Fha 203k what are the pros and cons ??

[Fredy Dominguez]

What do you need for a fha 203k loan and how do they work and would this be a good loan to get my first property?? 

[John Warren]

@Fredy Dominguez the 203k loan can be a very complex loan. You really have to different "loans" within the one loan. The 1st part of the loan is to purchase the house, but then the 2nd portion of the loan allows you to do the construction. Most newer investors get very excited about this loan because they think it allows them to buy a beat up property and renovate it with 3.5% down. The truth is that this loan is very complex, and is really designed for traditional home owners to purchase a new home and slap some paint and carpet in. I had two of these loans fall apart on very good deals in the Berwyn area this past year, and I always counsel caution when considering this loan product. 

An infinitely better loan product for the first time buyer is the 5% down conventional loan. This loan allows you to purchase  up to 4 units with 5% down, and as a conventional loan, you can buy beat up properties. It does force investors to renovate with their own funds, but in my opinion this normally ends up much better as you can find sub contractors to do most work much more cheaply than you would get through a GC.