FHA 203(k) Loan for First Deal?

Madison, Wisconsin
Buying & Selling Real Estate
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FHA 203(k) Loan for First Deal?

Spencer SturgillPro Member
Investor · Madison, WI · Member since 2024 · 20 posts · 5 votes

Hello all, 

I'll be in the position to make my first deal in about 3 months, so I'm planning how to finance it. I want to do either a simple fix and flip, or a multi-unit house hack BRRRR. Either way, I will get an FHA for the 3.5% down, but I'd like to do a FHA 203(k) so I can use leverage on the rehab and not have to go completely out of pocket.

Have any of you done this, or do any of you have any words or advice for or against doing this? I greatly appreciate any help!

Thanks,

Spencer

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Paul Welden
Real Estate Agent · Tempe, AZ · Member since 2011 · 1k+ posts · 543 votes
1y
Quote from @Bill B.:

Make sure you have $10-$20k “extra” in cash for the unknowable problem that’s discovered. (Lead, asbestos, termites, water damage, not in code, etc etc. .)

You don’t want to get the house torn apart and in an unreliable condition only to run out of money to put it back together. 


Not necessary with an FHA 203k bc there's a built-in contingency reserve for these unexpected problems

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  • Paul Welden
    Real Estate Agent · Tempe, AZ · Member since 2011 · 1k+ posts · 543 votes
    1y

    choose your partners wisely ... lender and contractor

    Lender should have verifiable 203k lending experience. HUD.gov has 2 databases of these lenders.

    Contractor should be a Certified 203k Contractor

    Hope this helps! 

    1Reply
  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    1y
    Quote from @Spencer Sturgill:

    Hello all, 

    I'll be in the position to make my first deal in about 3 months, so I'm planning how to finance it. I want to do either a simple fix and flip, or a multi-unit house hack BRRRR. Either way, I will get an FHA for the 3.5% down, but I'd like to do a FHA 203(k) so I can use leverage on the rehab and not have to go completely out of pocket.

    Have any of you done this, or do any of you have any words or advice for or against doing this? I greatly appreciate any help!

    Thanks,

    Spencer



    We think it's a great strategy. The challenge- being patient enough to find a property that will leave you a ton of equity after the renovation along with cash flow. Recent example for a client of ours in Chicago using FHA 203K. Purchase price for a 4 unit- $400K; renovation-$180K; After Repair Value-$750K; She can rent 3 of the units for $6K per month while living in the 4th unit. Neighborhood value has gone up a little over 6% per year the last few years. 

    Make sure your contractor is aligned with your consultant & has done 203K work in the past or is prepared for the paperwork that comes along 203K loans.
    312-681-7487
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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    1y

    Make sure you have $10-$20k “extra” in cash for the unknowable problem that’s discovered. (Lead, asbestos, termites, water damage, not in code, etc etc. .)

    You don’t want to get the house torn apart and in an unreliable condition only to run out of money to put it back together. 

    2Reply
    • Paul Welden
      Real Estate Agent · Tempe, AZ · Member since 2011 · 1k+ posts · 543 votes
      1y
      Quote from @Bill B.:

      Make sure you have $10-$20k “extra” in cash for the unknowable problem that’s discovered. (Lead, asbestos, termites, water damage, not in code, etc etc. .)

      You don’t want to get the house torn apart and in an unreliable condition only to run out of money to put it back together. 


      Not necessary with an FHA 203k bc there's a built-in contingency reserve for these unexpected problems

      2Reply
    • Spencer SturgillPro Member
      OP
      Investor · Madison, WI · Member since 2024 · 20 posts · 5 votes
      1y

      @Bill B. That is good to keep in mind. I'm sure that I'll lean towards being optimistic because this is my first deal, but I will be sure to plan for additional unexpected expenses.

      1Reply
  • Jonathan KlemmBusiness Member
    Moderator
    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    1y

    What's up @Spencer Sturgill - Highly recommend the multifamily house hack over a flip. Plus, if you are going to use a 203k renovation loan, then you need to live in the property for at least 1 year, so a quick flip would technically violate FHA guidelines.

    I agree with @Bill B.....even with the built-in contingency reserve, make sure you have available cash in case things go astray.  

    As a general contractor, we handle a significant number of 203k loans in Chicago, and the number of clients we speak to who have started projects but can't finish is alarming.

    Will you be purchasing in Madison?

    [email protected]
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    • Spencer SturgillPro Member
      OP
      Investor · Madison, WI · Member since 2024 · 20 posts · 5 votes
      1y

      @Jonathan Klemm thank you for the advice! 

