buying this home, but we know that a regular FHA loan will not be approved due to the remodeling not being completed. Can a home like this qualify for FHA 203k? Thanks!
ANSWER:
Hi Christina, Almost all homes (1 to 4 units) can qualify for an FHA 203k in just about any condition and regardless of the type of sell with some family restrictions. So, the answer is “yes” your client/buyer can purchase a home with an incomplete remodel that is being sold by a private party.
Just remember the 203k is for borrowers that will be owner occupied and there are maximum FHA loan limits that do apply.
QUESTION: Terrence
If i have a mortgage already can i apply for a 203k loan to purchase another property?
ANSWER:
Hi Terrence, It would depend on the situation but yes you can have a mortgage currently and still apply for a 203k loan as long as it will be owner occupied.
QUESTION: David
Three questions Im looking at a home right now for 35,000 needs siding very good investment house next door being sold for 179,000 very nice it just needs siding,tiling and some paint I can do all that and pretty good to how can i do my own work or do i have to go through a contractor? Is it harder to make the seller come down on the price when your getting a fha loan? I havent found a bank in my area that do fha 203k loans what about doing it online is that ok?
ANSWER:
Hi David, Unless you are licensed or can provide proof of experience in the line of work that needs to be done then most likely you will need to go through a contractor but it’s worth asking your particular lender what they will allow you to do.
When financing is involved when purchasing a property, sellers will look at what type of loan is being used. When deciding though which offer to accept there are different factors they will consider but that shouldn’t deter you from making an offer less than the asking price if you feel it’s warranted regardless of the loan you end up using. The goal is to structure your offer the best way possible to increase your odds of the seller accepting it and a local Real Estate professional should be able to advise and assist you with that.
These days when it comes to financing, getting a home loan online is perfectly fine. Unlike working with a Real Estate agent, it’s very common that borrowers (buyers & homeowners) don’t meet face to face with loan officers / lenders when getting a mortgage due to all the technology available which has made it very convenient.
QUESTION: Rich
Can you secure a 203K mortgage on a single family home that is not in foreclosure? For example: we are renting a property that we would like to purchase and make improvements to both bathrooms and upgrade the furnace, would this be eligible for a 203K?
ANSWER:
Hi Rich, The answer is “Yes” absolutely!!! The 203k loan can be used to purchase a property regardless of what type of sale it is…”standard”, “for sale by owner” or “distress”. Plus it can be used for refinancing a property as well.
QUESTION: Anne
Hello, I bought a 2-unit owner/occupied home in 2007, have been paying a higher interest rate because it has rental income. The problem is I tried to refinance last fall and found out that the home still has open permits for the basement apartment and so I was refused the loan. I was told that it is not a legal apartment.
I have checked with the City to find out if I could get a certificate of occupancy with the work that has been done and told it does not meet code.
Now it will cost me thousands of dollars to bring it to code. Is the 203K loan an option for me? The home was appraised at 215000.00 and I owe 132,159.00 on it currently.
ANSWER:
Hi Anne, The answer is “Yes” the 203k loan is an option for you to bring your property up to code. Plus, you mentioned you were paying a higher rate because it has rental income but yet its owner occupied so maybe now you will get a lower rate than what you have currently while at the same time making the second unit / apartment legal.
QUESTION: Flint
I made an offer on a short sale from Wells Fargo and we drew up the contract with a 203k attachment for 203k. They will accept our offer as long as we take the 203k out. Why would a bank do this? The house is 60k below appraisal, but the home does need carpet and paint. The bank will get its money regardless for the home and the 203k is put in escrow by the lender correct? I don’t understand why Wells Fargo is making this more difficult than it has to be.
ANSWER:
Hi Flint, You are correct, the seller in this case the bank will get their money regardless of the dollar amount of improvements you are financing into your 203k loan and yes that amount is held in an escrow account set up by the new lender handling your 203k loan. It’s no different than writing up a contract with a standard FHA loan without any improvement funds, the seller ends up with the same net amount so there just might be other reasons for the seller not accepting the 203k financing.
It can be frustrating dealing with banks as sellers but if you can find out what the reasoning is then at least you can address whatever their concerns are. The other suggestion you can consider is doing a 203k refinance after closing; if so then try to keep the cost down on the purchase loan.
QUESTION: Jamie
I want to buy a home from an investor who just purchased it from a short sale. How long do I have to wait before I can buy it from him with an FHA 203 streamline loan? Can I turn around and buy it from in within the first 30 days or is there a time restraint for him to resell?
ANSWER:
Hi Jaime, The answer is “Yes” there is a minimum time restraint when using FHA financing on a property which was recently purchased and now being resold again. It is called the FHA 90 day anti flipping rule but currently there is a waiver in effect until the end of 2012 that cuts down on that waiting period. Below are some of those conditions to the FHA 90 day Anti-flipping regulation waiver.
• No party may have any interest in the property and/or be related to another individual on the same real estate transaction
• No flipping pattern for the property can be existing in the past twelve months (I.E. The property can’t be flipped multiple times then sold to a FHA borrower (a single rehab then flip is acceptable)
• The property was marketed openly and fairly
And then in the case where the property is being sold for more than 20% over the previous sale, the following guidelines must be adhered to:
• Documentation from the seller supporting the increase in price (receipts for work done)
• A possible second appraisal
• If no work has been done then appraiser to provide an appropriate explanation of the increase in property value since the prior title transfer
• A request for an independent property inspection
Now before writing up any contracts on properties being resold in a short period of time the recommendation would be to contact your FHA 203k Specialist on the 203k Loan Lender Directory first because each lender might have other stipulations or overlays regarding this matter.
QUESTION: Tara
Hi, We are considering purchasing a home using regular FHA financing and then renovating it in 3 or so years by refinancing into a 203K FHA loan. The reason for waiting is because (a) we want to live in the place long enough to know exactly what we want to do with the place and (b) in three years, we will be eligible for a significantly higher loan amount and therefore will be able to get enough funding to do the extensive renovations I would like to do.
Are there any disadvantages to waiting to do the 203K later other than the possibility of higher interest rates? Will we have to pay another down payment of 3.5%?
ANSWER:
Your plan to refinance your future property into a 203k loan once you live in it long enough to know exactly what you want to do to it sounds like a reasonable plan. A few things to consider though-
Does the property meet your minimum needs at this time and can you “live with it” in it’s present state? If not, you can certainly use a 203K to purchase the home and do some of the important upgrades now. Later and when finances will allow, you can look at doing another 203K for the remainder of the work.
You will “Not” have to pay another down payment of 3.5% when you do a 203K refinance. Typically, no additional cash is needed to bring in for closing unless your equity position is very low. The calculations for a refinance differ from that for a purchase and your 203K mortgage lender can help you with those calculations.
Have Questions? Ready To Get Started?
QUESTION: Sueann
In May 2011 I purchased a house on short sale with a 203K streamline loan from ***. It was on the tax roll for $160K and I purchased for $103K (I live in TX). I borrowed an extra $6,500 for fixing it up, and had another $12,500 cash of my own money to put into renovation.
We are now 6 months down the road. Although I had all the inspections, etc., done, this house turned out to need a lot more than anybody figured out in advance. I spent all of my $12,500 cash immediately, and still accomplished only about 1/3 of the items which were on my list of things which the 203K $6,500 were for.
Here’s an example: I listed new floors, but I can’t get new floors right now because first I have to spend a lot of money to stop the water from coming in the back of the house, else the floors would be ruined. I’ve been walking around on bare foundtion for 6 months now.
Since I can’t use the 203K funds I borrowed for anything other than what I said I was going to use them for, *** is keeping my money. I have begged, pled, threatened and everything else to get them to just APPLY IT TO THE PRINCIPAL. It’s going to take me about 3 years to fix this house up using my own money, and in the meantime, they just keep my money? Is there anything I can do. I know they can’t give me the money, I’m not asking for it, but since I only had 6 months to do these things under the 203K streamline loan rules, they just need to release my money and APPLY IT TO THE PRINCIPAL of what I owe on this house. Any suggestions?
ANSWER:
Hello Sueann, That is a dilemma and unfortunate to hear. Either there wasn’t a home inspection done or it wasn’t a very good one. If not that, then definitely an underestimation of the work that needed to get done.
So, at this juncture if your lender/servicer currently has no solution then you should look into the possibilities of refinancing into a conventional loan and not another FHA loan. This way the remaining repair escrow balance can be applied to pay off your principle loan balance without having to complete the work. It might be a long shot for you due to either the current property condition or lack of equity but it’s a suggestion. Of course borrowing funds to complete either the required repairs or refinance is another.
As another suggestion you can also contact your local HUD office regarding the matter. Here is the link for HUD in Texas:
QUESTION: Raphoug
I purchased a complete gut renovation last year using a regular FHA loan…with the intention to change to a 203K loan when I had all the permits and contractors and such in order. That took about a year to do, and now that I applied for the 203K my mortgage guy says they won’t give it to me because I’m not living in the house! The house is a shell right now not livable by any means…does this make sense? Please help!
ANSWER:
Hello Raphoug, If you bought the property with a regular FHA loan (203b) then that means the property must have been livable originally. Unlike the FHA 203k that deals with property conditions after closing the FHA 203b must deal with property conditions beforehand. That would mean any gutting must have taken place after you purchased it. Now whether that was on the advice from your loan guy or you took it upon yourself at this point what’s done is done.
Your biggest hurdle from what you have described would seem to be the owner occupancy so don’t be surprised if the 203k lender / Underwriter has questions such as…
Where are you living now?
How far is your current residence from the property?
Do you own another property or currently renting?
Did you ever live in the home before gutting it?
How long has it been vacant?
Can you prove you will live there afterwards?
Definitely more information and answers are needed for your situation because there might be some mitigating circumstances that could apply in your case to help you get your 203k loan so it would be best to go over it with a 203k Loan Lender for your state.
QUESTION: Stacy
We were given an old church building that we would like to convert into our home. We would need about $30,000 to do our own renovations. Would we be able to get a 203K loan just for renovations since we already own the property? We are currently renting a house where we live, so we have no mortgages and only school loan debt.
ANSWER:
Hi Stacy, That’s great…you can be at home while at the same time already in church, no more being late. Okay, enough with the jokes. Your scenario sounds do-able but when you say “to do our own renovations” it gives the impression you might have a DIY (Do-It-Yourself) in mind which wouldn’t be allowed as a contractor(s) is required for a 203k Loan. The lender may allow some exceptions as long as they are minor items that you plan to do yourself but that would have to be discussed with your lender.
As far as your question: “would we be able to get a 203K loan just for renovations since we already own the property”? The answer is “YES”, the transaction would be a refinance and if the property is “Free & Clear” then basically all the cash out in your case would be designated for the renovations as there is no existing loan to pay off.
More details regarding the property are definitely needed in this case but it is 203k do-able.
QUESTION: Dawn
Hi, we have found a home we wish to buy that needs some rehab work. The owner was 93 and did not do the necessary upkeep so it needs a roof, new siding, windows and has water damage on some walls/basement which led to mold. We had someone out regarding the interior water damage who said it’s only about $2k in repair.
We have been told by the seller’s agent that the 203k is our only option since he does not believe it will pass the appraiser (not sure if he’s worried about the value of the house not passing or the condition). We have the funds, etc necessary to do the repairs I noted without additional financing. It appears we would only really “need” the 203k loan in order to ‘get around’ the appraisal issues.
Question we have is, do we have to finance the repairs thru the 203k loan, or can we simply just finance the cost of the property and then handle the repairs ourselves with our own cash? We’d prefer not to deal with the hoops of the 203k but understand it may be the only way (due to appraisal issues). Is it possible to only use the 203k to purchase, but not finance the repair? Thank you!
