Rehab loans besides 203k?

Question

Hi BP family! Hope all is well.

My question today is, are there any other loans besides 203k for rehab? I know 203k can be a process to get sometimes and also, once you do have it, there is a lot of paper work and regulations for the contractor. My partner and I are interested in buying homes that are a little distressed but don't have the money ourselves to put into it. Is there any other loans out there that can help us out with this? Would taking out a personal loan be a smart thing to do?

Perry Farella · Answer

Both HomeStyle and Choice do allow a minimum  15% down payment for an investor buying a single family or condo. This 15% is off the sum of purchase price and rehab dollars plus a required 10% contingency reserve for unexpected costs. All based on an appraisal report showing both after renovated value and after renovated expected rental income. Then they give you 75% of the gross expected rented income as extra income to qualify. Not a bad deal because there is lender oversight and the ARV appraisal is used to approve the loan. So unlike all cash, where you may not bother to get an ARV appraisal with projected future rental income, you cant close on a deal that makes no sense, the lender  will deny the loan if the numbers don't work.  This is great for newbies but maybe for experienced fix/flippers would be seen as too burdensome, too many rules.

Julio Garcia · Answer

Hard money loans or raising private $

Paul Welden · Answer

Account Closed your contractor submitting a proposal without know what items the 203k consultant will require to get done is really a waste of time. You and your contractor need the SOR BEFORE the contractor can complete their proposal. on the Standard 203k, the 203k Consultant is required to give you the SOR prior to you getting contractor proposals. reference HUD SFH 4000.1.

Paul Welden · Answer

@Devyn Caraballo No matter which rehab loan you select, the process is almost identical.

The 203k was the first rehab loan (officially been around since the 1970's). All the other rehab loans sort of copied the processes of the FHA 203k.

So, if you think the 203k "can be a process to get sometimes and also, once you do have it, there is a lot of paper work and regulations for the contractor," then your opinion of all rehab loan options will be the same.

However, your assumptions are usually only accurate if you use people who are not best suited to do rehab loans.

The lender needs rehab loan experience and the contractor needs either rehab loan experience or has been properly educated on rehab loans, such as a Certified 203k Contractor - 203kContractors.com.

So, if you select the right partners, there are usually very little or no problems at all. Select your people carefully and rehab loans can be amazing!

You're only as strong as your weakest link.

Sharon Beatty · Answer

Devyn,

I'd never heard of a 203k loan before! Thank you for sharing.

Matthew Porcaro · Answer

@Devyn Caraballo

203k’s are not as daunting as they seem.

Problem is there are people that know nothing about it, spreading misinformation because they don’t understand it.

There’s professionals out there that are experts with the 203k and make it a pleasant experience.

Fact is the 203k loan is way too powerful to ignore.

Does it take extra paperwork and due diligence? Yes.

But nothing good comes easy.

Just my two cents.

Paul Welden · Answer

Fannie Mae Homestyle

Freddie Mac CHOICERenovation

VA Renovation Loan (currently suspended since March 2020)

Paul Welden · Answer

Account Closed I don't know what state your property is located in, but if it's Wisconsin, there are 15 HUD approved FHA 203k Consultants in that state.

Paul Welden · Answer

Account Closed According to HUD SFH 4000.1, the 203k Consultant is required to develop the SOR and cost estimate without the assistance of a contractor. The 203k Consultant is required to do the FHA 203k inspection, complete the SOR, which includes  the scope of the project with cost estimate, and then with that report, the borrower can give that to contractors.

If the contractor's proposal and cost estimate differs from the consultant's, then they do go back and forth until both the consultant's report and cost estimate match the contractor's proposal and cost estimate.

If the contractor does their proposal and cost estimate first and the 203k Consultant just 'copies' it, that's mortgage fraud and defeats the main purpose of the 203k Consultant.

Hope this helps.

Account Closed · Answer

Thanks Paul!  Well actually there are 9, the other six listed are not active.  I went with my choice because I thought he was the only one that was within a reasonable distance to me.  To be honest, I didn't even consider shopping around for a consultant because I thought that as agents of HUD they would all be doing things generally the same way in that regard.  As I said, I feel like I'm in my deal too far now to switch the consultant but this is all good info that others can use.

Rehab loans besides 203k?

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