203k fha

8 Replies

Does anyone have any experience with a 203k fha loan? The property I'm buying needs work but I rather use my own cash. Because i hear the loan rate and expenses is a lot higher when using fha 203k. What's the big difference between that and a conventional. Thanks

hey Joseph, I just saw that no one had replied here so wanted to give you some information.

Major Difference between conventional and FHA/203k: FHA-you can get a low 3.5% down payment. Conventional you have to have 20-25 percent down on a 4 Plex. Also, FHA loans require mortgage insurance, which will raise your monthly payment...

I used a 203k(owner occupant-rehab) loan, on a fourplex back in May of 2014. You have to use one general contractor, and cannot use individual subcontractors. The GC can use subcontractors but it all has to go through the GC. before you close on the loan, there is a huge stack of paperwork that you have to go through and the GC has to be selected and finalized and you must turn in the borrowers agreement, signed bid and scope of work, and the GC has lots of paperwork as well.The GC you select must be licensed bonded and insured, provide several references. 

A little about my experience-The extra paperwork that the borrower and the GC must fill out for the 203k approval is pretty extensive. I contacted four GC's- up front,  1 declined to bid, 1 didn't meet  licensing and insurance Requirements.  The other 2 bid on the projects.  I selected the lowest bid. After about a month and two closing date extensions,after pushing this contractor and working with 4 different people in the company, I still was not able to get all of the required paperwork turned in. It came down to one last piece of info we needed and they finally decided to back out a couple days before closing. Another extension. I then had to go back to the last GC who was the highest bid. I was able to negotiate a little lower price on some projects, which was good,  but he was still 2-3 times higher than 1st GC On some major projects.  I ended up using the cheaper contractor for some work later, but this I had to pay out of pocket and couldn't wrap into the loan. I also did lots of work myself, but anything on the signed scope of work using the 203k, must be done by the GC you hire.  payment-the bank pays the GC half up front and half on completion when you and the inspector has signed off on the finished work.

My loan application and paperwork approval almost blew up on me due to timelines and paperwork expiring because of all the delays. Luckily even with all the extensions we were able to close on the property Thanks mostly to my very knowledgeable mortgage lender and help from my agent! I highly recommend using a very experienced mortgage lender who has done several 203k loans And can push all parties to get required paperwork submitted. 

In the end, it was a TON of work but definitely worth it!  Good luck on finding a deal! let me know if you have any questions I may be able to help with.

@Aaron Brown Thanks so much for the post above. it gives me an idea of what I'm in for if I pursue an FHA 203k loan. Did you say that it has to be owner occupant? I've Googled the 203k and can't find anything about having to be an owner occupant.

Very happy to have helped Kim! 

Yes,  it definitely has to home owner occupant. And they are very strict on this rule. You have to live in the property for at least one year.

you may try checking out HUD's website here:


Originally posted by @Kim Handelman :

@Aaron Brown Thanks so much for the post above. it gives me an idea of what I'm in for if I pursue an FHA 203k loan. Did you say that it has to be owner occupant? I've Googled the 203k and can't find anything about having to be an owner occupant.

There are rehab loans for owner occupied or investors. Its just that the owner occupied version is called "203k" LIke mentioned above the only main difference is a few small processes and the amount you must put down on the property. As an investor its 20% as an owner occ its 3.5%

I've completed a FHA203k and a Investor Rehab loan and it was a fun experience. Then after a year I moved into the investor loan property and use it as a primary residence. 

I wrote a blog post on preparing for it if you want more info Using the FHA203K Loan

To expand on why I did it, I didn't have the cash to buy the property and I wanted to buy a second house so instead of using all of my own money I leveraged the banks and got two. I've seen my equity jump about $300,000 in two years and I'm glad I utilized the loans. Yes you will pay more for the work versus running your own crews but its the banks money and they loan it out cheap. 

Hello all,

I recently discovered BP and I am an eager future investor projected to close 6/25 on an owner occupant FHA 203k loan. Property price is $35k for slightly less than 1000sq ft brick home in an up-and-coming area, so i was more than anxious to act fast on it. Although in need of repairs, I see the potential value in the finished product via the 203k assistance.

This property is unfortunately a single family dwelling, which will definitely restrict any desired cash flow as long as i am to be living there. With that said, is there any way to transition the property to a rental before the one year FHA requirement? If no, will i have to postpone any future investment property searches for an entire year?

I have been wanting to step into the world of real estate investing for some time and have been hesitant to until now. I'm beginning to think i may have acted too quickly on this property if I am not able to generate any cash flow from it for at least a year. 

Any insight or assistance would be greatly appreciated!  

@Buck Savagethat is an interesting strategy. @Tim Gordon has this been something you are familiar with?

Hello @Buck Savage

I'm curious if anyone has reached out to you about the question you posted a while back?

If you are going to use your own cash, you can merely put more down on the property, If it turns out to be 20% down then the Fannie Mae HomeStyle Renovation Mortgage would save you the PMI, private mortgage insurance. It also allows you to keep the property if you find another one to purchase down the road to start your investing lifestyle.

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