ANSWER:
Hi Dawn, Congrats on finding the home you want to buy. As you have found out the next step is now the financing and what will be an acceptable condition of the property to get the loan on it. In your case the streamline 203k version should be sufficient enough to take care of the roof, siding, windows and mold issues you mentioned.
The seller’s agent reference that…”he does not believe it will pass the appraiser” was more intended toward the condition not the value of the property which is why the 203k is being recommended.
Now to answer your question, “Is it possible to only use the 203k to purchase, but not finance the repair? The answer would be “No” because regardless of the amount and whether or not you have the funds yourself to correct or make the repairs on the house it still must be financed into the loan which is the whole purpose of the 203k.
QUESTION: Jonathan
I am currently living in a two-unit property (in the process of refinancing into a conventional loan). There is a three-unit that is on the market that is three doors down from me that I am interested in. It has been vacant for a few years and would need a bit of work. I know that to be eligible for a 203K it needs to be your primary residence. I am willing to move into the new property once it is fixed up.
Do you foresee any issues with that fact that my current primary residence is so close to the subject property?
How does the process work for showing the intent to make the property your primary residence?
Do you have any suggestions as to how this may be executed smoothly?
Also, are there any restrictions in type of rehab work that can be done? e.g. dormering the roof, anything structural.
ANSWER:
Hi Jonathan, The answer is “Yes” there would be issues using FHA financing for the property you’re considering purchasing because of its proximity being so close to your current primary residence especially being units.
It will be an underwriter’s call as to what type of proof would be acceptable regarding your intent and motivation to live there. You mentioned that you are in the process of refinancing your current two unit residence so most likely the lender will ask for the information on that refinance to find out if you did it as an owner or non-owner conventional refinance loan. That right there is where they would start and depending on what that answer is might be the end of this conversation especially if it was a cash out refinance then its lights out.
If this is on the up and up and you get by the first hurdle then your 203k specialist would be able to advise you on how to execute this as smoothly as possible assuming it can be done at all under those circumstances.
As far as limitation on the rehab work the answer is…”No”…make it into the Taj Mahal if you like as long as it’s within the 110% of the future value and within the FHA loan limits for the county the property is located.
QUESTION: Ron
If I own a home now ( I intend to rent it out ) and also own a rental home now can I qualify for an FHA 203K loan if I intend to live in it ? Are there any restrictions or qualifications related to my other properties ? Rental agreements, etc?
ANSWER:
Hi Ron, That would depend on a few factors such as:
What type of loans do you have on your current properties…FHA or Conventional?
What is your intent and motivation to purchase another property to live in?
Once those questions are answered and the answers are within guidelines and acceptable by the lender then the next phase would be the restrictions and qualifications related to your other properties that you mentioned. Here is what needs to be addressed on that:
Do you have at least the 25% equity in your current primary residence that you plan to rent out? If so, then proof of the 25% equity would be needed along with proof of deposit or first month rent from the new renters.
If not, you will be hit with that full payment just like any other debt that you will need to qualify with and no rental income will be counted for your new FHA loan.
Talk to your 203k Lender specialist for your state on this site for more details and good luck.
QUESTION: Toni
Hello, I am guardian for my parents who have dementia. In selling their home, my son decided he wanted to purchase it. It has about 40,000 worth of structural repairs that need to be made. He applied for an FHA 203K rehab loan in October, 2010. He was approved and we tried to close in December, unfortunatly there was an issue with Title which delayed it. Now the lender is saying due to Identity of Interest he cannot purchase the home. I am confused, can you help me?
ANSWER:
Hi Toni, That is unfortunate to hear about your parents. Most likely the identity of interest you are referring to is most commonly known as a “non-arm length transaction” where both the selling and buying parties are related or connected which could be an issue but more information would be needed.
Contact the FHA 203k Renovation Lender for your state to get a further understanding and whether your scenario would be acceptable upfront before starting the loan process again.
QUESTION: Cathy
Does FHA 203K financing for a multi-unit require owner occupies the property?
ANSWER:
Hello Cathy, The answer is yes, at least one unit must be owner occupied for 1 to 4 unit properties when using FHA financing. If you need an alternative to the 203k that isn’t owner occupied then contact the lender for your state at the 203k Mortgage Lender Directory for another possible option.
QUESTION: Michael
I own a home currently, can buy another home and use the 203k loan and keep my existing home.
ANSWER:
Hello Michael, Yes, you can currently own a home and use an FHA 203k loan to buy another home as long as the home your are purchasing will be owner occupied and the reasons for the move are within the guidelines. There is also the factor of being able to qualify with two mortgage payments if you currently have a loan on your existing property and don’t have enough equity. So although the answer is yes, it would be a good idea to speak to a lender first to make sure it’s possible for your situation.
QUESTION: Bryan
I am trying to find a good loan type to use for flipping a house. I would like to cover both the mortgage and renovation costs in one loan, however a year may be too long. Am I correct in assuming a 203k is not an option for this. I am just out of school and do not have much start up money so a low downpayment is also a must.
ANSWER:
Hello Bryan, The FHA 203k loan is for home buyers who will be owner occupied and not for investors looking for a short term loan to buy and flip properties. If the owner occupancy time frame is to long for you to wait to either sell or rent the property out then you will need to consider a conventional rehab loan for investors. Contact the 203k Specialist for your state at the 203k Rehab Lender Directory List and ask them what alternative they have for you.
QUESTION: Nikki
We are not currently able to get a loan and my dad was thinking about buying it for us and letting us pay him for the mortgage…the house is a rehab so I was told the only type of financing available for a house like that was a 203 but I was also told it has to be owner occupy…what can we do?
ANSWER:
Hi Nikki, 203(k) financing does require owner occupancy but there is a possible solution for you. Conventional Renovation financing does allow the following occupancy types:
Non-owner/Investor, Second home, and Owner occupied.
Another note: Dad could also co-sign as a non occupying co-signer on a 203(k) to help you guys but it depends on why you guys cannot get a loan on your own. Any further details needed feel free to contact a lender here.
QUESTION: Stephen
Hi, I’ve done tons of conventional and FHA’s deals but have never done an FHA 203k. Should we have a contractor go out first to give us an estimate before we write up the offer. Buyer is approved for $200k and property is listed at $170K. If we offer full price $170k that still gives us $30k to work with for the repairs.
ANSWER:
Hi Stephen, Having an estimate from a contractor before writing up an offer would be helpful and is a good idea. Although not necessary as lots of buyers and agents will kind of guess-estimate on what those repair or rehab cost would be then bring in the contractor after the offer has been accepted. It sounds like you’re on the right path and got it covered already so if you have any other questions reach out to your 203k Lender.
QUESTION: LAH
Hi, we are trying to purchase an incredible historical home that is in disrepair, and we were told that only 203k financing would be possible. We have enough cash on hand to put >30% down payment _and_ pay for the required renovations ourselves (~$100k). The house appraised at 20% more than our purchase price. We would be looking to finance ~50% of the appraisal value (~70% of the purchase price). Credit scores are no problem. Income also no problem, & no debt. The property is currently uninhabitable. Is the FHA 203(k) really our only option?
If 203(k) is the only option, is it always a red tape nightmare? There are a lot of bad stories about this loan type, but I love the house, and since it is a historical piece of property, we’re looking to purchase it’s not as though I can look around the block until I find another in perfect condition. I want to buy, but from what I’ve heard I’m frankly scared of the process.
ANSWER:
Hi LAH, The other possible options for buyers when purchasing a property in dis-repair, other than the FHA 203k, would be a conventional rehab loan or a loan based off of how much equity you have in the property. This loan is easy to qualify for but the terms are not favorable. This type of loan is also known as a “hard money loan”.
For the most part, the only real long term solution for “owner occupying” buyers, as well as Homeowners is the FHA 203k loan. or Conventional rehab loan.
As far as the FHA 203K, the Red tape usually comes from un-realistic goals, mis-information and lack of knowledge on the program, which then starts things off on the wrong foot. Although the program is not perfect and can have its drawbacks, having a good contractor & cost consultant along with patience plus planning, as needed with any type of renovation can really help you cut through that tape.
FHA 203K CONTRACTOR Questions
QUESTION: Maya
What if my contractor can’t purchase permits on a 203k rehab loan?
ANSWER:
Hi Maya, That would depend on “why” the permits can’t be purchased and at what juncture you are at in the 203k process. If you haven’t yet reach out directly to your 203k lender before time becomes an issue.
QUESTION: Ashley
Hi! I just started my journey of a 203k streamline. Does this require a general contractor for all the work? Can I have him do majority but say use a carpet company like Luna do my floors? I was also curious how the appliances go. Do I pay for the appliances on my own & then get reimbursed once money is released? Thanks so much!
ANSWER:
Hi Ashley, Under a 203k streamline/limited you can have a general contractor as well as multiple contractors for different projects. On how the disbursements of funds for appliances will be issued that would vary by lender.
QUESTION: JT
I purchased a property and committed to a 203K loan. I had a horrible contractor that disappeared. I worked with a new contractor in collaboration with the loan company and found that much of the work from the 1st contractor needed to be redone. I am now out of money in the 203K loan and don’t know what to do. The mortgage company informed me that I need to get all the health and safety items completed (items which make it livable) in order to close out the loan which would leave me in good standing with an FHA loan.
However, if I don’t have the funds to complete the health and safety items, let alone anything else, I was informed they would shut everything down. I am not sure what this means, considering I have been paying my mortgage every month on time despite all of the aforementioned circumstances. Can anyone guide me on next steps? (i.e. – do I try to re-fi or get another 203 k loan through another company in order to finish).
ANSWER:
Hi JT, The lender must be able to close out the renovation. A lender’s hand will eventually be forced if the escrow can’t be closed out. Foreclosure is the absolute last resort for a lender so they will generally work with you to extend the repair window as long as possible to cover the bare minimum to close out the escrow. Every lender handles this differently.
QUESTION: CAMILLE
Hi, I have a renovation loan and am very unhappy with the contractor work. He has not been here in a while to complete the work and I am not interested in nudging him to do so. The loan expires in less than thirty days. Does that mean the loan closes out and the contractor does not get paid? That would be ideal in this situation because I would rather handle the rest out of pocket.
ANSWER:
Hi Camille, If the time frame expires and there’s still work needed the loan will not close, because the lender can’t close out the renovation escrow portion until the work is complete. It’s in everyone’s interest to resolve it as quickly as possible and finish by the completion date so check with your specific lender for the best path to a resolution.
QUESTION: Scott
With a 203K limited loan less than $35k in repairs, what control do I have to ensure the repairs are completed to my satisfaction? Do I have to approve the finished work before the contractor is paid for example?
ANSWER:
Hi Scott, With a 203k limited FHA allows a maximum of two draws and those checks are to be issued to BOTH the Borrower and the Contractor so, therein lies your control the repairs will be to your satisfaction. However, hopefully any issues or concerns you have with the completed repairs would be resolved before those checks are issued. Also, your Lender may have different or more stringent requirements on the 203k Loan so I encourage you to confirm how your lender will be disbursing the funds.
Have Questions? Ready To Get Started?
QUESTION: Jessica
We are thinking about acquiring a 203k loan. We were told that the homeowner cannot do ANY of the construction work/remodeling. The homeowner works for a construction company and we would be hiring his company. Is it true that he would have to be hands-off during the construction process? If so, why? What are the laws?
ANSWER:
Hello Jessica, Although HUD/FHA sets base guidelines for lenders each lender will have their own specific overlays to those guidelines because at the end of the day it’s the Lender’s responsibility to draw a line on what constitutes responsible lending. These overlay guidelines would also apply to any self-help work for FHA renovation loans to assure no conflict of interest and full completion of work as originally agreed.
QUESTION: Joseph
Can the purchaser of home do the renovation work himself with a 203k streamline loan
ANSWER:
Hello Joseph, It is possible for a purchaser to do some of the renovation but really depends on the lender, the type of work and the purchaser’s qualifications to complete it. Because all work is calculated with material & labor regardless of who completes it there is usually a high probability it will get done by a third party.
