Financing with an FHA 203k Loan

[Kayla Birkhead]

Hi!

My husband and I are learning about opportunities to build a REI business in order to reach financial independence, live on passive income, and build generational wealth. My husband, has work experience in construction and we recently renovated (live-in-flip) our first home in the Hendersonville, NC area which we purchased in the fall of 2020. I am a travel sonographer and we are currently living in the Boston, MA area for my work, while renting out our Hendersonville, NC property on Airbnb.

We are looking to purchase a second property and exploring financing options. In regard to an FHA 203k loan, I understand that one of the qualifications states that, "Repairs and renovations must be performed by a contractor and not by the borrowers themselves." One option we were exploring was to purchase a live-in-flip home (as we did with our first property) and use an FHA 203k loan to build the cost of repairs/renovations/improvements as well as LABOR into the cost of the loan.

My question is- can our REI business use financing via a FHA 203k loan to purchase the property and then pay my husband for labor in renovations as that is his background previously working in construction prior to our journey with travel healthcare? Or is there a loop-hole for this qualification if we will be doing a live in flip? This would be for the purchase of a multi-family property in need of rehab and we would use one of the units as out permanent residence/current tax home for living when we are between assignments with my work.

Thanks in advance!

Kayla

[Jonathan Bombaci]

Hi @Kayla Birkhead we do quite a few FHA and 203k loans for househackers in the greater Boston area every year and this question comes up a lot. Unfortunately your husband cannot be involved receive any cash however you really only have to pay the 203k approved contractor to fix things that are a requirement to make the house FHA compliant, they don't need to do everything to bring it up to your standard. For example we've had clients build the scope of work for the contractor but tell them to excluded the painting, or if the flooring is "acceptable" then tell them not do do any flooring. You and your husband could then tackle those pieces of the project alongside the contractor doing the work that is in their scope of work contract.

With any project over $35,000 They're going to make you hire a "203k consultant" to build the scope of work documents. They'll label items as "required" or "not required" as long as the contractor does the required items no one will care how the other stuff gets done because it's not a FHA requirement. That said you'll have to come out of pocket for the materials on the stuff you do yourself.

203k projects are made or broken by getting the right 203k consultant involved. We always use Phil Murphy. He “gets it” from a multi-family rental perspective.  Don’t be afraid to ask hard questions, they’ll tell you what you can and can’t do. We have 30 investor focused agents on our team so we deal with this stuff all the time in MA and NH. If you have any other questions or need any help don’t hesitate to reachout.  

Best,

Jon