The Real Problem With The 203k?

Question

Hey gang,

Just wondering if anyone has used this product, and if their experience as a buyer was easy? I have a house under contract, and I'm keeping the option open in case things come up on the appraisal because I'm not asking my seller to do a thing, and I would rather not be out several thousand out of pocket after closing for required repairs.

But asking around about this loan, I've found that everyone who has used it on the buyer side says the 'experience wasn't that bad,' or 'ours was easy,' while every lender I've talked to says 'the thing is a nightmare,' 'they never close,' 'don't do it.'

And hence, I think the real problem with this loan is finding a lender who 1, knows anything about it, and 2, is wiling to do it in an efficient manner.

I think it requires a lot more paperwork on the part of the lender, and so they all make them sound much worse than they are.

For example, there's a mortgage guy local to me on this site who seems to comment on every other thread, but I send him a private message asking if he is familiar with this product, and **tumbleweed**.

Any buyers or lenders on here that have used this product? And what has your experience been?

Thanks in advance.

Best,

JTM

Chris Mason · Answer

It closed.

Account Closed · Answer

It is absolutely more work and can become a major head ache depending on how the work comes out. There are more moving parts and more places for problems to arise than most other loans. Some of that can be helped with the level of experience with this specific product  and how often the company sees them. They can take quite a long time to finally close depending on the scope of work and how quickly the borrower selects quotes.

But by far the biggest possible pain point is with the contractors. And I am a big proponent of setting expectations up front to make it a bit smoother.  If the contractor knows they will need letters of reference and it is work on a draw and the final inspection might need them to come back should there be problems they are more friendly to getting those items correct when they come up.

If you have specific questions dont mind answering them through PM but I can not lend to your state.

Katie P. · Answer

Owner-occupied it is. Thanks, @Chris Mason! I'll have her reach to you if that's cool.

Ryan Scott Isacksen · Answer

@Chris MasonEveryone who doesn't have to deal with paperwork with a city underestimates it.I have mostly dealt with the permit department or pulling building plans.  The people in the building department have been a lot more helpful than what you experienced in the Revenue Division.  The process was still long and involved multiple trips for any project that I have had to take care of.

Joshua Martin · Answer

Thanks Account Closed, I appreciate the input!

Chris Mason · Answer

If it is owner occupied, she can. FNMA HomeStyle isn't as bad. Same basic idea, the loan is based on an ARV appraisal.

Katie P. · Answer

I'm assuming conventional Fannie Mae Homestyle Loans are just as nightmar-ish? I have a friend who currently has FHA on West Oakland property (it's been 1.5 years with loan), and she wants to refi out (to get rid of mortgage insurance) and make improvements to her 1895 home. It's not deemed historical, is actually duplex on record, and is MX - 2 zoning. House is used as SFR 3/1, and I wonder if she could add a unit (or 2? will have to look into zoning) with Fannie Mae Homestyle?

Any input appreciated.

Katie P. · Answer

@Chris Mason -  curious how the story ended!

Chris Mason · Answer

Here's me taking a picture down at Oakland City Hall, dealing with GOVERNMENT EMPLOYEES (can you think of anything more horrific?) for the last 203k mortgage I did, and I needed the paperwork I was there for within 24 hours so we could fund or the deal was dead, and these government employees sitting there playing Solitaire are quoting a six day turnaround to even LOOK AT the paperwork request, with "no exceptions" to that six day turnaround just to LOOK AT IT (not even fulfill the request, just look at it & move it to another bin to be reviewed by a committee!).

Chris Mason · Answer

Both are true.

They are in fact a pain in the butt for the LO, but "not that bad" for you.

I won't do it unless the loan amount is over $350k or so. Maybe less if it is a past client, or a refinance with no firm deadline.

The Real Problem With The 203k?

Most Popular Reply