QUESTION: WV
I am in the process of renovation through a 203k streamline. My GC refused to finish all the work on the scope of work and only completed the bulk (shingles, carpet, and kitchen appliances). He was given a notice of his performance and what work that needed to be done. He agreed and came back to work for a short period. After he continued to refuse to do all of the work, I discovered that he tried to cut corners (insulation placed on top of bat feces, pipe insulation the wrong size, flooding of two bathrooms etc.) and I notified him through certified mail that his service was no longer needed. He was given 50% upfront, instead of not giving him anything else, I offered payment but he declined and stated he wanted more. I filed for arbitration and explained the situation. He has now counterclaimed and stated that the scope of work was complete and I agreed but I am withholding payment. Am I able to finish out the work that he did not complete while arbitration is in process? Looking at discolored walls, holes, paint on the floors, jammed door on the electrical box, etc. are becoming depressing to look at.
ANSWER:
Hello WV, It sounds like you and your contractor are at a crossroad and because you are headed towards arbitration it would be wise to seek some legal advice as well as advice from your lender on this matter. Hope it all works out.
QUESTION: Samantha
We have a 203k standard loan and the construction was near completion until our contractor informed us they were out of money and couldn’t complete the job as originally specified. In addition, we as the homeowners have been purchasing materials in order to keep them going until they received their money from the draw request. Now that they are claiming to be out of money, they aren’t willing to reimburse us for the money we put out along the way, even though these are materials that are clearly listed in their cost write up as part of the original proposal for the project. Are we entitled to be reimbursed for these out of pocket expenses? What type of recourse do we have to get our money back and to get them to complete the job?
ANSWER:
Hello Samantha, That’s unfortunate to hear and sounds like the safety nets on how and when the funds were supposed to be dispersed didn’t go as planned. With that said, an explanation on the authorized draws with your HUD consultant and where the money went is a good place to start then a call to the Draw Administrator at your mortgage company to express your concerns. As far as advancing funds, that is not recommended as then you do lose your leverage with the contractor so If reimbursements are not possible then that might become more of a legal matter between you and your contractor.
QUESTION: Tamara
I have been trying to finalize my 203k loan for weeks now. I cannot get a clear answer from the mortgage company as to when we may be able to close but instead just keep getting two weeks. We’ve gone back and forth with Underwriting for 4-5 weeks now and they keep coming back asking for small things without much detail. Now they’ve requested our GC have a license which specifically states a general contractor but in CT the department of consumer protection doesn’t have a GC license they have home improvement contractor license which is what we provided, yet they are insisting on it. I am at a loss as what to do next. Is this common?
ANSWER:
Hello Tamara, Unfortunate to hear about the delay. It sounds like your lender wants to make sure that the work will be done by someone with the appropriate credentials which protects you and complies with them. Each state can have different license requirements so it is a valid concern and common to confirm the right one is in place for those who will be doing the work on your home. With that said maybe your contractor can provide additional verification from the necessary jurisdictions where the property is located to satisfy the lender. If not, then you might need to find someone else to do the work that can satisfy both you and the lender. In either case, hopefully all will work out and soon.
QUESTION: Francisco
I’m in the process of buying a home with a 203k loan. I am a journeyman residential carpenter with 10 years of experience but I do not have my general contractors license. Am I allowed to do the work myself? The lender my realtor works with says they don’t allow it. What lenders do allow it?
ANSWER:
Hello Francisco, Your question regarding, if you can do the work yourself is one that many buyers or current homeowners have interest in doing. The answer though is really up to your lender and the type of work you are requesting to do. Having a license or being able to show proof that you are more than capable is necessary if allowed but regardless the projects are still estimated like any other professional contractor work with Labor & Material. This way if for any reason it can’t be done by whoever initially finding a replacement doesn’t become an issue as it has already been priced accordingly.
QUESTION: Jeanne
I am in the middle of completing the scope of work on my 203k loan. There have been so many unforeseen expenses due to county codes that were not determined until after the scope of work began. There is no way that the budget will cover the scope of work with all the added items that now need to be completed in order to stay compliant with the county. What are the penalties for not completing the scope of work? I cannot find any information anywhere on this. I realize this is the most undesirable of outcomes but unfortunately it is the one we must pursue. Thank you for your help.
ANSWER:
Hi Jeanne, It sounds like the contractor or consultant didn’t do their due diligence in this regard. This is something you’ll want to speak directly with your lender who is handling the renovation escrow. The situation you describe is very rare because the due diligence period during the loan is where the contractor/consultant would have usually identified these items
QUESTION: Anthony
I’m in the process of getting all my ducks in a row to obtain an FHA 203K Renovation Loan. I’ve consolidated my revolving debt into a personal loan, paid it down along with other debt, etc. My TransUnion and Equifax scores were 828 as of this morning. And now I’m looking for 203K Loan Service Providers and 203K Loan Contractors to help me pull together details necessary to complete my renovation as it looks like my best financing option, but I am having a hard time finding contractors versed in 203K projects in my city.
I live in the 72901 zip code and owe a balance of $159,000 on my $175,000 mortgage — my primary residence which needs to be rehabbed (i.e.$20,000 to $30,000 in foundation repair related excavation, then (if it makes cost to value sense) new HVAC, windows, finishes inside and out, etc.). I just do not want to over improve the home.
A similar size & age home across the street sold for $230,000 on Jan 5, 2015 in maintained/not updated condition . And other updated/maintained homes on my street top out in the mid three hundred thousand range as it is an older established neighborhood.
Can you direct me to reputable, reliable and knowledgeable 203K contractors in my zip code versed in 203K rehab projects?
ANSWER:
Hey there Anthony, Sounds like you are on a renovation mission and the goal is in sight. In regard to the contractor, they might not be familiar with 203k financing but they do understand the concept of getting paid as work gets completed which is how it should be so it’s just a matter to what extent a contractor can comply with that type payment arrangement. Maybe explaining that way could make the search for a contractor easier because referrals of contractors are not made on this site. Now keep in mind some contractors will have more resources than others so this will narrow down who the more established one’s are which should benefit you.
QUESTION: Rm
I am a contractor who has completed the work for the borrower. All inspections have been made and papers have all been signed and submitted. My change order work that has been performed upon request of the borrower plus unforeseen condition work has exceeded the contingency fund by about $5000. The borrower has signed off on each change order form and they have been submitted to the inspector. The inspector only submitted the change order forms to the bank totaling the sum of what is available in the contingency. Not the rest. The contingency had about $4000 available and my change order forms totaled about $9000. Why did he did not submit the total amount? I find that to be unacceptable especially considering the borrowers have signed off on each one of them. My next question is this: the borrowers are refusing to sign the final check and hand it over to me unless I give them a letter saying that I will not go after the $5000. Is that legal? Do you have any recommendations?
ANSWER:
Hi RM, This is a rather complex situation which may be best resolved by contacting the draw specialist or department of the lender
QUESTION: Webb
Buying a HUD home, 203k streamline (aka big joke) The FHA appraisal on our HUD home requires plumbing work. The general contractor estimates less than $200 for the work. The underwriter is stating that HUD requires the general contractor to be licensed for plumbing…which he isn’t because our county does not require it. The repair is literally a 4 inch section of copper. Do I need to start all over with estimates from contractors over $200? This has been 60 days and our second extension…I cannot find any answers on HUD website…and lender won’t allow 2 bids.
ANSWER:
Hi Webb, When it comes to contractors and who is qualified and approved to do the work, it would be the Lenders decision not HUD’s.
Now most G/C’s are not usually licensed for any specialty work. They have a “general” type of license and sub-contract out the work that needs specialty licenses (If necessary or required by state, county or local jurisdictions). Based on what you have described that doesn’t seem to be the case so two bids wouldn’t seem reasonable. With that said you probably would have gotten a different response from a different lender but at this late in the game all you can probably do is hang in there.
QUESTION: Keith
If I am approved for a 203k loan, will the lender assign me Plumbers etc? Or can I get my own license guys to do the work?
ANSWER:
Hi Keith, The lender “does not” assign Plumbers, Electricians, Roofers, etc…so the answer is “Yes” you can get your own license guys to do the work.
QUESTION: Cindy
After you close, who get the checks? Does it go to me or to my contractors?
ANSWER:
Hi Cindy, Who gets the check will depend on the lender or company handling the draw process. Most lenders only issue a two-party check payable to both the Homeowner and the Contractor. Some lenders issue directly to the party but mail only to the borrower and other lenders will issue both depending on what type of request it is for or if there’s a consultant involved. Best to ask your specific lender on how they go about issuing the checks.
QUESTION: Sal
Can the work be completed by a licensed contractor or by a 203k approved contractor ?
ANSWER:
Hi Sal, The work can be completed by any contractor(s) you wish to work with on your home. Once you decide who that will be the lender will then review their qualifications and if all checks out they are approved and good to go. Hope that clarifies.
QUESTION: Aimee
Hi there, we are wrapping up a 203k renovation and should be receiving the final draw payment tomorrow. During the course of construction, our builder recommended that we purchase our flooring materials, and we also purchased our sinks and faucets due to his plumber forgetting to order them on time. This leaves us with about $1,500 that was originally allocated in our loan, that we paid out of pocket. He is arguing the amount that we paid, even though we have supplied him with receipts. I am hesitant to give him the final draw check from the bank (which is being sent to me) until he gives us our reimbursement check for the materials we purchased (which he is being paid for in our loan). Does this seem unfair? He has been awful to work with and has lied numerous times about things, so I just don’t trust him.
ANSWER:
Hi Aimee, It’s unfortunate to hear that you and your contractor are at odds when you’re so close to the end of your project. This example is a good reason why all funds to the contractor should come from the lender but that’s not to say reimbursements don’t occur.
If a HUD consultant is tied to your transaction, then you could communicate your concerns with them and have them review the invoices for the final draw.
The other route is to speak with the draw department and plead your case and see if they’ll cut a final check less the money you’re owed for materials and issue that check directly to you.
Holding out on the final payment as you suggested may create unwanted problems so hopefully something can be worked out.
QUESTION: Sara
My domestic partner and I want to apply for a 203K, and he is a licensed contractor. Will he be allowed to do the renovations himself? Thank you.
ANSWER:
Hi Sara, An owner can be allowed to do work on their own renovations based on the type of work and experience level/licensing required for each specific project. Keep in mind though that not all lenders allow owners to do their own work or prefer limiting or discourage the practice. For 203k lenders that do, the individual project would still need to be estimated with labor regardless of who does it.
QUESTION: Michiel
Hi, I am trying to get some clarification on two questions related to a standard FHA 203K loan.
1) Does the loan close before all building permits are in for the project? Or does the selected contractor have to get all permits in place before the loan can close?
2) If the loan does not close before all building permits are in, who then pays for them. Does the buyer (me pay for them)? Since what if the contractor pays for them, but then for whatever reason the deal does still fall thru?
Regards
ANSWER:
Hi Michiel, Typically, the permits are purchased after closing but the lender will want the Contractor to get confirmation that a permit can be issued for the planned project. As to who pays for them: Many times the Contractor will have included the cost of the permits in his bid but ultimately the responsibility would fall to the Home Owner. Also, if the loan will be closing using the 203K Standard, rather than the Streamline, the cost of permits is financeable into to the loan.
QUESTION: Marc
My contractor is trying to get certification by ***.
*** insists that he needs a business privilege license and a contractor’s license form the city. On the Philadelphia website it clearly states that Corporations are exempt from a business privilege license. My contractor is licensed to do work in the State of PA
ANSWER:
Hi Marc, The recommendation for you would be to print out the information from the PA website you are referring to and turn it into the HMC (Home Mortgage Consultant) from Wells. The HMC can then take the printout and submit it to the Contractor Validation Department.
