Where’s my bathroom ?

[RJ Dixon]

Hey BP!

My question is in regards to a FHA loan. I have interest in a property that is a 5 bed 3 bath. It has 2 masters. The 2nd master bathroom isn't finished. Just needs titles for the shower and a sink to be put in and some flooring. Everything else will meet the MPR. I couldn't find anything in the handbook about it. Wasn't sure as the property has 2 other working bathrooms.

Thanks for the help

[John Teachout]

Is this an unfinished remodel or was it new construction that was never completed?

And why isn't it done?

[RJ Dixon]

@John Teachout

Looks like the owner started a project but i assume ran out of money as this is a short sell.

[John Teachout]

I guess the lender would be the best one to get answers to this then. Are you trying to acquire an FHA loan or take over the one on the property now? I'm guessing the first option if it's short sale.

[RJ Dixon]

@John Teachout

Trying to get it FHA. In another way of saying is i'm trying to find out what the minimum condition a property can be in for a FHA.

[John Warren]

@RJ Dixon this won't fly. FHA will require this to be done before closing. You could maybe do an FHA 203k streamline which wouldn't be that much more difficult to do if you have the right lending partner and contractor lined up.

[Paul Welden]

FHA will definitely require the unfinished bathroom to be completed. So, I suggest you switch over to an FHA 203k, which will allow you to get it finished AFTER closing/funding. There are 2 versions - Standard & Limited.

If you can keep the rehab costs to under $30k and nothing structural will be done, you can probably do the Limited 203k. 

Otherwise, you'll need to do the Standard 203k. 

Another option is that if the rehab will be less than $10k, ask your lender if you can do an FHA 203(b) Escrow Repair. This will require the borrower to pony up the money (max $10k) at closing in addition to their down payment but it avoids the extra costs associated with the FHA 203k.

@John Warren FYI, HUD eliminated the Streamline 203k back in September 2015 and replaced it with the Limited 203k, which has similar but different guidelines. So, the FHA 203k Streamline
 no longer exists. 

[Andrew B.]

As everyone mentioned, FHA probably wont close on an unfinished bathroom. If the 203k route doesn't work, my next suggestion would be to throw drywall up and call it a closet and close on a 5 bed 2 bath. Not sure how feasible that is though, but may be a possible avenue to explore.

[John Warren]

@Paul Welden thanks for the clarification. I personally am not a fan of the 203k loan in any shape or form, but this is good info for potential clients! I typically steer people away from these loans as they tend to not work out as well as people hope. A lot of newer investors think this is how you can BRRRR with no money, but it never works out that way in my experience.

[Paul Welden]

@John Warren With the right partners (REALTOR, Lender, 203k Consultant, and Contractor), 203k's and other similar rehab loans are fairly easy and get done without problems/complications. 

You're only as strong as your weakest link. So, select your rehab loan partners wisely. 

[John Warren]

@Paul Welden I get what you are saying, but finding a GC who wants to waste time on a sub 30k rehab with FHA paperwork has been tough for the past few years. That may change as the pandemic has started changing the supply/demand equation, but most GC's I know have been busy charging 30k per kitchen not 30k per job lol.

[Paul Welden]

@John Warren Good point on the contractors and it makes total sense. There's a site I've been using for all my rehab loans to find contractors and I've had really good experiences. Check out 203kContractors.com. I just did a quick search in your area and there are quite a few contractors listed that can help out with your rehab loans. 

Hope this helps. 

[RJ Dixon]

@John Warren @Paul Welden 

Thank you! I wasn't sure how much I can get away with. I have a couple properties but never used FHA. My thinking was to get a fixer within the fha guidelines fix it up and refi out so I can use the loan product again.

[RJ Dixon]

@Andrew B.

I like it. I was thinking that way for a central AC that doesn't work. Just put in some wall units.