What Can I Use a 203k Rehab Loan For?

In Chicago, there are a lot of old homes that require updating. Many of these homes were built between 1890 and 1920 or in the 1950’s and have not been updated or maintained for decades. Throw in the real estate crash of 2008 and you have a recipe for rehab!

There is a lot to say about 203k Rehab Loans, so in this post, I will keep it basic and to the topic which is to tell you what you can do with a 203k Rehab Loan.

Buy and Rehab an Existing Single Family Home:

With a 203k Loan, the most common use is to purchase and remodel a single family home. As the buyer, you will have to occupy the property, but instead of paying top dollar for a move-in ready or recently constructed home, you can create the home of your dreams for less like the property brothers show or rehab addict.

Buy and Rehab a 2-4 Unit Multifamily Building:

Can you believe it? For only 3.5-5% of the purchase price down, you could buy a four unit rental property and remodel all or some of the units to your liking. You will have to occupy the property upon completion, but when the work is completed, who wouldn’t want to occupy one of the freshly redone units? Good news is, on a three or four unit property, by occupying the building, your incoming rents should allow you to live for free! On a two unit, the rents from the other unit will likely cover your principle and interest payments on your mortgage.

Buy and Rehab a Condo Unit:

Yes, it’s true, you can use a 203k loan to buy and fix up a condo unit that you are going to occupy. You can only fix up the interior of the unit and the building must be FHA approved if using the FHA 203k loan but it can be used in the right scenario. Roll those renovation costs into one loan and finance the work. You don’t need to come out of pocket.

Buy and Rehab a Mixed-Use Property:

What a great way to start your own small business! Buy a four unit building, one of which is a commercial store front/office. It needs work, so you use the 203k loan to purchase the building and rehab the residential units (rehab money can’t be used for the commercial space). The rents from the three residential units upstairs help offset all of the expenses of owning the building and running your new business. Also, you avoid having to sign a commercial lease with a landlord. Landlords typically want at least a three year lease and you’ll be paying their utilities and taxes anyhow in a triple net lease. This can be a large commitment for a startup. There are some restrictions that a 203k lender could point out, but this is a spectacular opportunity for small businesses that most don’t know about.

Buying an Existing Home, Tearing it Down and Building New:

Sounds crazy that you could actually tear a house down, build a new one on the same lot and only put 3.5% of your own money at play, but it’s possible with a 203k loan. Among the other regular requirements like occupying the property upon completion, this will require you to keep a part of the existing foundation of the property to be eligible. This is quite vague, and probably on a case by case basis but provides for a wide array of options for a tear-down property that’s listed at or below land value.

Converting Multiple Units to Less or One Unit:

Do you see a multifamily property with great bones and listed for much less than a single family home in the area? Well, you can use a 203k loan to convert it to the single family home of your dreams!

Converting a Single Family Home to Multifamily:

This is another amazing opportunity to use the 203k Loan to make some money. In Chicago, it’s much easier to reduce the number of units in a building compared to increasing the number of units. But if you have a good connection directly or indirectly with the alderman in your area or a zoning employee or lawyer, you may be able to get this approved.

Move an Existing Home to a Home on a New Lot:

This is probably the least unlikely use for the 203k Loan, but hey, it can be done! I’d say there might be easier ways to do this, but sometimes FHA 203k Loan could be the best option.

As you can see, there are quite a few things you can do with a 203k Rehab Loan. The program is great and really needs more exposure because it can really save people a lot of money. It’s not for the faint-of-heart, but I’ve met a lot of people who are discouraged by the prices of newly remodeled or newly built homes in the Chicago area. Doing it this way, you can get everything you’ve ever wanted in a home without choosing someone else’s tastes FOR LESS!

I work with and have met with 203k Lenders in Chicago. If you’re considering this option, I’m 203k Loan friendly and am happy to see this process to the finish with you. I can refer you to lenders who like this loan and are excited to help! Stay tuned for more details about this program as I’m planning to write more about it.

Learn more at my website, www.chicagoREinvestment.com.