The HMC could also send an email to the city asking if a corporation is required to apply for a business privilege license and city registration is necessary for all contractors. The information from the city’s reply can then be used.
If you feel progress is still not being made with your current lending source then contact the 203k Loan Specialist for Pennsylvania which could be an alternative source for you if needed.
QUESTION: Griffin
I am a licensed contractor wanting to buy a 203k home to live in. Will I be allowed to be reimbursed for my labor and subcontractors who I am paying out for work? I see that homeowners are not allowed to be paid for labor. Not sure how this applies to subs.
ANSWER:
Hi Griffin, Although you are a licensed contractor the answer to your question is “No” you cannot be paid for your own labor for work on your own home with the 203k loan. If the work is done by sub-contractors and you can provide proper evidence (invoice, copy of check, paid receipt, etc), then you can be reimbursed for those expenditures. But typically, those licensed to do work on the property should be part of the original bids that were approved so that they can be paid directly.
For any of you self-helpers (DIY – Do it yourselfers), licensed or unlicensed, when allowed by the lender the bid must itemize materials & labor plus be supported by an “arms-length” (non-related person) bid from another qualified contractor. Then those funds escrowed for the Self-Helpers labor will be applied to the principal loan balance, if not needed for other cash expenditures or used for additional work on the home.
As you move forward, be cautious because many lenders are no longer allowing the home buyer or homeowner to complete their own work, even if they’re qualified to do so.
QUESTION: Johnny
We are in the process of buying a home with the 203k loan. Once we close can we get rid of the contractor and find another one? The bids he gave us are about 3 times what other contractors can do it for. I understand they need to be licensed and insured but do we need to stick with the “fha approved” contractor that was provided to us. I am assuming that once we close, we can do whatever we want, amirite?
ANSWER:
Hi Johnny, The answer is Nope to: “once we close, we can do whatever we want, amirite?”. The contractor who is approved to do the work is the one you are supposed to go with. The contractor(s) though is your choice so swap out the contractor now before closing because if you try to do it afterwards it can be difficult and time-consuming if the lender is to allow it.
“An ounce of prevention is worth a pound of cure” ~ Benjamin Franklin
QUESTION: Valerie
We have a FHA 203K Loan and we have about 6-7 weeks until our 6 month deadline and our contractors are stalling and we have some finishing work within the house to complete ourselves. Is it difficult to get a loan extension and/or do we have to pay penalty fees, etc? Any help/suggestion/info you can give us would be GREATLY appreciated.
ANSWER:
Hello Valerie, You’re not the first person that this has happened to. Get in contact with your 203k consultant (if you have one) and your lender to work out the extension. How hard to extend is determined by your lender or any penalties.
QUESTION: Jose
How does a General Contractor qualify to perform the repairs and upgrades?
ANSWER:
Hi Jose, A contractor just needs to have all their licensing, insurance and bonding in place to qualify to do all the necessary repairs & rehab as well as making sure that everything is up to date and in good standings.
FHA 203K PROJECT Questions
QUESTION: Luke
With a FHA 203k Loan, can I do the renovations myself? I know they are limited in what you can do but looking for specifically, if I can do the painting, sanding of floors, carpeting, new kitchen & appliances, and some updates to the bathroom (new toilet, sink, some tiling). I do not plan on doing any electric, plumbing, or structural changes myself. I am not a contractor, but I do know how to do this work.
ANSWER:
Hi Luke, Based on some of the work you are describing it should be doable for you to do yourself, or for you to make arrangements with your contractor.
QUESTION: Patty
Can I buy a SFR in CA, use the 203k to convert the garage to an ADU, and create a Jadu in the main home? Will the future rental income from the ADU’s help me qualify for the entire mortgage?
ANSWER:
Hi Patty, Financing an Accessory Dwelling Unit or a Junior ADU is an option with an FHA 203k Loan if attached to the current dwelling and any legal producing income from the property can be counted. For garage conversions or detached garage improvements it’s best to ask your lender directly to see what is possible.
QUESTION: John
Can you use a 203k loan to add a covered outdoor kitchen? what about a detached office space w/ or w/out bathroom?
ANSWER:
Hi John, The 203k might not be your best bet but worth asking the 203k lender you’re working with if some alternatives to those plans can be acceptable or using a conventional rehab loan as another viable option.
QUESTION: Keith
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ANSWER:
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QUESTION: Name
We are interested in buying a property that is 3 acres that has a permanently fixed 30×60 modular home that needs interior updating and a new roof. The home is physically and structurally in excellent condition. The property also has a gunite swimming pool that needs refinishing. One section of the pool deck needs to be replaced as it is cracked. Can these purchase and repairs be financed with a 203k loan?
ANSWER:
Hi Keith, 203k loans aren’t for pool repairs although some very minor repairs can be made (pool pump replacement for instance). But, for more general pool repairs conventional rehab loans would be an option where up to an entire pool addition/remodel can be financed. The 203k Lenders here can offer you both 203k & Conventional Rehab options.
Have Questions? Ready To Get Started?
QUESTION: Isaac
Hi, I am trying to buy my first home and do not know which type of loan best fits for me. My girlfriends mom rents a house off of her friend who is a property owner and she wants to downsize and her friend is willing to sell the house to me, but I would need the right kind of loan to also be able to do some repairs like painting, flooring, adding a bathroom etc, and also I’d like to be able to do the repairs myself because it’s what I do at my job and I’m not sure what kind of loan that would be, but I have $7,000 as a down payment, what kind of loan would work around with what I am trying to do?
ANSWER:
Hi Isaac, The FHA 203k Loan sounds like it should work for you as it allows you to both purchase and make the repairs needed. As far as doing the work yourself, that would be something to ask your specific 203k lender as most work should be or is required to be done by a licensed contractor / third party.
QUESTION: Michelle
We’re in the renovating portion of our 203k loan. In the work order/contract submitted with our 203k paperwork, it includes replacing the front door. This was not mandatory, but a cosmetic change we’ve now decided that we do not want done. Our lender is saying we have to have the door installed since it was in the original scope of work. Is this true? We understand that there were mandatory renovations that would have to be done as part of the loan – but why can’t we change our mind on something as minor as a front door replacement?
ANSWER:
Hi Michelle, The “Rule of Thumb” is that you may be able to ADD/UPGRADE to the scope of work but you cannot DEDUCT/DOWNGRADE. You’re correct in that certain work is mandatory and other work isn’t however In the needs-analysis stage of the loan, the work you have to do (mandatory) must be bid out first and then anything else (optional) is added to that to yield your complete contractor bid on repairs to be done. The appraisal is then done based on the total work and your loan is underwritten accordingly.
So, if your loan had not closed yet and you changed your mind on the optional items, it’s possible to change the scope of work then, however once the loan closes, all work agreed to be done, _must_ be completed.
QUESTION: Thomas
I am looking at purchasing a HUD home that has mild mold problems in the basement from a busted pipe. My lender keeps telling me that I cannot do mold repairs as part of the post-closing repairs with a 203k loan. This home is only a couple of years old, and this is the only problem with the house and it’s only a $3,200 repair from a certified contractor. Can someone please give me guidance if there is a loan that will allow for this kind of repairs?
ANSWER:
Hi Thomas, The answer is “Yes”, the 203k loan is what you are looking for. It will allow for the mold removal remedy to be financed into your loan so no problem there. Now, you just need to get a hold of a 203k lender who knows what they are doing for your area which you can find here. https://www.203kmortgagelender.com/203k-lenders-directory.php
QUESTION: Kirstin
My fiancé and I are looking into buying a property with a foreclosed home on it. We are not sure of the shape of the home on the inside but the outside looks very rough. We are really wanting to build our own home and I know that the FHA loan would allow us to do so, but my question is would we be able to buy this property with a house already on it and tear that down to build a bigger home or does it have to be the same size as the one that was previsoily there?
ANSWER:
Hello Kirsten, Yes, your plan to use an FHA 203k Loan to buy a property, tear it down and rebuild a bigger home than the current one is allowed. The existing foundation must be used but can be extended if needed and you would need to use the full 203k version along with a HUD consultant of your choosing.
QUESTION: Shea
We closed on a 203k loan to convert a single family home into a quad. When applying for a permit to convert the single family into a quad we found out we must bring the property up to code and sprinkler the entire house. This add exceeds our contingency and we can’t afford to pay this out of pocket. We closed with the expectation of turning the house into a quad, can we change our direction and convert the house instead into a duplex to stay on budget and complete the project within our 6 month time frame?
ANSWER:
Hello Shea A major concern that stands out by adding less units than originally planned would be the appraisal report and value. The appraisal would have been prepared based on the value of a 4-unit and changing to a 2-unit could seriously impact the value. So, your first phone calls should be to your HUD Consultant and Contractor to see if there’s any ‘extra’ money on other items that can be moved to the required sprinkler system.
If so, everyone will need to monitor the project carefully so as not to alter the plans and specs the appraiser used to determine the ‘after improved’ value. If not then another resolution would be needed, maybe even the one you are suggesting but that would involve approval from your lender so that you are not in jeopardy of defaulting on the terms and provisions of your mortgage loan.
QUESTION: Thomas
Can the 203K be used to add a garage to a property we want to that is a manufactured home on a full basement? (built in 2005 new and on the basement)
ANSWER:
Hello Thomas, The answer is “yes” the 203k can be used to add a garage to your property. The “full / standard 203k” is what would be needed to accomplish that.
Just an FYI on two items.
One, a detached garage as supposed to an attached garage can be questionable depending on the lender.
Two, finding a 203k lender who will do a manufactured home is rare.
QUESTION: Larry
Can a 203k loan be used to build an additional room?
ANSWER:
Hi Larry, Absolutely!!! That one was easy.
FYI – A full/standard 203k is what you are in need of.
QUESTION: Rachel
I have found a home that is a HUD home. It needs repairs, biggest issue being the basement wall is cracked. I have found a contractor that can do all the work that is needed with the amount we are able to finance. My question is if for any reason the work is not complete or the lenders appraisal comes back that the work on the basement isn’t up to their standards and we can’t finance anymore money to get additional work done to it, will we be able to get our closing costs back or are we going to end up being out all of that money for closing costs and the house?
ANSWER:
Hello Rachel, The Home improvements that are financed into your total loan are reviewed and approved by…You, your Lender, Contractor etc. so there really shouldn’t be any misinterpretation of what is expected. Any improvements should be done correctly and complete to your satisfaction which benefits you, protects the lenders interest and for the contractor to get paid. That is why the funds are disbursed after a phase completion not before and will need your signature. If your transaction involves a HUD consultant then you can take up those concerns with him/her as they do play a role in the work to be done & disbursements. If it does not involve a HUD consultant, then just make sure the work is completed satisfactory (as agreed to initially) before ordering the inspection for release of funds.
On the issue regarding the money for closing costs and the house it would seem you might be under the impression that improvements are done before you are the actual owner of the property when in actuality you will already own the home once you are at the improvement stage. So, nothing lost there you already own the home regardless of any possible hiccup during the improvement phase.
Hopefully that help clear up some of your concerns but if not then contact your FHA 203k Loan officer.
QUESTION: Gredys
Can the loan be used to “finish” a home? In other words, a new house that someone has constructed and stopped short of putting in all the fixtures and appliances and putting in the flooring and painting it. If you only need 35K to finish the home, can you apply for an FHA 203k?
ANSWER:
Hello Gredys, Using a 203k loan is a perfect solution to “finish” off a home where work (minor or major) was started but then left undone or abandoned as long as the property is at least 1yr. (12 months) old. If it’s a brand new property (never sold or got a certificate of completion/occupancy) then you would need to look for another renovation loan alternative.
QUESTION: Denise
Would you please let me know a house that has a mold issue can be financed using a 203K renovation loan? It appears that the mold issue was caused by a faulty sump pump as there was water in the basement. All sheetrock walls and doors would need to be replaced but, right now, the Basement floor is dry.
