Which is better? 203k vs Fannie May

[Breelon Bryant]

Question: I have credit of 650+, approx $10k in bank, first time homebuyer and looking to "house hack" a duplex that possibly may need mild renovations no more than $15,000. As far as financing, i cannot decide which loan will work better for my situation to finance a duplex between $100k-150k. FHA 203k or Fannie May? Any opinions?

[Kevin Romines]

Fannie Mae has the Homestyle renovation loan, however on a 2 unit, the max. LTV is 85%, so it requires a much larger down payment than the FHA203K. Considering the work required is only $15,000.00, I would negotiate with the seller for them to get the work done and pay them the extra $15,000.00. You could even sweeten the pot and pay them a couple thousand more to do the work.

If the work is done prior to closing, this allows you to buy the home on a 3.5% FHA loan, but not have to deal with the extra paperwork and the longer turn time to close the loan that an FHA203K requires.

You could also inquire if the lender you are working with, can do an escrow holdback?If they do, what is the max amount they will hold back and for how long? The seller can fund the escrow holdback with his proceeds from the loan, by raising the purchase price by $15,000.00 or more and then having escrow holdback that amount to cover the work to be done. Most holdbacks have a max. time frame of 30 days after closing, all work must be completed and the funds disbursed to the contractor. They don't allow for self help work to be done, it must be bid out via a contractor.

I hope this helps?