Has anyone used a 203 (K) Loan

[Chuck Redman]

I have been reading up on these loans after I read a blog here on BP about purchasing a MF property and living in one unit and leasing the others.

Does anyone have any experience with these loans?

[Steve Wilcox]

Yea if you live there they can be great in that you theoretically don't need much cash to start. However they will not pay out for work until after it has been completed., which means you need a contractor to work for nothing upfront and buy all the materials himself, or you need to pay something and have him reimburses you from the draws (as they do not go to the homeowner, they go to your contractors business). This can leave you in a vulnerable position, or make it tough to find a contractor to work with you. Also even if you are qualified, the bank will not allow you to do the work yourself, you must use a 3rd party contractor. It also ties you to one contractor, and if things get tough and you need to fire him it can be a PIA to find another one and get him cleared by the lender. The other issue from a contractor stand point is that the bank will issue them a 1099 for the work they completed, which upsets many of the lower priced contractors you might be using when starting out.
On the flip side 203k can be great for starting out because it forces you to quantify all the repairs, forces you to take a reserve for issues, and essentially forces you to do everything that you already should be doing, and can be a great learning experience. The bank will even require an appraisal to show what the value of the house will be after the work has been completed.
They are a pain in the ***, take a long time to close, and charge higher interest rate with more points then normal FHA or conventional loans, but if you dont have the money to start another way it can be a great way to get your foot in the game.