ANSWER:
Hello Denise, Yes, mold removal & remediation can be financed using a 203k renovation loan.
QUESTION: Latana
Can an FHA 203k loan be used to add square footage to a house? (ex. 900sq ft home).
ANSWER:
Hi Latana, Yes, absolutely!!! Adding square footage is one of the big pluses with an FHA 203k loan. The type of 203k loan to accomplish that would be the “full” not the “streamline” version so make sure your lender offers the one you need.
QUESTION: Diane
Will a 203k loan cover the instalation of a perimiter foundation on a existing manufactured home. The home we are interested in is on pier blocks.
ANSWER:
Hi Diane, From what you have described the 203k program would permit that type of renovation…However: The problem will be locating a 203K lender that will accept manufactured homes. So, due to how few lenders do 203k’s on MFG housing, it’s best to consult with your prospective lender to find out what their guidelines are assuming they will do MFG housing.
QUESTION: Elizabeth
I have a 203k loan with my mortgage, the work was to be completed in February of this year and it’s now the end of May and they’re still not finished. In the meantime, my mortgage has been sold to another lender and I’m not satisfied with some of the work. What can be done about this situation?
ANSWER:
Hi Elizabeth, That’s unfortunate that your project is not going as well as it should. A few suggestions would be to get in touch with your original loan officer to see if they can help you make contact with the new lender. Take up your grievances with the new servicer or more likely the draw department. If you used a HUD consultant and you’re unhappy with the quality of work, first reach out to them and see what they have to say (they can refuse to sign off on additional draws until the work is re-done in a craftsman-like manner). If you’re doing a streamline, you’d want to talk to the draw department to see what your options are.
QUESTION: JOE
WILL A 203K LOAN COVER THE COST OF A RAISING A HOME IF REQUIRED BECAUSE OF HURRICANE SANDY?
ANSWER:
Hi Joe, The 203k program allows for the total demolition and re-build of an existing structure “IF” the foundation remains. You can add to an existing foundation and repair it but “CANNOT” remove it. With that said it would seem that a 203k loan could be an option for you. Contact a specialist with more details on your situation to confirm.
You could also look into a 203H which insures mortgages made by qualified lenders to victims of a major disaster who have lost their homes and are in the process of rebuilding or buying another home.
QUESTION: Leah
I have been approved for a 203K loan on a home that I have a contract on. After the inspection, we found that there are foundation issues. My 203K lender told me that the 203K loan will not cover fixing foundation issues? I have read on this site that it can cover foundation issues. How do I tell my lender this or should I find another 203K lender?
ANSWER:
Hi Leah, Foundation issues and the funds needed to correct them “Can” be included into your 203k loan. If your current lender is stating the 203k loan does not cover foundation repairs then it’s probably one or all of these three reasons:
1. They can only do 203k streamline loans (which do not allow foundation repairs but the standard full 203k loan does)
2. Lack of knowledge on the 203k program
3. Their own policy (which only applies to them)
In any case it probably would be best to work with another lender and loan officer that specializes in both types of 203k loans. This way you will know all your options and home improvement possibilities.
QUESTION: Sheila B
Hi, We found a couple of houses that we like and are likely candidates for 203k loan. However, we would like to do major renovations such as adding second floor and expanding the main level by adding additional rooms and/or space which may require to tear down some walls of the house. Are those renovations allowed in the 203k loan?
ANSWER:
Hi Sheila, absolutely!!! Major renovations like the one’s you mentioned- adding a second floor, expanding the main level, adding additional rooms and tearing down walls, are all allowed with the full version of the 203k loan.
Sounds like a big project, hope it turns out great.
QUESTION: Tatiana
My husband and I are thinking about doing the FHA 203k. There are some repairs we’d like to do ourselves and some that we’d like a contractor to take care of. We want to take out a wall separating the kitchen, dining room and living room to open the space up. We can pay for the materials cash and do it ourselves, but is it going to be an issue if we need to do this before the hardwood floors that would be paid for from the 203k would be done?
ANSWER:
Hi Tatiana, Whatever projects you decide to pay for yourself and do on your own is fine. Your question is more related to what order the work should get done which really should be directed to the contractor who will be handling the work approved for your 203k portion. For any work though that will be covered by the 203k you should avoid any possible conflicts or delay in getting it done.
QUESTION: Lola
What happens if one does not meet the 203k deadline on repairs? We are already 2 months behind of the original schedule and will likely need another 6 – 8 weeks to complete. The scenario is as follows:
• Problems were much more extensive than originally noted with inspection.
• Work has been ongoing and steady, but due to extensive list is taking longer.
• The mortgage has been paid on time (so no default).
A requet for an extension was requested, but the bank never replied. We just keep working on it and are about to request our 4th (of 5) draw. What is the worst thing that can happen at this point?
ANSWER:
Hi Lola, Fortunately, it sounds like work is progressing and getting an extension should not be a problem. If you’re not receiving a response to your extension request, it may be because FHA allows a total of 6 months to complete the project and some lenders don’t address the deadline until after the full 6 months has elapsed.
You indicated you were about to request your 4th draw which means you’ll have only one draw remaining. That 5th and final draw can only be requested after everything is completed and the home is ready for final inspection. That being said, be sure the work has progressed far enough that the last two draws will cover everything. If you have any concerns, reach out to your HUD Consultant.
Now, if it gets to a point you’re unable to communicate directly with your lender, you can reach out to FHA through their Home Ownership Center.
QUESTION: Terry
Can you move in before all renovations are done with a 203k streamline loan?
ANSWER:
Hello Terry, The answer to your question is “Yes” you can move in before all the renovations are done. For the most part you should be able to live in the home as the FHA 203k streamline is for lighter projects which typically wouldn’t need you to vacant the property. With maybe an exception of a day or two at times. On the other hand the full 203k version is for more major renovations which is why it allows you to finance the house payments up to 6 months so that you can stay somewhere else during the renovations.
QUESTION: Marius
I am a realtor selling homes for green upgrade and have a question about whether the cost of solar PV can be added to the standard 203K total rehab cost in addition to the EEM allowance of $8000. For example; Total rehab is $35000, EEM items are additional $8000 and PV panels are $20000. Can the grand total for the renovation be $63000?
ANSWER:
Hi Marius, Much appreciation to all Realtors, Home Buyers and Homeowners that are helping in the “Green” efforts. You can add the cost of the PV panels to the 203k or the EEM (energy efficient mortgage) but it’s important to remember a HERS report is required for the EEM and there are some after improved value limitations as well. Whether you use the Full 203k for the whole project or a combination of the 203k with an EEM, it is an option.
Contact the Lender for your state on the FHA 203k Lender Directory for more information.
QUESTION: Betsy
My husband and I are owners of an older home, on which we would like to put an addition. I have had conflicting information and really need a road map on how to get started. Any and ALL advice is welcome. Thank you!!!
ANSWER:
Hi Betsy, an addition is very doable so your best bet would be to contact one of the FHA 203k Loan Lenders on the Directory List for your state would be more than happy to clarify any information and give you the advice you need.
QUESTION: Stephanie
I have a home that I live in now and just bought a fixer upper I was told I couldn’t do additions or conversions of rooms is this true?
ANSWER:
What are the guidelines for using portions of original foundation
QUESTION: James
Hello Stephanie, If the property will be owner occupied then absolutely you can do additions or conversions of rooms with an FHA 203k loan. With the standard 203k loan (not the streamline) you have full range with very little restrictions so you can finance just about any type of property improvement.
If the property will be non-owner occupied then the 203k won’t be an option but there are other conventional loan alternatives for you. The 203k and renovation specialist for your state could help.
ANSWER:
Hello James, Guidelines permit the existing structure to be torn down to the foundation but, as the guidelines read, the original foundation is to remain in tact.
In other words adding more foundation is okay but subtracting from the foundation might not, so you will need to discuss that further with your lender and FHA cost consultant.
QUESTION: Kenneth
What does it take to qualify as a “2 unit” property? I have a lot in California which contains a 5BR house and a detached accessory dwelling unit. The ADU is 320 square feet. An inspector from the city came by to check if the ADU has a kitchen, a 3/4 bathroom, and a closet. It has all of those and I have not heard anything from the city after the inspector left. I think the ADU is “legal non conforming” since it existed since before I bought the place, there are no records at the city planning office about its construction, and the maximum ADU size allowed by zoning laws is 300 square feet.
The county tax assessor describes the property as “Single Family Residence Plus Additional Unit.” This is somehow different from properties described as “Two Unit.”
What FHA maximum loan limit will apply here? Can I borrow up to the maximum for a 2 unit property or is this going to be considered one unit only?
ANSWER:
Hello Kenneth, FHA considers an ADU as an “additional habitable living unit added... to, created within, or detached from a single-family dwelling”. An ADU would not be considered as a second unit so the FHA single family residence (SFR) Loan Limits would apply in this case.
The solution would be asking the city what would be necessary if even possible to make it a legal second unit. Another alternative could be based on the Lender’s appraisal analysis of the zoning, highest and best legal use of the property and whether or not the ADU is generating rental income.
They are both worth a shot. Whether you decide to finance the conversion of your property into a legal 2, 3, or even 4 units or to do some remodeling or renovating the way the property stands now the FHA 203k can be used.
QUESTION: Mike
I live in Oregon and purchased an older home last year. I have started repairs out of pocket and still have a ways to go. What are the requirements to qualify for a 203k loan? Can I be re-inbursed for work I’ve already done (with permits)? Who do I contact to start the paperwork to qualify for a 203k loan?
Thanks.
ANSWER:
Hi Mike, Although you didn’t use an FHA 203k loan to purchase your property it’s not to late. You can still refinance into an FHA 203k loan to finish off what is needed but you will not be able to get reimbursed for the work already done. You can locate and contact the 203k Specialist for your state here at the 203K Renovation Loan lender directory.
QUESTION: Edwina
Need a lender to help FHA 203K buyer in Hawaii. There’s termite problems and possible structual damage. Thank you
ANSWER:
Hi Edwina, There are 203k/Renovation Specialists in Hawaii that can help you with a 203k loan in Hawaii. Termite and Structural damage can be handled with an FHA 203k loan and I would think that in a state like yours with high humidity that would not be un-common.
QUESTION: Kim
Hi! I have a home with a current FHA loan. I am interested in and FHA 203k refinance so I can add solar panels. I have a bid for $29K. Is an FHA 203k Streamline OK for this type of project? My current loan balance is $232k and the current value of my house is $266k (according to zillow and comparables) Is there another type of loan that would be better?
ANSWER:
Hi Kim, Yes, the FHA 203k streamline would work well for your solar panel project. Keep in mind, an estimated value from Zillow, like any online valuation, is not the most accurate but it’s a start. The good news is that the 203k loan can work with very little current equity. It will probably be your best option although there are conventional alternatives available as well so feel to contact a lender here to discuss your choices.
QUESTION: Angi
I just found out that these loans exist, but I’m not certain I fully understand them based on the information on the FHA webste. How distressed does a property need to be to qualify for a 203K loan when its a new purchase? We had been ruling out looking at a lot of homes because they would need some updating to be OK. Can it be used to remodel a Kitchen or redo a nasty 70’s avacado Bathroom, if what is there is seriously outdated and not the least bit energy efficient – but still functional? Or does this only work with properties that are not habitable the way they are at the time of acquisition?
ANSWER:
Hi Angi, The property does not need to be distressed at all. It can be perfectly livable or habitable to live in currently but yet the property just needs to be updated or remodeled. Making the property more energy efficient is a great use of the program as well as personalizing the property to your own taste. So, by all means, stop overlooking those ugly duckling properties and start visualizing your home with a makeover with the 203k.
QUESTION: Don
Hi, I got a 203k loan to purchase and rehab my new house. Construction is delayed and I will not be able to finish by the 6-month deadline. What do I do? Can I get an extension somehow?