      More than likely I will either be purchasing 20-30 minutes outside of Madison for lower taxes, or closer to the Milwaukee area. 

      In talking with a lender, it seems that if I want to get an FHA 203(k) loan I won't be able to give a competitive offer because of all the hoops I'll have to jump through, being that it is a government loan.

      However, I'll probably end up getting a "homepossible" or FHA loan. Do you do contracts outside of Chicago? I have yet to find a GC.

      0Reply
  • Gayneta Holly
    Lender · Member since 2025 · 10 posts · 8 votes
    1y

    The FHA 203k can definitely be a great way to get started, especially if you're trying to minimize out-of-pocket rehab costs on your first deal. It gets your foot in the door with low money down and gives you experience managing a renovation project, which can go a long way down the line. One big plus is that having a completed project under your belt opens you up to other financing options, like fix and flip loans that are based more on experience than income or reserves. Most private and hard money lenders want to see a track record, even if it's just one deal. So using a 203k to get that first deal done can position you to scale faster later with more flexible investor-friendly financing.

    1Reply
  • Riley Poppell
    Lender · Chicago · Member since 2024 · 88 posts · 24 votes
    1y

    I'd recommend the BRRR strategy. It will take longer to get cash on hand (hold until retirement) but you will have more equity available and your net worth will grow to the highest amount if you hold all of your properties long term. You can always refinance after you do a renovation and use a HELOC to get cash on hand for the downpayment on the next property. The main way to get cash on hand is to get each of your units rented out for the best possible price.

    1Reply
  • Victor SoBusiness Member
    Real Estate Agent · Chicago, IL · Member since 2017 · 324 posts · 193 votes
    1y
    Quote from @Spencer Sturgill:

    Hello all, 

    I'll be in the position to make my first deal in about 3 months, so I'm planning how to finance it. I want to do either a simple fix and flip, or a multi-unit house hack BRRRR. Either way, I will get an FHA for the 3.5% down, but I'd like to do a FHA 203(k) so I can use leverage on the rehab and not have to go completely out of pocket.

    Have any of you done this, or do any of you have any words or advice for or against doing this? I greatly appreciate any help!

    Thanks,

    Spencer

    Hey Spencer, I used an fha 203K loan for one of my first house hacks. I personally wouldn’t advise using it unless you know for sure you have a trustworthy, reliable contractor who won’t take advantage of you. You also want to make sure the contractor knows the ins and outs of the fha 203K process. I hired a contractor who basically tried to take advantage of me by getting me to over renovate my building in turn getting him paid out more. It took 6 months for us to get permits and another 6 months to renovate. If I were to do it again, I know I can get permits within a month and get the renovations done within 3 months. 
    Victor So Real Estate LLC517 Reviews
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    • Spencer SturgillPro Member
      OP
      Investor · Madison, WI · Member since 2024 · 20 posts · 5 votes
      1y

      @Victor So, that is exactly what I was looking for when I asked this question! I'll learn from you and steer clear of this loan. 

      0Reply
  • Charles ClarkBusiness Member
    Real Estate Broker · Milwaukee, WI · Member since 2020 · 306 posts · 209 votes
    1y

    @Spencer Sturgill
    Congrats on getting close to your first deal! 🎉 FHA 203(k) can be a great tool for combining purchase and rehab into one loan — just make sure to work with a lender who's very familiar with the process, as paperwork and contractor requirements can be more intensive. Also, budget for delays and build a strong team early (contractor + lender + agent). Wishing you the best — keep us posted on your journey!

    [email protected]414-719-6090
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  • Eudith VacioPro Member
    Real Estate Agent · Chicago & NWI · Member since 2015 · 860 posts · 521 votes
    1y

    Hey @Spencer Sturgill 👋🏽

    Yes I love FHA 203k loans! I've done one personally on a mix-used 3 unit and while it was an extensive process working with the contractors, submitting paperwork, and making sure that we were all on the same page, it was so worth the long, tedious process! Definitely recommend vetting the contractors, but also keep in mind that you can change contractors after you close on the property if you end up not being a match. I had to let go of one of my contractors and hired a new one. If you end up doing the streamlined version where they only give you $35k, then you don't need a HUD consultant, it's only required with the full gut rehab. I believe loan depot is the best lender, and the biggest lender for this type of loan. That is who I used, too.

    Best of luck getting started in real estate investing! 

    1Reply
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