203K Financing Information

[Connor Bause]

Hi all, I just wanted to pick everyone's brain on what the think of these 203K loans for an early on investment. From my knowledge, it seems that you may make the sacrifice of cash flow per month in the hopes of building wealth through equity and long term investment. I would be doing this on a BRRRR/Househack style. Has anyone had experience in a situation where they did not calculate the proper rehab cost and either didn't have enough money or ended up borrowing too much? how did you overcome this issue? What are the limits on this loan? Will the banks normally not allow you to borrow a certain percentage of the ARV or initial value before repairs? This concept really sparks my interest in helping me start. I would just like to know what to be cautious of before jumping in.

[Paul Welden]

The Standard 203k will have a 10%-20% contingency reserve (CR)nadded to the rehab costs for unknown and unexpected items that come up during the rehab. 

The 203k loan amount will be based on the After Repaired Value (ARV), aka Subject To Value and will allow the total loan amount to exceed the ARV by 10%. So, you can get a 203k Loan for 110% of the ARV, but most of the time, you won't need to exceed the ARV.

The 203k has a down payment as low as 3.5% of the total loan amount (purchase price + rehab + CR + inspection fees + extra 203k fees, etc.).

The 203k has loan limits for each county across the county. For Chatham County Georgia, the max fha loan limit is $331,760 for a 1-Family dwelling, $424,800 for 2-Family dwelling, $513,450 for 3-Family dwelling, and $638,100 for a 4 Family. But if you are only approved for max $250,000 loan amount, then that's the max you can go.
Just go to HUD.gov and enter in the search box "FHA Maximum Loan Limits" and the search results will take you to the appropriate section of HUD.gov so that you can see the FHA max loan limits for the county where the subject property is located.