ANSWER:
Hi Don, Yes, that is all you can do although it’s not supposed to go pass the 6 months.
QUESTION: Don
I’m just nervous about telling the lender because they might pull the plug and then we’d be in big trouble. Is there a good way to approach this to be sure the bank won’t hold back the remaining funds in escrow and not let us take any more draws?
ANSWER:
Hey Don, Talk to your cost consultant if you have one because there really shouldn’t be any reason to go beyond the 6 months but if that is what it has come down to then really you have no other choice than to communicate that with your lender.
QUESTION: Denis
I have closed on a home with a 203k loan that requires exterior paint as one of the items. I live in Chicago and no painter will agree to paint the house from November through April. The home is a wood, historic home that needs time to dry after scraping and Chicago is either too cold or too damp during these months.
The lender that we used has stated that there is no provision for extension past 6 months, even though all painters proposals state they won’t perform the work until mid to late spring. Is there any way around this?
ANSWER:
Hi Dennis, Do what you can before the weather gets any worse if not then all you can do is request an extension at the end of the 6 months even though the provisions from the lender say otherwise. If you’re working with a cost consultant they can help you get one. It would seem though something was overlooked, as this should not be of any surprise knowing the area you live in and the work that was going to be done but never the less extensions have been granted even though they are rare.
QUESTION: Marie
How long do I have to complete repairs?
ANSWER:
Hi Marie, You have up to six (6) months to complete repairs so advise your contractor(s) regarding the time frames.
FHA 203K QUALIFYING Questions
QUESTION: Celeste
I have a low credit score; but within FHA loan criteria, Good income and I am professionally employed how do I go about finding an FHA/203 lender to rehab a rural single family home?
ANSWER:
Hi Celeste, You can find a 203k lender here to discuss your situation.
QUESTION: Star
I recently sold a home on Short Sale, and looking to buy a home that needs work. Price range of home 350k. Reno cost 200k. Wondering if I’am a candidate for a 203K loan. I am self-employed owner of a construction company and my wife is a full time teacher.
ANSWER:
Hi Star, Buyers who have had a short-sale after selling their previous home can use FHA financing but the “wait time frame” to purchase again is usually 3 years but could be less if extenuating circumstances caused the hardship for the short-sale.
QUESTION: Tana
I have found a home that I like to purchase. However, it needs repair. According to the agent the property requires 203k loan only unless it’s purchased cash. With my income status on my last 2 tax returns, I have many deductions. I recently purchased 5 properties cash. So I have equity on them and I purchase the properties for investment as rental income. Can I use it as income when it gets rented out prior to approval. As of this time I just purchased it so I haven’t rented it yet. I am confident that I can pay my mortgage. I can even attach those properties as collateral. What are the chances of getting approved?
ANSWER:
Hi Tana, Proof of rental income on investment properties as well as history of receiving it on your taxes is pretty typical with some exceptions. It is possible some of your deductions can be added back to your income depending on the deduction and if it’s a primary resident 2 to 4 units that is being purchased then those estimated rents can be counted. So, the chances of approval whether it’s FHA Financing or Conventional just depends on looking at the whole picture.
Have Questions? Ready To Get Started?
QUESTION: Raina
We have a house with a big back yard and basement. We are looking to add living space, eventually in both areas. Our debt to income ratio is currently too high to qualify for a conventional cash out refinance, although we have sufficient equity in the property to fund the desired renovations. We were told it is possible to use projected rental income in order to qualify for a 203k home renovation loan. Is this true, and, can those funds be used to build a detached unit in the back yard, or would they need to be used to build a basement rental unit? We may also need to include an additional family member living in the house on the mortgage in order to qualify. Would this person then need to be added to the title, and if so, what are the costs involved in that process? Thanks!
ANSWER:
Hi Raina, When considering your project and potential options, the most important thing to remember is that FHA provides guidelines but many Lenders have overlays so, as you’re talking with FHA 203K Lenders, be sure to ask about those overlays.
The first concern that comes to mind is the zoning for your property. If your property is zoned for multi-unit, the conversion from a single unit to multiple units is an allowable project. However, constructing another detached unit in the back yard is not permitted. Attached units though are allowed.
The second concern is using the rental income from the newly constructed units. Depending on their overlays, different lenders may look at this in varying ways but FHA guidelines do permit a portion of the projected rental income for qualification purposes.
Finally, yes, FHA does permit family members to be on the mortgage with you, be sure to discuss the 203k requirements with your chosen lender. Hope it all works out
QUESTION: KCR
We are looking to purchase a home with the 203k loan. We are wondering what qualifies as rental income. We currently own a single family home and we rent out the in-law suite in our basement. It gets claimed on our taxes every year for the past 3 years and we have a rental agreement in place. Can we use this income to help us qualify for the loan even though it is a single family home?
ANSWER:
Hello KCR, What you’re referring to is called “boarder income”. It’s allowed on FHA transactions (203b, 203k,etc) if you’ve claimed it in your two most recent tax returns, so in your case, you’ll be able to use that income. Be prepared to provide a lease. Please note that on a purchase transaction, you’ll need to document the intent to continue boarding.
QUESTION: Oyoo
Hi, I was approved for fha 203k. My offer was accepted and ratified. But when it came closing time, HUD’S consultant inspected the house and recommended twice the amount previously approved for renovation. My Lender doesn’t want to approve no more money. What should I do to get more? Thanks. Oyoo
ANSWER:
Hello Oyoo, It’s unfortunate that you’re having issues, especially at this juncture. The HUD Consultant inspection is one of the “FIRST” steps and there’s usually no reason for another HUD inspection prior to closing. When the HUD Consultant does the inspection (usually right after your offer is accepted), the results of that inspection are bid out by your chosen contractor and those figures are presented to the Lender.
So, without knowing where the first renovation amount came from that your lender was initially working with, it would be a good idea to figure out what went wrong there and see if some type of compromise can be worked out. If not, then get in contact with another lender and find out if you have another alternative.
QUESTION: Ruthy
If I have a property that I own free and clear without any liens or mortgages that is inhabitable but have a high debt to income ratio because of a recent divorce (alimony and child support). Can I still qualify for a 203 K standard loan to rehab my house?
ANSWER:
Hello Ruthy, You can definitely obtain an FHA 203k loan on a property that is free and clear (no liens or mortgages) plus inhabitable as long as it will be owner occupied once it is habitable.
Now on your concern about having a “high debt to income” that would depend on how high and other compensating factors. In other words…the amount of the loan compared to the value, credit scores, how long on the job etc. Assuming all else is good then really what it will come down to is the amount you will qualify for and whether that amount will be suitable enough for you to bring your house into a habitable state or much further beyond if that is your preference.
There is only one way to find out and which is “Free” so go ahead and contact a 203k specialist.
QUESTION: Jack
Is there income top and bottom limits to participate in this program
ANSWER:
Hi Jack, There are no income limits to get an FHA loan with or without renovations. There are though income qualifying ratio guidelines that lenders use. Standard is 31/43 on FHA loans which includes the 203k. That means up to 31% of your income can go towards your housing expenses and 41% can go towards your total expenses (housing & other monthly debts).
These are guidelines and can be surpassed which is common but by how much over depends on the automated approval, credit scores and your particular lender.
QUESTION: Erica
Do you need equity in your home to qualify for a 203k? We are looking to expand our family and therefore our home. We are looking to dormer but have no equity at this point. We have good credit scores and have owned the home for 10 years.
ANSWER:
Hi Erica, Having equity in your property is always helpful and the more you have of it the better but for many homeowners these days (June 2012) that might not be the case. Unlike other types of home loans FHA loans including the FHA 203k can be done with very little equity. The difference between having a little equity and no equity though would make a difference in whether or not the homeowner will need to bring in funds to close or not.
So, the answer to your question is “yes” except you might need to bring in money to close. Try out the “FHA 203k Loan Calculator” for refinancing to get an idea of what you might be looking at.
QUESTION: Theodore
I have been rehabing a home myself for the last year and the owner has now offered to sell it to me but there are still some repairs that need to be done. I have a 701 FICO Transunion, 692 FICO Equifax and a 544? PLUS Experian. My challenges are that I do not have any revolving accounts, only a car note, with only two lates back in Aug and Sep 2010. I do not have any rental history since 2001 as I moved back home to get on my feet. I have been with my current employer for 1 year and 8 months, but with my previous employer for 7 years. She is selling for 40K, there are about 30K in repairs still needed and the drive by appraisal value is 129,100. I don’t want to have my credit pulled if it is likely that I won’t qualify. So, my question is do you think that I will qualify given the above? I do have 6k available as a down payment and I live in rural NC.
ANSWER:
Hi Theodore, Although it might be a challenge due to lack of positive credit lines plus not having 2 years of completed employment it could still be possible to currently qualify considering you do have an acceptable middle credit score. Your best bet would be to contact a 203k specialist for North Carolina who can do both automated approvals which can override a lot of your concerns but can also do a manual underwrite with non-traditional credit references in case the first option is not doable. Either way they would need to pull your credit report.
If you want to increase your odds then you could wait until you have the full two years of employment while at the same time open up some new credit accounts to get some more payment history under your belt. No guarantees but eventually you will need to take the plunge to find out one way or another or at least have a plan if you’re going to purchase.
QUESTION: hartstk
I currently live in a home too large for myself and want to downsize. I have found a bank owned home and want to use a 203k loan to purchase and improve the home. I have not had any luck selling my home but have several people interested in leasing and possible lease to purchase. My mortgage lender tells me I do not qualify and that the underwriters told him it does not make sense for me to downsize from a 400,000 home to a 100,000 home. Is that true or is there a way around it!?
ANSWER:
Hello hartstk , You mentioned two issues that your mortgage lender told you: 1) not being able to qualify and 2) the downsizing not making sense to the underwriter.
The motivation and reasoning for the downsizing is debatable but if your lender is already saying you don’t qualify then the issue of downsizing won’t even matter.
So, the first step you might want to consider is to get a second opinion about qualifying from another lender. With that said feel free to contact the 203 Specialist for your state on the 203k Lender Directory to go over your scenario.
QUESTION: M
Are the regulations regarding eligibility for FHA financing changing this month (January 2012). And, if so, is there anywhere I can go to see what those changes are? We sold our prior home on a financial hardship short sale but have found a smaller and more affordable home we wish to buy.
ANSWER:
Hello M, Guidelines related to foreclosures and short sales are still 3 years from when it happened to be able to get an FHA loan. That time can go by fast so in the meantime keep everything else active and current or open up some new accounts. This way you can show positive history trade lines after your short sale. Plus, it should help increase your credit scores which you will need after that time-period is over.
QUESTION: Kenneth
What are the income ratios used to determine maximum loan amounts for FHA 203k?
I’m interested in a house that has been gutted. I think I can buy it and do interior only remodel for less than its market value and less than the FHA maximum loan amounts. I have a steady job (over 17 years) and excellent credit. But I’ve been told by conventional lenders I do not earn enough to qualify for the payments on a loan this large.
What percentage of gross (or net) income is allowed for principal, interest, taxes, insurance, PMI?
ANSWER:
Hi Kenneth, The FHA 203k Guidelines for income ratios are 31/43 which means 31% of your gross income can go towards the full principle, interest, taxes, property insurance and MI; 43% of your gross income can go towards both your full house payment and your monthly debts.
Now these are guidelines only and it is not unusual to exceed these qualifying income ratios with an automated approval or with compensating factors. If your conventional lender does not do FHA loans let alone FHA 203k loans then they might deter you from pursuing this type of financing so get another opinion from a 203k Rehab Loan Specialist here on the site before throwing in the towel so you know for sure. Worst case you will need to adjust your price range but at least then you will have a financing option to make an offer on a property regardless of its condition.
