Any cons to using 203k Loan?
Minneapolis, MN · Member since 2017 · 4 posts · 1 vote
Me and my wife ar gearing up to buy first rental property, looking to buy in July/August and based in Minneapolis, MN.
Any cons to using the 203k Loan?
Is there a typical time/length of project?
Familiar with FHA loan but not so much with 203k loan.
Yes , there is a lot of paperwork for the contractor to fill out before they are contracted for the job . I charge to fill it out now
@Brunno Goncalves @Julius Johnson. @bill rich
My husband and I are in a Fannie Mae Homestyle loan near Trenton New Jersey right now. Buy 247k, rehab 63k including new hvac, new electrical panel, plumbing repairs, new kitchen, new floors and trim throughout, painting, etc. Closed end of September. Contractor jumped through hoops to get painting and floor and hot water heater done by Oct 31 when we moved in. We gave a $3000 “for permits” check in mid October when they helped us pass CO. They got their first payment from the lender for painting and flooring in mid November. We closed with trident mortgage and our contractor didn’t get paid any money from the loan until the loan was sold 30-45 days later. Dealing with Caliber has been very difficult, we have been trying to get our contractor paid for work done in mid December and the check is still not issued on 1/29. We got our kitchen and floor trim right before Christmas. The contractor isn’t doing any more work until the next check comes in and I’ve fronted about $15k for kitchen and flooring material on my credit card I’m hoping to be repaid from the contractor after this next check. So we have pending $15-20k of scope of new hvac system, 200 amp electrical panel, basement structural supports, basement stair safety railing, and permitting/insulating/drywalling a 200sf bonus room off the garage.
You pay 100% of the interest on the rehab money whether it’s spent or not, so we’ve been paying 5% on 63k for 4+ months (approx $300/mo) with the work not done and money not issued. We wish we had signed more documents about scope of work with a penalty clause for delay of work. Because I’m a rehabber, I know the prices we’re paying for our work is roughly 30% higher than going to the sub directly. And so much slower. Like $8000 to Paint 2700 sf plus basement while I’m used to paying as low as $150-300 per room. (Another painter quoted me $4000 but couldn’t do it inside the loan). I have a lot of punch list items I need the contractor to fix but they’re not doing anything to fix the problems until the check is on the way.
@Bill Rich, I went through the 203K process 8 years ago, I’m doing another one now, and what he is saying was/ is true for me. The lenders are detached from the process, contractors need to be paid, and the owner ends up making up the difference. And, yes, if you don’t have a dumpster or doorknob accounted for, it’s an out of pocket cost, or a bunch of paperwork. Anyone entering a 203K should have 20% of the project cost available to spend at will and the MAY get it back as a change order at the end.
@Account Closed actually with a 203K you are required to have begun the work within 30 days of closing and you are required to have it completed within 6 months of closing. FHA will grant extensions due to extenuating circumstances.
@Bill Rich, I went through the 203K process 8 years ago, I’m doing another one now, and what he is saying was/ is true for me. The lenders are detached from the process, contractors need to be paid, and the owner ends up making up the difference. And, yes, if you don’t have a dumpster or doorknob accounted for, it’s an out of pocket cost, or a bunch of paperwork. Anyone entering a 203K should have 20% of the project cost available to spend at will and the MAY get it back as a change order at the end.
Hi Nate
I am sorry that your experience has been less then excellent. Unfortunately there are lenders out there who do not take a hands on approach to these loans AFTER closing. Its important to work with a lender who handles the entire process in-house and one who understands the complexity of the loans and has the know-how to complete the project, not just get the loan closed. For example my team actually handles the draws and works with the the borrower (you), the GC and HUD consultant (when there is one) from the beginning until the very end. My draw admin sits right next me so I know that we handle this the proper way. If you ever have any questions please let me know. If you are already working with a lender and have closed I wont be able to help too much because you are unfortunately stuck with how they process the draws.
@Julius Johnson we’re currently in a 203k and the cons are that it takes much longer to get into the property due to more paperwork, delays, and contractor planning. But it’s definitely worth it if the numbers work. The only other downside is that you can’t do any of the work yourself on the property unless you are a qualified person who’s approved by the lender. That’s a bummer for me because I love me some remodelin’
So I can tell you as a contractor who recently completed a project that was a 203K loan and with Caliber Loans, it is horrific. I knew it was a slow process to get payment before I started. I was forced as the contractor to basically finance the project for the client. The banks final payment took 8 weeks from completion. Needless to say I was pissed, I actually filed a notice of intent to file a lien on the house. The clients sent the information to Caliber, they didn't care.
If I ever agree to another 203K loan, I will charge double. It has to pay a lot of money to be worth dealing with those headaches. Unless the client has the money for the project and then is being reimbursed by the bank.
So $8,000 for a $4,000 job sounds fair to me.
