Why are 203k interest rates higher than FHA interest rates?

[Amanda Thomas]

In the process of applying for FHA loans and came across the 203k product. (House needs some rehab that I'd like to roll into my mortgage instead of being out of pocket). I was quoted an interest rate for the FHA loan of 3.25% and an interest rate for the 203k loan of 4.75%. Big difference for what I think is essentially the same product.

Is this usual? Does the higher interest rate for a 203k take into account the risk associated with lending for renovations? 

Thanks a bunch! 

[Chris Mason]

Originally posted by @Jay Hinrichs:

@Chris Mason  what say you chris 

203ks are the most expensive to originate, and highest risk, of all the Agency (fannie/freddie/fha/va/usda) loan products out there. That's why something like 85% of lenders are perfectly happy NOT to offer it at all. Those that do need to offset that risk and those costs. Higher default rates than anything else... the most common FHA 203k thread on here is threads exactly like this one, 2nd most common FHA 203k threads on here consist of "omg my GC bailed on me or went way over budget, now I can't finish out my 203k renovation!" -- and you know within 3 months they will stop making their monthly mortgage payments, though no one typically makes a thread at that point. They are also a time suck for the LO.

Quickest way to get me off the phone: "Hi, I'm a first time homebuyer with no sales experience, no project management experience, no construction experience, or anything remotely similar, I also don't have any established relationships with any general contractors who I have actually done business with in the past, and I'm rate/fee shopping a FHA 203k for a house I am buying, oh and my Realtor says it needs to close in 21-30 days to be competitive, oh and I want a triplex or fourplex." -- I will & do work with some subset of the above, but when it's ALL of that... at some point you gotta triage: do I help 10 other first-time homebuyers get into homes, or do I focus that same amount of time and attention on just this one single homebuyer?