Advice on 203K loan - pros and cons and which type

[Satha Palani]

I have an offer in on a duplex in an up and coming part of the city. The house needs work and is being sold "as is" The plan is to live in one unit and rent the other one out. At the prevailing rate, provided the cost to fix is does not exceed 110% of what i have budgeted, the rent will pay off the mortgage. The house needs both baths and kitchens to be remodeled, some electrical work, windows to be repaired / replaced and a new HVAC system. Currently it has oil furnace heated radiators, which by the looks of it is not functional. 

3 questions:

1 - Any thoughts on whether i should go with the streamlined product (35K max) or the standard? I have some reserve cash that i would use to supplement any repairs beyond the 35K mark. Is this a sound strategy?  Can i even qualify to use the streamlined if I am replacing the HVAC ?

2 - Since the house is being sold as is, is it worth getting a regular inspection on it? Also, should I hire a structural engineer to tell me if the structure is sound?

3 - Thoughts on hiring a FHA consultant to do the inspection. This is more costly then getting a regular inspector and not required if i am using the streamlined product; question is would I be saving time, money and effort by having a report that tells me what to fix such that I meet the FHA guidelines?

Here are the numbers:

purchase: 97K

Closing and others: 6.5K

Renovations: 40K

Down payment: 10%

monthly loan service (net of tax and insurance): $581

A nice 2BR/1BA in the area will rent for $750. 

any and all help is greatly appreciated.

[Nicole Pettis]

@Satha Palani 

Hi! My husband and I purchased our foreclosed house with the 203k, so I do have some insight regarding the process. 

As for which one to go with, how much are you approved for? Because that matters. For example, my husband and I were only approved up to a certain amount, so I had to find a house that would fit into that formula.

Please see below in BOLD for the answers to your questions:

1 - Any thoughts on whether i should go with the streamlined product (35K max) or the standard? I have some reserve cash that i would use to supplement any repairs beyond the 35K mark. Is this a sound strategy? Can i even qualify to use the streamlined if I am replacing the HVAC ?
Yes you can qualify for the 203k if you are doing an FHA loan. As for which product to go with will depend on what you are pre-approved for. The streamline covers everything but wall moving. So if you are going to knock down walls, you have to go with the standard. Please keep these things in mind:
• You have to hire a General Contractor to do all the work.
• The contractor has to be EPA
• Also the estimate of repairs has to match the amount of the 203k loan. Not a penny over.
• For the streamline it is broken into two payments 50% up front and then the remainder when the work is done, which needs to be done in 6 months.
• The standard is usually broken up into thirds.

2 - Since the house is being sold as is, is it worth getting a regular inspection on it? Also, should I hire a structural engineer to tell me if the structure is sound?
You ALWAYS need to get an inspection, no matter how the property is being sold. You will have to get two inspections before the finalization of the loan. One from a regular inspector, then another from an FHA inspector before closing on the loan. Also the FHA appraiser will have to come back and ensure all work was done properly. Not sure about the structural engineer, but usually an inspector will notice problems with the foundation.

3 - Thoughts on hiring a FHA consultant to do the inspection. This is more costly then getting a regular inspector and not required if i am using the streamlined product; question is would I be saving time, money and effort by having a report that tells me what to fix such that I meet the FHA guidelines?
It is required even if you are using the streamline. We had the streamline and had to have an FHA appraiser before we closed on the loan. Plus FHA guidelines are different than a normal inspector.

Things to keep in mind. With a standard there are more inspections, especially if there are going to be structural issues. Streamline can run pretty smooth if you have a good General Contractor. Code violations have to be fixed first before any cosmetic. It helps if you can find a GC that is familiar with the 203k process, because many don't want to deal with it, because of paperwork and the payment structure. 

I hope I was able to answer your questions.