@Bill Rich, I went through the 203K process 8 years ago, I’m doing another one now, and what he is saying was/ is true for me. The lenders are detached from the process, contractors need to be paid, and the owner ends up making up the difference. And, yes, if you don’t have a dumpster or doorknob accounted for, it’s an out of pocket cost, or a bunch of paperwork. Anyone entering a 203K should have 20% of the project cost available to spend at will and the MAY get it back as a change order at the end.
Hi Nate
I am sorry that your experience has been less then excellent. Unfortunately there are lenders out there who do not take a hands on approach to these loans AFTER closing. Its important to work with a lender who handles the entire process in-house and one who understands the complexity of the loans and has the know-how to complete the project, not just get the loan closed. For example my team actually handles the draws and works with the the borrower (you), the GC and HUD consultant (when there is one) from the beginning until the very end. My draw admin sits right next me so I know that we handle this the proper way. If you ever have any questions please let me know. If you are already working with a lender and have closed I wont be able to help too much because you are unfortunately stuck with how they process the draws.
Hi Bill I’m looking for a company that does 203k loans…sounds like this is in your territory? Please help!
@Bill Rich, I went through the 203K process 8 years ago, I’m doing another one now, and what he is saying was/ is true for me. The lenders are detached from the process, contractors need to be paid, and the owner ends up making up the difference. And, yes, if you don’t have a dumpster or doorknob accounted for, it’s an out of pocket cost, or a bunch of paperwork. Anyone entering a 203K should have 20% of the project cost available to spend at will and the MAY get it back as a change order at the end.
Hi Nate
I am sorry that your experience has been less then excellent. Unfortunately there are lenders out there who do not take a hands on approach to these loans AFTER closing. Its important to work with a lender who handles the entire process in-house and one who understands the complexity of the loans and has the know-how to complete the project, not just get the loan closed. For example my team actually handles the draws and works with the the borrower (you), the GC and HUD consultant (when there is one) from the beginning until the very end. My draw admin sits right next me so I know that we handle this the proper way. If you ever have any questions please let me know. If you are already working with a lender and have closed I wont be able to help too much because you are unfortunately stuck with how they process the draws.
Hi Bill I’m looking for a company that does 203k loans…sounds like this is in your territory? Please help!
Hi Sharon
I can certainly help, but I see you are in Georgia and unfortunately I am not licensed in Georgia.
@Bill Rich, I went through the 203K process 8 years ago, I’m doing another one now, and what he is saying was/ is true for me. The lenders are detached from the process, contractors need to be paid, and the owner ends up making up the difference. And, yes, if you don’t have a dumpster or doorknob accounted for, it’s an out of pocket cost, or a bunch of paperwork. Anyone entering a 203K should have 20% of the project cost available to spend at will and the MAY get it back as a change order at the end.
Hi Nate
I am sorry that your experience has been less then excellent. Unfortunately there are lenders out there who do not take a hands on approach to these loans AFTER closing. Its important to work with a lender who handles the entire process in-house and one who understands the complexity of the loans and has the know-how to complete the project, not just get the loan closed. For example my team actually handles the draws and works with the the borrower (you), the GC and HUD consultant (when there is one) from the beginning until the very end. My draw admin sits right next me so I know that we handle this the proper way. If you ever have any questions please let me know. If you are already working with a lender and have closed I wont be able to help too much because you are unfortunately stuck with how they process the draws.
Hi Bill I’m looking for a company that does 203k loans…sounds like this is in your territory? Please help!
Hi Sharon
I can certainly help, but I see you are in Georgia and unfortunately I am not licensed in Georgia.
Thanks for your reply. Is there anyone in your network that you could refer that’s based out of GA? I know it’s a stretch…
@Bill Rich, I went through the 203K process 8 years ago, I’m doing another one now, and what he is saying was/ is true for me. The lenders are detached from the process, contractors need to be paid, and the owner ends up making up the difference. And, yes, if you don’t have a dumpster or doorknob accounted for, it’s an out of pocket cost, or a bunch of paperwork. Anyone entering a 203K should have 20% of the project cost available to spend at will and the MAY get it back as a change order at the end.
Hi Nate
I am sorry that your experience has been less then excellent. Unfortunately there are lenders out there who do not take a hands on approach to these loans AFTER closing. Its important to work with a lender who handles the entire process in-house and one who understands the complexity of the loans and has the know-how to complete the project, not just get the loan closed. For example my team actually handles the draws and works with the the borrower (you), the GC and HUD consultant (when there is one) from the beginning until the very end. My draw admin sits right next me so I know that we handle this the proper way. If you ever have any questions please let me know. If you are already working with a lender and have closed I wont be able to help too much because you are unfortunately stuck with how they process the draws.
Hi Bill I’m looking for a company that does 203k loans…sounds like this is in your territory? Please help!
Hi Sharon
I can certainly help, but I see you are in Georgia and unfortunately I am not licensed in Georgia.
Thanks for your reply. Is there anyone in your network that you could refer that’s based out of GA? I know it’s a stretch…
Unfortunately I do not know anyone.