What exactly qualifies a property for a 203k loan?

[Brad Beadling]

Hello all!

I am wondering about some of the specifics of 203k loans.  One thing I'd like to know in particular is this: Can a 203k loan be used to turn a distressed single family home into a multi-family property? (For example say a 4 bd/2 ba turned into a duplex each having 2 bd/1 ba)

I am also wondering how distressed a property must be to qualify for a 203k... does the home have to first be considered to NOT be in livable condition, or can this loan be applied to a paint and carpet rehab?

Thanks in advance

- Brad

[Chris Mason]

It's not a 203k requirement that the home be in unlivable condition, but odds are the listing agent is going to tell their client to throw your offer in the trash if the home CAN be purchased with a vanilla normal non-reno loan. So it's more a "requirement" of "the market" than a requirement of the loan program. 

Yes, if zoning etc lines up you can turn a SFR into 2-4 unit.

Most 203k loans that are ACTUALLY CLOSED (& not just talked about, speculated about, or part of home purchase offers that are simply thrown in the trash, etc) are refinances. No listing agent telling their seller to throw your offer in the trash, no competing HML-backed offer that can close in 2 weeks, no seller's timeline to worry about, etc.

A strategy you can use to navigate that is to do something unusual and write two offers. I'll offer you $400k if you want me to close in 2 weeks with a HML, or I'll offer $425k if you're willing to wait 60 days for my 203k to close. Expressed that way, you're making the seller see & feel the "cost" of a HML.