All Forum Posts by: Amanda Thomas

Chris- definitely agree with you that people get in over their heads without doing enough research on what type of mortgage they can handle or the red tape they need to be prepared for. This is especially applicable in the 203k situation for individuals who have no experience with bureaucracy. I think the easy draw to 203k's are that people see that they can borrow money for renovations without having to wait years to save up, or by taking out a conventional renovation loan. I'm sure it is a headache for many lenders to go through these types of loans as opposed to a conventional or FHA loan. While I haven't ever gone through the process of a 203k, it piqued my interest because as a first time home-buyer, I can get a fixer-upper and build equity in a nice part of town and still have cash reserves. While my original question pertained to interest rates (which in hindsight I probably could have googled to find the answer instead of shooting it off on BP), I'm interested in hearing your opinion about what type of borrower would best benefit from a 203k loan. Thanks!

 Thanks for the insight! Have you gone through the 203k process? 

Thats right about the renovations; I should have clarified. The 203k is basically used to fund the mandatory requirements of an FHA loan (electrical, heating, no peeling paint, etc). But, if you go that route, you also have the option to fund other discretionary improvements (say, replacing a roof or flooring) under a 203k. You'd have to put 3.5% down on the total amount borrowed - house plus renovation costs. But, the FHA caps the amount you are allowed to borrow based on the projected house appraisal after renovations are complete. If you have all cash to do the renovations, then 203k might not be the best route because the closing process takes longer and it seems like there are a lot of unknowns regarding cost estimates, contractors, etc. I'm totally new to the game, so please take my opinion with a grain of salt. You should read up on them a bit more to see whether it suits your situation.

As for what the consultant fee is based on, I believe it is a percentage of the work to be performed, but may include "one off" fees like inspections. If there are any FHA consultants on here I'd love to hear your insight.

@Justin NA there are two types of FHA "Reno" loans under 203k.. standard and streamline. Streamline you can only borrow up to $35,000. Standard you can borrow up to what the home value is post-renovation, but you must work with a 203k consultant who charges fees depending on the amount of the loan. Under both 203k types of loans, you have to pay 3.5% down on the total loan (not just the home value at purchase), so if you're like me and are banking on that low 3.5% down payment, your renovation costs drive that up. I just started with this process and have a lot to learn!

I’m shopping around with other lenders for rates on a 203k. I have great credit so I’m guessing I’d get the best rate available. I’ll report back. 

Is it wrong that I’m not too worried about the higher interest rate? Worst case scenario is if I do have to pay 1.25% more for a 203k loan, I will only have to bear that higher interest rate until I have enough equity and can refinance - which should be after renovations are complete - and assuming the market stays the same - and I will have a lower rate (minus MI) then. 

“Possible” first time homebuyer/newbie to all things real estate. Get ready for a doozy of a question.... I was under the assumption that my realtor gets paid from the closing costs. I now know that’s wrong. So... how does my realtor get paid when I’m buying a house? Do I pay them a separate commission? Just want to factor in all of the cash going out of my bank account before I look for a house. Thanks!

@Jacob Sampson thanks for the response!

In the process of applying for FHA loans and came across the 203k product. (House needs some rehab that I'd like to roll into my mortgage instead of being out of pocket). I was quoted an interest rate for the FHA loan of 3.25% and an interest rate for the 203k loan of 4.75%. Big difference for what I think is essentially the same product.

Is this usual? Does the higher interest rate for a 203k take into account the risk associated with lending for renovations? 

Thanks a bunch!