FHA 203k loans- dream or nightmare?

Question

Have been looking into different funding options to start up my investment properties and was presented with an article on FHA loans. I started doing some research and came across 203k loans and they seam to be a very good option to me, building up equity in the property with remodel and purchase price all covered in the one loan. Intrigued with the 3.5% down payment and up to 4 units being accepted i continued educating myself on them. I've read that they can be challenging loans and very drawn of process to be approved for was wondering if anyone has been through the 203k loan and if they could give me some feedback as to how the process went for them. Thanks for time and happy investing- luke

Lucas Hallenbeck · Answer

i havent thought of it that way before, thanks for giving me that prospective chris

Chris Mason · Answer

Both? Neither? It depends on you, more than anything.

Let's put the numbers aside for a moment, because they really have zero bearing over how happy or sad you will be at the end of a 203k transaction. I'll say that again, the numbers are completely irrelevant in this case when it comes to your satisfaction level at the end of it.

- The dream-o-scale depends on the property, the transaction, the motivations of the sellers, etc.

Some sellers want top dollar more than they want to close fast. They are going to retire when this property sells, but they don't really care if they retire in 30 days or 60 days. They also aren't in dire financial straights. And on top of that the buyer is flexible with their move in date, sooner would be nice but it's not a big deal if we have to wait a week because it turns out that a bid from a roof subcontractor is now needed, or oh look a two month delay because we opened the walls and found that all the plumbing needs to be redone. This is a good fit for 203k.

- The nightmare-o-scale depends on a mix of your experience, and your lender's experience.

Some FTHB are low stress, roll with the punches, and do not see conspiracies everywhere. Some FTHB, by contrast, are high stress and want all the answers, exactly, down to the penny, and an exact timeline, right now - sorry, that just ain't gonna  happen on day one with FHA 203k, period, not up for debate. The former personality type is a better fit for FHA 203k than the latter personality type. If you're taking online personality tests, your "OCD" should be at 0 out of 10, and your "planner" should be at most 2 out of 10.

Lucas Hallenbeck · Answer

I am wanting to house hack so that would work just fine, and im starting to think if i look long enough and find the right lender and stay on top of everything that this is going to be my best route to take, thanks again everyone it helped out alot

Upen Patel · Answer

@Lucas Hallenbeck FHA 203(k) and Fannie HomeStyle Renovation are great loan options to buy a 1-4 unit owner occupied property that needs some work. As @Michael Cohen pointed out, you want to work with the right mortgage banker. This is a very involved process and coordination between the bank, you, realtor and contractor. If the mortgage banker is not organized and prompt then you will have some major problems.

Good luck.

Katherine S. · Answer

@Lucas Hallenbeck

I used a 203k in 2009 to remodel our house for wheelchair access.  It was a royal PIA, but it was the right vehicle for us at the time, as we could not find renovation money elsewhere.  Our biggest problem was that Bank of America, or perhaps just the person handling our loan at BOA, either didn't know what she was doing, didn't care, or both.  It took forever to get through the process, she kept losing paperwork, failing to follow through and failing to respond.  Our sellers got very nervous that we couldn't close because it took so long, and it was difficult to convince them that it wasn't that we weren't qualified, it was just BOA.  If we had been relying on them to get the funds released to pay our contractors at the time, rather than being reimbursed later, it would have been a problem.

I believe this is still restricted to personal residences.  If you're house hacking a quad, it would work, but not if it is strictly an investment (unless this restriction has changed since then.)  If you can find someone who handles a lot of these, and who can keep the process moving forward in a timely manner, your experience should be better.  You will need contracts from all your vendors in advance and need to keep very careful records to report back to them.

Oh, and don't forget you will have to pay PMI virtually forever (or until you refinance).  It's expensive money.

Lucas Hallenbeck · Answer

great! thanks for your input Michael

Michael Cohen · Answer

203Ks are very complex loans and it's imperative you work with a loan officer - not just the lending institution - who specializes in them. Big Banks vs. Smaller lenders is less important than the quality and capability of the loan officer him/herself. Ask your realtor for some recommendations.

Lucas Hallenbeck · Answer

thanks for reply, how can you find out what loans banks specialize in? and should i try large banks and credit unions or try to find smaller branches? thanks luke

Harjeet Bhatti · Answer

203k is good product  look for right company  who specialize in this loan and right staff who will work on your file.