203k Loan Questions - Where to Start?

Question

Hi all, I recently heard about the FHA 203k Loan in one of the BP podcasts and I think it might be just what my girlfriend and I were looking for, but I have a few questions that I'm hoping others can answer with their own experience.

A bit about where we're at and what we're looking for:

• Currently living in Rohnert Park, CA (Bay Area = expensive)
• Looking at the Sacramento, CA area
• Looking for the 200k-275k range (purchase price + rehab cost), and we already have more than the required 3.5% saved
• Both work full time
• Our current lease is up in May so we're hoping to move some time after that (but hopefully within the year). We're willing to sign on for a few extra months depending on how long the acquisition/rehab process takes.

Can anyone share their thoughts/experience on which steps to take first and when we should start? For instance I know we'll need to find a lender that not only provides 203k loans but also (preferably) has a track record of closing them, as well as a RE agent in a similar position of experience/knowledge, but I'm not sure which to pursue first. Should we find a lender, get pre-approved, then find a RE agent (maybe even one recommended by the lender)? Or the other way around? As far as when we should start I understand from my research that 203k loans from application to rehab completion can take quite some time - up to ~9 months or so. Should we start the process now, or wait until we're closer to the end of our lease? Gut feeling says sooner than later, but we may not be considering all situations.

Aside from starting the process, I'm also very curious to get folks' thoughts/suggestions on managing the process through to completion. Given where we're located, where we want to look, and the fact we both work full time I think it would be incredibly difficult to be there in-person every step of the way. I know it wouldn't be impossible, but if we can streamline the process and maximize the progress while minimizing our work that would be ideal (that's what we're all here for in the end, right?). For example, David Greene stresses the value of technology in Long Distance Real Estate Investing, and I'm particularly thinking about his suggestion of asking contractors to do video walkthroughs of their work along the way. Does anyone have experience with this while working with a 203k-certified contractor and HUD consultant? Basically, is managing this process mostly remotely even possible? If it IS possible, can anyone provide any tips or maybe talk about where they struggled with this?

In addition to looking for help/guidance on the above we'd also (gladly!) welcome any RE agent and lender recommendations within the scope of what we're trying to do that service the Sacramento area.

Also, full disclosure: we're both newbies still so this would be our first "deal", but I'm confident with the right research and questions we can make it happen.

Thanks in advance, and let me know in the comments if more information about our plans would be helpful.

Paul Welden · Answer

As a Buyer's Agent REALTOR, I prefer to work with my preferred/recommended Lenders, but I'm also very comfortable having a buyer come to be already pre-approved and ready to go.

I suggest you interview several REALTORS and several Lenders to select the right team members. When interviewing lenders, I suggest do so without any discussion of rates and fees, but rather focus on knowledge, professionalism, responsiveness, helpfulness, etc. I guess the same traits are also equally important for your REALTOR partner, but make certain that your REALTOR partner will have the time and availability to properly help you.

Joseph Firmin · Answer

Hi @Chad Lewis, I wrote a blog post on this that may help answer some of your questions. Let me know if I can help anymore! https://www.biggerpockets.com/member-blogs/12390/86740-my-experience-with-a-203k-homestyle-renovation

Paul Welden · Answer

The borrower is never required to be on-site or in-person for any of the rehab process. Although is is recommended that the borrower be present for the Consultant inspections.

Most of the good lenders that do the Fannie Mae Homestyle also use HUD 203k Consultants (even though it's not a 203k) to develop the scope of work report and to perform inspections of the work in progress and at completion.

Just make certain you have a good rehab team:

1 - Lender with verified knowledge/experience for the type of loan you want to do
2 - HUD 203k Consultant (regardless of the type of rehab loan you want to do) with verified experience with the type of rehab loan you want to do
3 - Contractor with verified education/experience with rehab loans, such as a Certified 203k Contractor

You're only as strong as your weakest link.

Chad Lewis · Answer

@Paul Welden

That makes a lot of sense actually that agents would have preferred/recommended lenders, and could certainly help narrow down the search or give us options we wouldn't have otherwise found.

So essentially what you're saying here is: what matters more than the order in which you pick the team members is that you pick the RIGHT people. I think that makes sense too and kind of speaks to the "analysis paralysis" I feel like I'm in at the moment. Typically I've heard that phrase with respect to analyzing deals, but I think it applies here too in that it's more important that we start somewhere rather than getting caught up in which direction to go first. Thanks!

This is an interesting one, and I think I see what you're getting at - the relationship and trust you have with a specific lender is likely more influential than small differences in rates between various lenders.

Your replies have really helped me to reflect on why we haven't gotten started yet, and I think it boils down to fear and not being able to see the forest for the trees. Essentially just getting way too bogged down with minute details that really aren't the important ones... So thanks a lot, I appreciate the feedback and insight!

Chad Lewis · Answer

@Paul Welden awesome, thanks for confirming that it's at least possible to handle a portion of it remotely. I'm happy and able to be there at critical moments, but it's quite a ways to be driving often and fitting it around work would be... tricky.

I was not aware that HUD 203k Consultants can be used for the Homestyle loan, that's definitely reassuring. As mentioned, neither my girlfriend nor I have any experience in renovation (aside from flooring, tiling, baseboards and basic things like that) so I think it would be extremely beneficial to have that resource.

I feel like this can't be overstated, so thank you for reminding me. I can definitely see how even one of the three could massively hold up the process.

A question on the team aspect though: in your experience as an agent would you recommend that buyers come to you pre-approved with a lender in place, or does it work just as well if they contact you first? I guess each situation is different, but just looking to get your perspective from the other side of the fence.

Chad Lewis · Answer

@Joseph Firmin thanks so much for sharing your blog post! It was definitely helpful to read about your experience with the Fannie Mae Homestyle loan - that's another option that I'm looking into, but I do like the idea of getting a HUD consultant with the 203k loan considering the lack of experience with rehabs. As one of the replies to your blog post mentions though, I do think (based on what I've seen) that your lender misinformed you regarding the 203k loan not allowing you to roll mortgage payments (up to 6 months) into it. Probably wasn't intentional, but who knows. That said, I am not a loan expert so somebody please correct me if I'm wrong there.

A couple questions about your experience if you don't mind:

• How often were you required to be on-site or in-person during the whole process? Looking back, do you see any areas you could have streamlined by managing things remotely?
• If you had to go back and do it again, what's one thing you'd do differently? Or I guess a similar question would be: what's your biggest tip for a newbie trying to follow a similar path with a home renovation loan?

Thanks again!

203k Loan Questions - Where to Start?

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