Questions for First-time Home buyer looking @ 203k/Homestyle rehab Property

6 Replies

Hey everyone, 

Recently signed up for this site and have been impressed by the wealth of knowledge I've found here.  I'm currently looking at a property in northern Maryland.  It is a real "fixer-upper" (I will know the true extent this weekend when I go look at it).  It is currently listed as rehab/cash only financing, and a Fannie Mae HomePath property.  

As background: I have an excellent credit score and should be able to put 20% down.  I'll be the owner/occupant. 

My questions: 

1.  What are my options here?  I've been looking into 203k loans and Homestyle loans.  It looks like you can also roll $35k in renovations into a HomePath loan, in some cases.  My biggest concern with these loans is the fact that you need a contractor, approved by the lender, to do all of the work.  From reading around, it sounds like these folks are difficult to find...If possible, I'd like to do most of the work myself (however, I am not a contractor) but by the sound of the Ad, the home is "uninhabitable" and rehab financing is a requirement. 

2.  I was referred to one (Prospect Mortgage) by the Realtor, but I'd like to have some options for negotiation purposes.  So far, it seems that very few outlets handle these loans, and those that do are the big banks (i.e. Wells Fargo).  There are countless stories about the big banks totally dropping the ball on these loans, so I would prefer to deal with someone local, if possible.  Does anyone have any insight, aside from calling local credit unions, to try and track down a company that carries these loans?

Thanks, in advance, for any insight that you can provide!

Rick

You will be very surprised whom all does FHA 203k financing. It is a surprisingly popular product that a lot of lenders are familiar with. Using a "streamline" FHA 203k loan the amount used for rehab extends only until $35k, but a traditional FHA 203k can go as high as $200k+ in rehab amounts.

Unfortunately, your contractor does have to be bonded and licensed to perform 203k work. Be sure to speak with a contractor whom has worked with these products before and knows what to expect -- they will be your best friend for the next few months.

Good luck

Is there any resource to find a contractor familiar with 203k/rehab loan work?  There's a website for 203k "certified" contractors but the information seems pretty inaccurate.  For example, the only one who comes up for the area of MD I'm buying in is in Virginia, about 5 hours away...

I'll certainly be asking my Realtor/Loan Officer but you can never have too many resources when it comes to bidding/contracts!

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Rick, once you have assessed the current state of the propertyy and get an idea of what needs to be done and a rough budget, compare that number with what you will spend putting down 20%... You can find first time home buyer and owner occupants loans with loan down payments from 0 to 5%.. That might save you enough cash to perform the work yourself and or pay a small amount out to contractors. 

In other words you could put down the same amount of money but get the freedom of picking your own contractors. Negotiating patients dispersents to contractors and doing any of work your capable of yourself.

I was in your shoes almost a year ago and have started the process of refinancing out of fha so when my year of being an owner occupant is fulfilled I can rent it out and repeat the process of another low down payment primary residence .

@Grant Smith  - thanks for the feedback.  I was under the impression that if the property was listed as "Cash or Rehab Loan Only" that meant that no bank would issue a traditional mortgage for the property.   Is this not the case?  

Ideally, I would do exactly as you suggest: Purchase the property on a traditional mortgage, then pay for the renovations out of pocket (instead of for the next 30 years).  My plan is to keep the house, not flip it or rent it, so this is definitely a "long-term" play for me.  (Investment properties will come later.)

Hi, I am a real estate investor in the SC and FL markets. Please contact Coleman Solutions, LLC via email: [email protected] or by phone: 864-710-1783 for free estimate on rehabbing/renovating your current home or a property you wish to buy in either of these markets.  Additionally, I am a consultant for roofing and will give free estimates for that also.  My company does assist with getting funding approvals!

@Rick Beringer   to answer your question.

I was under the impression that if the property was listed as "Cash or Rehab Loan Only" that meant that no bank would issue a traditional mortgage for the property. Is this not the case? 

From a brokers standpoint cash is not always the case. Usually something is wrong with the property that is obvious for an appraiser to catch therefore causing financing and repair headaches that can kill a deal. I have started using a homestyle lender for some of my listings that are cash/rehab only terms. Its all a matter of what the appraiser calls out in order for the lender to fund (3 weeks into a deal). Many just don't want to headache and put cash only terms. Cash always demands a discount also. Cash can = hard money/private money too. Get a guy that knows that on your side and you can make it work. Good luck