Using a 203k loan to buy turnkey home?

Question

Is there a clear description by the FHA as to what type of home condition  a home has to be in, in order to purchase that home.

I know this loan product is great for distressed or fixer upper homes, but what if I was looking at a home to purchase that was more turnkey and needed very minimal to renovate or upgrade?

Zach Westerfield · Answer

Im not certain what the specific guidelines are, but i have done several FHA and VA loans. The banks writing these loans rely on the Appraisers to assess the condition and stipulate what needed to be repaired to qualify. I had an appraiser explain it to me this way - the property must be inhabitable, which to FHA means all major systems in working order, and all major appliances in working order (not including washer and dryer). Obviously, what entails "inhabitable" can be very subjective. In one case, an appraiser required small things such pressure washing a porch and painting door trim before he would sign off. In another case, I bought a house with incomplete wiring, termite damage, and leaking plumbing.

My recommendation if you do not have much cash is to start the FHA process and see what the appraiser says. Any issues they point out will need to be addressed before closing, by a qualified contractor. However, in the second example I listed, the appraiser did not require any of this, and I was able to move in and complete the repairs myself for a fraction of the price.  I have looked into 203K loans and they are a burdensome process, and may not be work it if repairs are small. Furthermore, you will most likely still need cash for a 203K loan. The bank holds the repair funds in escrow, and only pays a draw once an inspector has been sent to verify the work is completed. This can take time, and most contractors want to be paid immediately upon completion. To keep the contractor happy (and performing well) you may have to pay him out of pocket and have the bank reimburse you. If you have the ability to come up with the repair money elsewhere i would recommend that first. Depending on your credit, 0% interest credit cards can be a great option.