FHA 203k and Low Money Down

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FHA 203k and Low Money Down

Shaun Nestor
Member since 2021 · 2 posts · 1 vote

Hi all!

I have been well integrated into real estate for the past 4 years. I started with commercial NNN as an intern, moved to residential when I got my license, and recently moved into my current position as a licensed assistant for a senior apartment broker at Marcus & Millichap. The job is salaried, and I get decent market exposure as I am writing proposals and OMs for a team of 7. Finding the deals isn't really an issue for my wife and I, we know one when we see one. The issue is a lack of initial capital.

I know there are ways to get your first acquisition without putting a lot of money down. I am intrigued by the FHA 203k loan in specific. I have a good contractor, and my wife and I are both employed.

I was also wondering if there is a way to build equity with ZERO cash down. I have heard there is a way to invite investors to split a deal with you even when you have no skin in the game. How does one provide value in this circumstance? I know a few investors that would vouch for me, but I need to understand this before I can propose something that might come across as entitled or unfair.

Thank you!

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Gaetano Ciambriello
Lender · Member since 2021 · 277 posts · 150 votes
5y

Hi @Shaun Nestor

203k loans require a minimum of 3.5% of the down-payment for purchase price and rehab work.

$300k purchase and $100k in rehab means down-payment of $14,000. If you can partner with family, they can give you a gift for the down-payment.

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  • Gaetano Ciambriello
    Lender · Member since 2021 · 277 posts · 150 votes
    5y

    Hi @Shaun Nestor

    203k loans require a minimum of 3.5% of the down-payment for purchase price and rehab work.

    $300k purchase and $100k in rehab means down-payment of $14,000. If you can partner with family, they can give you a gift for the down-payment.

    2Reply
  • Shaun Nestor
    OP
    Member since 2021 · 2 posts · 1 vote
    5y
    Originally posted by @Gaetano Ciambriello:

    Hi @Shaun Nestor

    203k loans require a minimum of 3.5% of the down-payment for purchase price and rehab work.

    $300k purchase and $100k in rehab means down-payment of $14,000. If you can partner with family, they can give you a gift for the down-payment.

    That's true. Leveraging family capital is possible, but not likely unless I had something to offer in return. Is there a general idea about how these 'family' proposals usually go? Would I offer to pay them back at a fixed rate, would I offer to give them a % of equity, or a % of ROI?

    Obviously each situation and each deal is different, but what have people done that seems to work?

    0Reply
  • Gaetano Ciambriello
    Lender · Member since 2021 · 277 posts · 150 votes
    5y

    They give you $14,000. You do all the work. You pay them back their $14,000 first and split everything thereafter 50/50. Simple family deal.

    0Reply
  • Paul Welden
    Real Estate Agent · Tempe, AZ · Member since 2011 · 1k+ posts · 543 votes
    5y

    @Shaun Nestor

    The FHA 203k loan is a great option for the cash strapped owner occupant borrower who only needs 3.5% down payment, but there are some limitations to it. Regardless, it's still an amazing tool with little out of pocket cash.

    Even if you have a "good contractor," they will need to educated on the 203k guidelines, paperwork, processes, timelines, rules, payment structure, variation of the 203k, etc. Because while they may be good at doing the renovations, they need to know the 203k. Otherwise, your process could look like the Cleveland Browns on a Sunday afternoon. There's an accreditation/certification program online where they can go to learn more. 

    Zero down options exist for VA and USDA loan borrowers.

    While you can certainly go another route by getting investors to split the deal, the split they may want may not be want you want to give away, but it's certainly a creative option. 

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