First Deal: 203k 3-Family House Hack

[Ryan C.]

Hello BP!

I just wanted to share my experience with my 203k loan for my first home purchase/House hack. I believe it is the most underutilized loan program, but I can understand the fears of the unknown. With that being said I wanted to walk you through my home purchase and the process and hopefully motivate others to do the same! It's totally worth it.

A 203k loan is an FHA product that allows you to purchase a home and finance the rehab, while using the ARV as the "appraised amount." There are plenty of reasons for using it, but it could be a good way to get a house that otherwise wouldn't be financed by the bank(due to appraisal guidelines...or most certainly FHA appraisal guidelines). You can also use the program if you simply just don't like the condition of your proposed property. Why not use the banks money to get your home/rental to your liking...And some instant equity...Am I right?! This is of course if the proposed work adds the value you are spending...or maybe even more..

Two Types of 203k Loans:

1. Limited: 35k and less in repairs. No structural work allowed, Requires less paperwork(Don't get too caught up in this, as they both require similar ppw. Once you have a contractor who is willing to do the work, what's a few extra pages). Does not require a 203k/HUD consultant. A big thing to note is 1/2 of reno is paid to contractor at closing, 1/2 upon completion of work. *set the right expectations with your contractor*

2. Full 203k: 35k or more, structural work allowed, more paperwork, requires HUD consultant, Reno money is paid in draws and the repairs are inspected by the bank prior to disbursing monies for next phase of reno. Don't look at this as a negative..yes it is a pain, but they are ensuring that their "investment" is being done correctly.

*That's the basics*

How it works:

1. Get pre-approved: Make sure you find someone familiar with 203k loans and has done them before. 

2. Home Under contract: Here goes nothing!

3. Inspection: It's important to have an appraiser familiar with FHA guidelines, or better yet, an appraiser who is also a 203k consultant(rare, but makes life a heck of a lot easier). Consider what the appraiser has found and whether you'll have to account for these in your rehab

4. Find a contractor familiar with 203k's: Very crucial! As your typical GC isn't the fondest of paperwork, or simply has no time to do so. So someone who is familiar with the process, or better yet, has worked with your lender before will make life a heck of a lot easier. Ask your lender for recommendations!

5. Scope of Work: This is where a consultant comes in handy(worth every penny!). You essentially create the "needs"(needed for loan approval: ie- roof with 3+ years life, etc) and your "wants"(That Brand new kitchen/bath all renters want). You work with your contractor to get these broken down into Material & Labor costs for each item on the renovation. It doesn't have to be specific, but just needs to clearly state the breakdown. Example: Below

6. Appraisal

7. Close

8. Now the fun begins! Renovation time!

Things to note:

• 1. 203k product comes with a higher rate
• 2. Typically costs 2 points
• 3. Takes anywhere from 45-60 days. Find a good lender and they can get it done ASAP. I closed in 47 days amidst COVID-19
• My property:

Repairs to be made: 

Unit 3(Separate Building): 

1. New Roof

Unit 2(main house):

1.Unit 2: Kitchen-Demo & remodel

2. Unit 2: Bath: Demo & remodel

3. Unit 2: Re-stain Floors

4. Unit 2: Re-Rock all walls

5. All New Doors

6. All New Trim

7. Recessed Lighting