The FHA 203k Loan Requirements and Guidelines post on the blog can answer other questions you might have as well.
QUESTION: Jenny
Hi, I’ve lived in the house for 2 years, just notice about 203k loan, I plan to make a 2nd unit in up-stair, and add a bath room, kitchen, so I can rent it out. Do I qualify for this type of loan? Currently I have FHA loan on our 1st mortgage. If I qualify what should I do next?
ANSWER:
Hi Jenny, Yes…you can add 2 or more units to your existing property as long as you don’t go pass the 4 unit maximum. That rule also applies to owners looking to downsize to 4 units as well who might currently have 5 or more units.
Whether you have an FHA or a conventional loan it doesn’t matter because the new FHA 203k loan will be paying off the existing loan you currently have and will give you the additional funds for your project.
The next step is to find out how much you would qualify for which can include the new expected rental income from that additional unit you’re planning to build…which of course will help. Feel free to discuss it with your 203k Lender when you’re ready to get started.
FHA 203K APPRAISAL Questions
QUESTION: Tina
I am trying to get 203k for renovations yet the appraisal came in crazy low on my property including the renovations. Anything I can do?
ANSWER:
Hi Tina, Adjust the scope of work or the purchase price or both, possibly request an appraisal rebuttal if a realtor is able to provide valid comps the appraiser may have missed.
QUESTION: Mike
I have closed on a property with a 203K loan, and was wondering if it is possible to change the scope of work. No construction has started, as we are waiting for permits to be approved. The original plan that was submitted to the bank has changed, as the county is allowing us to build 400 additional sq ft. With this change, some line items can be changed and there will be sufficient money in the 203k to completed the project. Also, if we are allowed to change the scope of work, will this require another appraisal?
ANSWER:
Hi Mike, The issue you’ll be facing is that your loan closed based on the original Scope of Work and the appraisal was based on that project and those numbers. This is not say that minor changes won’t be approved that possibly can include moving or changing the line items. However, it appears that you’re considering changing the floor plan which could seriously impact the appraised value and may also require additional engineering/architectural designs.
So, communicating directly with the Draw Administrator would be the first step on what will be acceptable or required.
QUESTION: Randy
If I complete a 203K renovation and want to refinance with normal loan later. Will the house appraise out? It seems the consultant’s value may be high.
ANSWER:
Hi Randy, A higher appraised value than maybe what you might have expected once the renovations are done sounds like good news. The answer is “Yes” you can refinance into another type of home loan afterwards if you think it would be beneficial because of the new higher value. The rate and terms on the 203k renovation loan are comparatively as attractive to home loans that don’t come with funds for renovations. Nevertheless a refinance can be done and there are no penalties for paying it off early which makes the 203k even a better financing option long or short term.
QUESTION: Nana
As a seller do I have to sign FHA escape clause allowing seller to keep deposit unless I obtain a FHA appraisal showing house value same as sale price? Can 203k loan proceed without forcing seller to allow slow buyer to keep deposit? Would you explain whether FHA requires this escape clause.
ANSWER:
Hi Nana, The “FHA Escape Clause” you’re referring to provides for non-forfeiture of the buyer’s deposit if the property appraises for less than the purchase price. However, because it’s an FHA 203k loan the emphasis is more on the after improved value so that can be helpful and good news to the seller. Other specific provisions and certifications can still apply though. As far as the type of buyer or speed of the buying process can vary or be the luck of the draw but regardless the seller is still obligated to sign the clause when a buyer uses FHA financing.
Have Questions? Ready To Get Started?
QUESTION: Tracy
If I have a FHA Title One loan that was used to say finish our basement. And six months later we want to do a 203k refinance for an addition. Will the principal on the FHA Title One loan be included in the 203k refinance? I understand FHA Title One are not against the property’s value so no equity is required, are considered a lien (sit in second position) and can be used in combination with a 203k. My concern is if after renovation the appraised value hasto be more than the total of both the 203k refinance AND the Title One, the property may not have enough equity to cover both. Has anyone had any experience working with someone who was using both a Title One and 203k to make improvements on a home? Thanks for any advice; I know this is a tough one. Even the FHA hotline wasn’t much help!
ANSWER:
Hi Tracy, FHA title one loans (which are home improvement seconds) are rare to come across these days plus trying to combine one with an FHA 203k loan would be redundant.
A 203k refinance would pay off your primary home loan along with any junior liens and include the funds for improvements. If there is not enough equity to accomplish that then you would need to bring in the funds for the shortage at closing.
Being able to find a Title one source and secondly being able to combine both the 203k & Title one is very doubtful if even allowed but if there is any possibility of accomplishing that your best bet would be getting the 203k loan done first by itself.
QUESTION: Mitch
Hi, I have a question about a 203K loan. My girlfriend and I have looked at many houses and we already know that we are doing a 203K loan for the purchase to update/change things as needed in the house. My question is, do we have to come up with the overage money if we offer more than the list price on a home? For instance, the list price for a home is $125,000 but we offer $140,000 just to be aggressive and make sure we get the house, do we then have to come up with the $15,000 ourselves or can that be part of the loan?
ANSWER:
Hi Mitch, It’s not uncommon to get into a bidding war and exceed the list price. Your lender should not have an issue with the agreed upon sales price if the appraiser addresses the situation properly and the value of the home will warrant the overage.
So, if the value comes in on the appraisal the increased 15k could be part of the new loan if not any shortage would need to be made up or the sale price re-negotiated. That is where your Real Estate Professional should be able to assist you.
QUESTION: Patricia
We’re looking into the 203k program to purchase a foreclosed house. The house used to be a lodge but is now listed a single family home. The previous owner tried to convert it into a bed & breakfast unsuccessfully, so we would have to go for a full 203K to make it into a home. Because of the size, we’re likely to split the house into a duplex, which we believe is allowed under the program.
However, we have concerns about the appraisal process. According to our real estate agent other people have tried to purchase the house using a standard FHA loan but they couldn’t get it appraised because there are no comparable sales with the past 12 months. We also have concerns on the HVAC system – each room has a gas line and 1/3 of the rooms have individual gas heaters but no central heating/air. We have discussed our concerns w/ xxx, but the 203K mortgage specialist did not give us any assurances that that house could be appraised using other benchmarks. We’re ready to have the 203K consultant came and inspect the house, but we’re concerned that it cannot be appraised, so we would be wasting our time and money. Any suggestions?
ANSWER:
Hello Patricia, What the property might have appraised at before with a regular FHA loan was based on its present condition and use. If you think the property is currently overpriced, then that can be negotiable.
With all the new changes you have in mind for the property the FHA 203k loan appraisal will be based on future value so the conclusion would be completely different. If your agent still can’t estimate what it might appraise for after all the work is done then maybe try using a 203k consultant with appraisal experience as an alternative before the lender sends out their appraiser.
QUESTION: MurfTheSur
In one of the posts above you said “For the most part it would be like starting over again unless you already have an appraisal done subject to the repairs needed”. Ok, so if I have an appraisal already, how long is it good for?
ANSWER:
Hey Murf, Starting in 2010 FHA Appraisals will be good for 120 days.
FHA 203K CREDIT Questions
QUESTION: Amy
What does my credit score/history have to be to qualify for an FHA 203K loan?
ANSWER:
Hi Amy, Many FHA 203k lenders do have minimum credit scores and on average 620 seems to be the range but there can be other factors involved so it’s best to discuss that with your lender.
QUESTION: Roxanna
What credit score must you have to get approved for a 203k FHA loan
ANSWER:
Hi Roxanna, Most FHA 203k Lenders are looking for credit scores above 600 but for standard FHA loans without renovations lower credit scores can be acceptable.
QUESTION: Lisa
I am wanting to buy a fixer upper in Illinois at 40,000 with an additional 30,000 in renovations. I have very poor credit (480) from bankruptcy that has been dismissed. I can make the payments with no problem. Can I Qualify with poor credit?
ANSWER:
Hi Lisa, When it comes to minimum credit scores each lender will have their own threshold. For the most part many of them like to see a 620 middle score but there can be exceptions depending on the lending scenario. Don’t hesitate to contact one of the lender’s so that at least you know what the possibilities are to move forward.
QUESTION: LISA
WE ARE LOOKING AT A PROPERTY IN LOUISIANA AND WAS JUST WONDERING WHAT THE CREDIT REQUIREMENTS WOULD BE FOR AN FHA203k LOAN. THE PROPERTY WE ARE LOOKING AT HAS SOME PAINT PEELING AND BAD WOOD AROUND THE WINDOWS, AND SOME OTHER REPAIRS. THIS IS THE ONLY LOAN THAT WE ARE BEING TOLD THAT WE CAN GET FOR THIS PROPERTY BECAUSE OF THESE ISSUES. PLEASE LET ME KNOW. THANKS, LISA
ANSWER:
Hi Lisa, On minimum credit scores for FHA insured loans it’s best to ask your lender(s) as they can vary depending on your personal scenario and lender. Just an FYI…FHA loans without renovations will most likely have more flexibility than FHA loans with renovations.
On the repairs…”Yes” you’re correct, the 203k loan will take care of those issues and more.
Have Questions? Ready To Get Started?
QUESTION: Fort Clark
With a low credit score can I get a 203k fha loan to buy a home.
ANSWER:
Hello Fort, That would depend on how low is your credit score because each Lender regardless of the type of loan can have their own minimum or exceptions. In the case of 203k loans most lenders seem to favor a 620 or higher (middle score) between the three major credit bureaus, even though FHA guidelines will allow for lower scores.
QUESTION: Joseph
If I have a credit score of 618 and my wife has 689 and we already have been pre approved for a FHA loan do they have to check my credit again for a 203k loan? And what is the minimum score I need for a 203k loan.
ANSWER:
Hi Joseph, Whenever you decide to go with another lender different from your original one for an approval or pre-approval it is typical for them to run a new credit report which will be under their name even though it was already recently done. The good news is that multiple inquiries for the same product, in this case a home loan within a short period of time won’t significantly, on its own, impact your credit. As far as minimum credit scores, that would depend on the particular lender.
QUESTION: Rex
Is a 203k loan possible with a credit score of 615?
ANSWER:
Hi Rex, A credit score of 615 is possible although on 203k loans a 620 minimum seems to be more favorable but not necessarily across the board so you might want to contact more than one lender to see if it is possible.
QUESTION: Stephanie
I have 2 judgements on my credit. They both garnished my state tax return, have not received it yet but should soon. One judgement is a credit card that will be payed off once they get the state return and the other is a hospital bill that will be down to under $900 once they receive the rest of my state tax return. Would I have to pay the remaining amount on the hospital bill before I can get a mortgage? My credit score is 626 last I checked, which was not that long ago.
ANSWER:
Hi Stephanie, Good to hear that one and soon to be both judgments will be taken care of because lenders for the most part will want you to have judgments paid off before proceeding in getting a mortgage. As for the credit score reference, that’s lender specific but does appear to be in range. I would suggest that you check with your chosen lender to see if they have any different guidelines.
QUESTION: Denise
I had some past credit issues but have been working hard to clear them up. I have score from 640 to 690 depending on report. I have a federal tax lien for a debt of around 7000. I have spent the last year fighting the IRS because the debt is from 1999 and under tax laws this is past the statute of limitations for being collectible. Will I qualify for financing with it or if not can I roll debt into mortgage and pay it off? I do have pre approval letter from Amerisave but they only do FHA. I want 203k. Home was valued at 187k in 2010 but selling now for 120k but is an as is estate sale that needs work.
ANSWER:
Hi Denise, Wish there was better news to give you but most mortgage lenders probably will require that Federal Tax Lien to either be paid, released or put into a payment plan established by the IRS. The good news though is that it appears your credit score is going to be acceptable for most 203K lenders so keep up the good work on clearing up those negative credit items.
