All Forum Posts by: Paul Welden

@Cirilo Villar

203k's are great when you have the right people helping you. 

Buyers Agent Realtor who knows how to put together an attractive 203k offer 

Lender who is experienced with 203k's (HUD has 2 databases to help you select the best one)

Contractor who knows/understands and is experienced with the 203k (suggest a contractor who has been independently vetted such as a Certified 203k Contractor). 

You're only as strong as your weakest link ... select your partners wisely. 

@Colby Zeller

FHA collects an upfront Mortgage Insurance Premium equal to 1.75% of your loan amount.

FHA also collects a monthly mortgage insurance fee that is a % of your base loan. If you do the typical 3.5% down payment, the monthly MI will typically be 0.85% of your base loan amount but it does vary depending on the loan amount and your down payment and loan term.

@Eric Robert

The FHA 203k adds rehab money into your purchase/refi loan to pay contractors for the renovations.

Even though HUD guidelines allow the borrower to do the rehab themselves, the borrower must demonstrate skill/experience for the type of rehab they want to do as "self-help".

If the property is located in a jurisdiction where contractors are required to be licensed, then the borrower must be a licensed contractor if they want to do "self-help" on a 203k. 

Even then, the lender must approve the borrower for "self-help" and 99.9% of lenders will not allow 'self-help' on a 203k. 

Also, when doing "self-help" on a 203k, you will not get paid for the sweat equity even though the loan must include all the money that a regular contractor would charge. 

Here's a list of Certified 203k Contractors. 

@Cirilo Villar

FHA loans, including the FHA 203k, are for qualified non profits or primary residence owner occupant borrowers.

Consider the Fannie Mae Homestyle or Freddie Mac CHOICERenovation loan which is the conventional version of the 203k and investors can use it. 

@Emma Powlin

Even if you are not doing a 203k, but doing a Homestyle or ChoiceRenovation, most lenders with rehab experience will still require you to use a HUD approved FHA 203k Consultant to perform the initial inspection and complete the WWU.

You'll need this PRIOR to getting contractor estimates. Otherwise, the contractors will not know what will be required to get done and their estimates will usually be incomplete and missing many of the required items. 

Almost impossible to close a rehab loan in 30 days, especially if you have not yet selected your loan type yet. 

Just fyi. 

@Emma Powlin

Any contractor can give estimates for remodeling, but does the contractor know/understand the unique paperwork, compensation structure, draw request process, change order process, allowable items, required items, etc.? 

There are certain things that can be remodeled on a 203k that are not allowed on the Homestyle and ChoiceRenovation and vice versa. 

Loan limits are also different. 

Down payments are also different. 

Mortgage Insurance is also different. 

Main similarity is that all 3 allow the borrower to include rehab money in to the loan.

I would recommend using contractors that have earned the accreditation as a Certified 203k Contractor. Or get these 2 contractors certified. 

Otherwise, your contractor is just winging it and hoping for the best. You're only as strong as your weakest link ... select your partners wisely.

Do you already have the WWU from the HUD approved FHA 203k Consultant that identifies all the items that are required to be remodeled?

@Emma Powlin

You can do a conventional version of the 203k. 

Fannie Mae Homestyle or Freddie Mac CHOICERenovation.

You'll still use the same Certified 203k Contractors for the conventional versions. 

Have your lender give you a Loan Estimate (LE) for all 3 to see which one works best for you. 

Better hurry because you have a lot to get done during your inspection/feasibility period. 

@Emma Powlin 

I would recommend using contractors that have earned the accreditation as a Certified 203k Contractor. 

If there are none in your area, consider referring some to get this. 

Otherwise, you are using a contractor who is 'winging it'. 

You're only as strong as your weakest link ... select your partners wisely. 

Hope this helps!

@Evan Swanson

No.

The FHA 203k is NOT a separate or 2nd loan. It is always the primary mortgage on the property.

FHA does offer a Title I Home Improvement Loan up to $25k that would be a 2nd loan on the property.

In addition, you can do a regular FHA loan (FHA 203b) and do an escrow holdback up to $5k (borrower funded) for minor repairs.

Hope this helps!

@Amy Summer

Rehab loans have lower interest rates compared to HML and personal loans and the interest on rehab loans can be tax deductible.

Lots more paperwork and regulations when doing a rehab loan but can be complete worth it if done properly and with the correct team in place.