Does anyone use 203k loans

Question

when I was house hunting I was looking at some pretty run down places because that was what we could, they were all vetoed by my mortgage broker because he didn't work with anything that required rehab and they wouldn't offer the 203k loan. I haven't seen any podcast episodes mentioning this loan. Does anyone use it?

Paul Welden · Answer

@John Currey

The FHA 203k loan was used 4,034 times last fiscal year 10/1/2022-11/30/2023.

It's certainly not the most popular loan but it is absolutely the most underutilized tool that savvy home buyers and creative "investors" on MF properties use to build generational wealth.

The 203k can be tricky but only if you do not have the right people helping you, which includes the Lender and Contractor.

There are tons of lenders who have specialized departments that only do renovation loans and there are contractor who also specialize in 203k's, such as Certified 203k Contractors.

Find the right property and use the right people, and you are GOLDEN!

Hope this helps!

Derek Brickley · Answer

Hey John!

We do have the 203k product, and it can have a lot of potential but there are a lot of hurdles and additional steps to it (the general reason you never hear about it).  Most people that look into the 203k loan want to do the work or a significant portion of it themselves to save money (makes sense) but you would need to hire a licensed contractor to complete and sign off on the work.  In general, self-help is not allowed and you may find it hard to find a contractor who will be willing to work under the allotted draws as work is completed.  Also, note that the appraised value follows the after repair value, so you would need to acquire it for significantly less for it to appraise.  It is definitely possible and has been done, but may prove difficult.

Jason Potrzeba · Answer

I have the FHA Tilte 1 Home Improvement Loan.

It will not help you on the acquisition piece but once you own the property, you could apply for this home improvement loan.

On a SFR, the loan will go up to 25k. If that isn't enough, there is another lien we put behind the Title 1 and this gives you up to an additional 65k.

No equity needed. (we don't do an appraisal). No seasoning.

The funds have to be for home improvement and the funds to you are based off of written estimates/proposals.

DTI cannot exceed 45%.

This would be beneficial to you if you found something beat up or very dated (I'm talking to you pink tiled bathrooms!) but still in good enough condition to get a mortgage on. This loan would come in and help you fund the TLC to get the house where you want it.

Nick Belsky · Answer

@John Currey

If you are seeking a primary residence, they are essential, but a major pain to close.  Tons of work for the borrower, the LO, and the contractor.  Finding in house financing with a builder is a far easier path of less resistance, although, you won't likely find quite as good of rates or terms.

The 203k program is an FHA program, so you are restricted to primary residences.  There are conventional programs as well for construction, but you still have similar issues with the process.  These programs do allow you to build to rent, but comes with more conditions.  If building investments, private money is far easier to qualify for and often close in 2-3 weeks with far less paperwork and conditions.

Cheers!

Caroline Gerardo · Answer

Owner occupied, FHA product so you are stuck with PMI until you sell or refi convention, must have licensed contractor, certain ins and outs on what repairs allowed

Erik Estrada · Answer

A lot of lenders do not like doing 203k loans because they can be difficult. But with some calling and if the LO is hungry for business you will find someone that can do it.