QUESTION: Nicole
My husband has been approved for an FHA loan and we found a home that we would like to use the FHA 203K on instead. With the new regulations and guidelines in place, will the lender have to take my credit into consideration even if I am not on the loan? His first FHA loan did not include me.
ANSWER:
Hi Nicole, On FHA loans when a spouse is not going to be on the loan the non-qualifying spouse’s credit is not taken into consideration but any additional debts you have will be added onto your spouse who is qualifying when the home is in a community property state.
QUESTION: Mica
Hello. I just found a wonderful HUD home in a great neighborhood. I was able to secure financing for the property. HUD set aside funds in escrow to make some repairs, however; the amount of repairs exceeds the available funds. When I asked my loan officer about 203k financing he said that although my credit score is high enough for purchasing through FHA, it is not high enough for the 203K financing. Is this true, and is there more stringent credit requirements for the 203k loans?
ANSWER:
Hi Mica, Good to hear you found the home you wanted in this case a HUD home. Credit scores can be a hurdle for many homebuyers these days and although FHA loans allow for lower credit scores FHA lenders can have their own 203k minimum requirements when it comes to credit.
For the most part the FHA 203k loan with renovations in comparison to an FHA loan without do tend to have higher minimum credit score requirements but each lender can have lower thresholds so a second or third opinion couldn’t hurt.
QUESTION: Stephanie
Hi Stephanie, Yes, you can get an FHA 203k loan right after purchasing the property. If your credit is not good as you mentioned, then getting approved for any type of home loan could be a challenge it just depends on how bad and low your credit scores are. The good news is that you will have equity because you are paying all cash so nothing will be owed on the property. For that reason any type of cash out refinance loan (FHA, Conventional or Equity ) line could work for you as long as you and the property can qualify. If you do get passed the credit qualifying and it then becomes your property’s conditions holding you back then that is where the FHA 203k loan can really come in handy over any other type of home loan.
ANSWER:
We are purchasing a short sale house with 100% cash. Our credit is not good, but we will own the home outright with cash left over. Can we get 203k loan for re-hab after the purchase? We don’t need financing for the purchase, just renovations to bring house up to date
QUESTION: Garry
We are going to apply for a 203k loan to buy a house. my credit score is 629 and i make 21,000 a year will i qualify for it?
ANSWER:
Garry, More information would be needed to answer that question so it would best to go over your qualifications with the FHA Renovation Specialist for your state in private. FYI, your credit score is on the low side but some FHA 203k Lenders have lower minimum credit scores than others.
FHA 203K DOWN PAYMENT Questions
QUESTION: Jd
Can you get down payment assistance with the Streamline FHA 203K
ANSWER:
Hi JD
Combining a down payment or other assistance program with an FHA 203k Loan is possible although it is an extra layer to consider and should be discussed with your renovation specialist.
QUESTION: Sara
Have to have down payment or closing costs for FHA 203k?
ANSWER:
Hi Sara, Yes, down payment & 203k closing costs need to be covered but…The FHA 203K (with renovations) follows the same FHA guidelines as the FHA 203b (without renovations) so that means your down payment can come from a gift (from an acceptable source) and closing cost can come from a gift as well or seller contributions.
Have Questions? Ready To Get Started?
QUESTION: Tracy
Two folded question. I am selling my house as a flip to an investor and have been trying to find a house in the interim. I have had two houses pulled out from under me before I could act due to not having a solid offer on my house. Can I get approved for the full amount of the house and estimate repairs so I can have something to hold that house and then have my down payment be larger when the deal is finalized, say the cost of the house leaving the reno money only financed? Also, husband has not so good credit, mine is ok. Can I be the only borrower and use his income as other income without having him be a co-signer on the loan?
ANSWER:
Hello Tracy, Getting pre-approved for a mortgage loan contingent upon the sale of your current house is absolutely doable. It probably would be best to go with the worst case scenario of what the proceeds will be from the sale of your house and what that will translate into getting pre-approved for your new loan, this way any additional funds for the down payment would be optional for you and you can adjust your new loan amount size accordingly. As far as using other income for qualifying, it would need to be verified that it is yours not someone else’s for it to be used. If the income belongs to someone else then that person would become a co-borrower/signer and would need to qualify along with yourself.
QUESTION: Joshua
My wife and I have found a house that we would like to purchase. The price is about $36000. We are figuring it needs about $50000 to $60000 worth of work done to it. Adding a couple bathrooms and kitchen renovation. We don’t have a lot of money to use as a down payment, but we are wondering what is the typical money down that we would need to get together before we buy?
ANSWER:
Hi Joshua, The standard minimum down payment on FHA loans is three and a half percent (3.5%) of the purchase price. That would also include FHA 203k loans that come with the funds for improvements. The difference is that the down payment is calculated based on the new total (sale price + Improvement funds). If you like feel free to use the 203k Loan calculator as it will give you an idea of what you will need to put together on the down payment. If there are questions on some of the fields on the calculator then feel free to call the 203k loan officer for your state which you can find on the lender directory.
QUESTION: Randy
We have accepted an offer from the bank on a foreclosure home. They agreed to a 6% concession for closing costs and the down payment. we are trying to finance a 203K loan. The 203K loan officer said that the Bank (seller) cannot pay the down payment. Is this true? And is there any laws or regulations on this. Thank you
ANSWER:
Hi Randy, Your fine using the 6% for all of your closing cost but the minimum 3.5% down payment must come from your side and not from the 6% your getting from the seller.
QUESTION: Billy
Can I get a regular FHA loan with assisted down payment with a 203k to replace carpets and paint rooms and do it in seven to ten days.
ANSWER:
Hi Billy, There is no combination of the two FHA loans. Your choice is one or the other, which is either a regular FHA loan with no repairs or an FHA 203k with repairs.
For any assisted down payment, if it is possible then that is something you want to take up with your 203k Lender.
As far as the time frame, a typical FHA transaction will take at least 30 days and a 203K’ transaction will take anywhere from 30 to 60 days.
FHA 203K MISC. Questions
QUESTION: Whitley
Can I lose my house if I don’t finish all the work by the deadline date on a 203k loan?
ANSWER:
Hello Whitley, Losing your house for work not finished is really the last option for everyone involved, its just a matter of staying in contact with your lender and letting them know what is going on.
QUESTION: Rose
Can you close on a house with an open permit that will be transferred from the seller to the buyer?
ANSWER:
Hi Rose, Generally speaking, YES. Open permits are acceptable as long as it’s residential in nature. I.E. An open permit for someone building a go kart track in their backyard for instance would be an issue…LOL
QUESTION: Courtney
Hi! I’m a real estate agent looking for purchase and renovation financing for a client. Are you still providing the FHA 203k product right now?
ANSWER:
Hi Courtney, The answer is “Yes” FHA 203k financing is still being provided.
Have Questions? Ready To Get Started?
QUESTION: James
Does HUD keep statistics on how many 203K mortgages are written?
ANSWER:
Yes James, HUD tracks how many 203k loans are done. Since the link may change in the future, it can be found by inputting into the search box “HUD 203k endorsements” over at: https://portal.hud.gov/hudportal/HUD It should be the first result.
QUESTION: Jolene
Can a seller have a home inspected by an FHA improved inspector/consultant before there is a buyer and have the inspection be accepted during the loan process? Need to get an idea of the extent of repairs and cost before setting a sale price.
ANSWER:
Hi Jolene, A seller calling in a HUD consultant prior to finding a purchaser would not be recommended. Because the FHA consultant should be selected by the purchaser and Lender since they will be working closely together long after the seller is gone (so to speak). The HUD Consultant will want to listen to the wants and needs of the Purchaser, not the Seller. The driving force to determine a sales price should be the “as is” value, not the potential cost of repairs. If you plan to list your home for sale with a real estate agent, then they should be able to assist you with that process.
QUESTION: Cathy
I am the listing agent. I never see anything written about what the upside or downside would for the seller, in accepting an offer with a buyer using a 203k FHA.
ANSWER:
Hi Cathy, Hope you enjoy what has been written on the subject that interest you, check out the link below… Sellers & Listing Agents Accepting FHA 203K Eligible Home Buyers
QUESTION: Jennifer
Hello! I’ve just discovered this 203(k) loan and am having difficulty finding a lender that specializes in these types of loans. I went to your lender directory and am just wondering if there is any way I can verify his experience in 203k loans. We are located in South Carolina and according to your site there is only one person in this state. Is that normal for there to be such a short supply of these experts?
ANSWER:
Hello Jennifer, Your concern is understandable. Finding someone with experience is important not to mention who works well with you.
As you have found out, finding someone who specializes and experience in 203k loans can be challenging so hopefully this site will help.
The lending sources you will find here are experienced, knowledgeable professionals in 203k loans but of course they are not the only ones. Never the less to put you at ease you should always have the 203k specialist address any questions or concerns you have before proceeding forward with them…whether you find that source here or somewhere else.
QUESTION: 203k Situation
I have a friend whose lender defaulted on paying out the renovation portion of her FHA 203k loan. Yes, this lender is going out of business and has been banned from doing FHA business over the past few weeks. We are trying to find answers. It appears that she is still liable for paying her loan even though no one has reduced the principle in recognition of the fact that the renovation portion was never paid out by the lender. I assume there’s some justice in the world and the FHA or Fannie Mae (who bought the loan) can somehow reduce the principle? It doesn’t seem fair that my friend appears to be “on” for the higher amount even though it was never paid out.
ANSWER:
Hey there 203k situation, If it hasn’t happened yet your friend’s loan should end up being transferred for servicing to another source and that is who they will need to take up the matter with. The same terms and conditions would apply so eventually the funds in the escrow account should be released one way or another…to improvements or to principle.
Hopefully the situation will get cleared up soon, for your friend’s sake…sooner rather than later. In the mean time keep good records and get in contact with one of the FHA Homeownership Centers
QUESTION: Jessica
My husband and I purchased a foreclosed home in spring of 2009 using a FHA 203(k) loan. In the fall of 2009 we completed repairs and submitted our receipts to the mortgage company. In 2010, we received the second half of our disbursment, which in essence reimbursed us for improvements we had already made. Now, when filing our taxes for 2010, we are being charged income tax for that second disbursement. This doesn’t make sense to me since the money is part of our loan and was a reimbursement for money already spent. Is this normal to pay taxes on the money reimbursed through a 203(k) loan?
ANSWER:
Hi Jessica, Any tax question should be referred to a tax professional but based off your comment…it is “Not” normal. It is the contractors not the homeowner who is the recipient of the rehab/renovation funds.
QUESTION: Anonymous
We just about to close on a 203k loan. Is it too late to change our 203k consultant? How would we accomplish this?
ANSWER:
Each lender would have different guidelines on letting you change your 203k consultant so the first step is to contact your loan officer to get a feel of what would be expected and if they will allow it. Most likely you will be allowed to switch before closing which would cause some delay and additional cost. But if you make the switch after closing, then the alternative would be to address the issue with the draw center.
QUESTION: Catherine
We are investors in the San Fran Bay area. We want to buy a house with our cash plus hard money or transactional funding, and turn around and market it to an end buyer owner/occupier as a 203k fixer. Do you have available hard money lenders or short term transactional fund lenders? We are working with a 203k consultant but have not yet done this type of a deal.
We were considering starting a 203k non-profit but are there still no lenders lending to non-profits?
ANSWER:
Hello Catherine, Hard money rehab loans are available but they are typically used by investors. There are Conventional rehab loans also available and these are geared for owner occupied, second homes and investors. No info to share on 203k Non-profit.
QUESTION: Bobby
We are a non-profit organization that has utilized the FHA 203k program to rehab +50 properties in the past (1990’s). However, we are unable to locate a lender that offers the 203k to non-profits at this time. Any suggestions?
ANSWER:
Bobby, As of now, no source that will fund 203k’s for non-profit organizations but feel free to check back at a later date as this might change.
Have Questions? Ready To Get Started?
