Using a 203K loan. Pros & Cons/Advice and tips

[Ramon Sorto]

Hello everyone,

I am considering on purchasing a SFH in Charlotte, NC but the house needs major work too be done. I am considering on using a 203K loan (if possible) the house has been on the market for almost 4months so its possible I can purchase it below market value. I have never used a 203K loan before so I am a bit skeptical. I would really appreciate any advice or tips on using a 203K loan. Is it worth using a 203K or is it too much of a headache? How was the process like? Thank You in advance for all the help.

Ramon Sorto

[Julee Felsman]

Hi @Ramon Sorto!

An FHA 203k (or Fannie Mae's companion program "HomeStyle") are (IMHO) great options for buying a fixer.

You can write an as-is offer (which may give you some negotiating leverage on a fixer) and finance all of the renovation costs in with the purchase.

Your down payment is based on the "acquisition cost", which is the aggregate of the hard and soft construction costs (actual bids + permits + engineering + design +renovation related loan fees).

These loans do take some extra leg-work on the front end. The lender is financing the property in an as-improved state, so you need to provide detailed information about the work to be done before you can order an appraisal.

Closing generally occurs 30 to 40 days after the appraisal is ordered.

So plan on hustling early on to find a contractor, make decisions about the work to be done and get the contractor working on a detailed bid. If you'll be doing any structural work or your bid exceeds $30k, you'll also need to work with a HUD consultant who will prepare a report for the lender that outlines the scope of work and costs.

In short... a little extra leg-work up front, but then you get an all-in-one loan for a property that might otherwise not be financeable and/or you don't have to scrounge around after closing to find the money to fix up your fixer.

Cheers!
Julee