Time For a New 203k Lender?

Question

Hello Biggerpockets,

I'm in the process of closing on a duplex in Cleveland and am starting to think I picked the wrong lender. I have been asking for details on money down, closing costs, interest rate, etc. and have been met mostly with "it depends." I'm trying to purchase with a 203k FHA loan so I can put 3.5-5% down. The house I'm buying has peeling paint so I'm going to add siding. The lender wanted a bid ASAP so she could start on the loan documents and then said we could redisclose and put the actual contractor's real price once I decided on the contractor. I had Home Depot come out and give a high bid while I scheduled the other contractors to give an estimate.

When I received the loan documents, the interest rate was .5% higher than my preapproval letter. When asked about the increase, she said it was because of the renovation loan and because it was a two-family property. Is there any truth to this? Additionally, I knew the loan would carry PMI, but the lender never told me a percentage nor did she mention an up front premium that would be wrapped into the loan. I understand there are many variables in real estate, but are these details I could have been told upfront? Can anybody suggest a good FHA lender in the Cleveland area? Thanks for your help.

Wayne Brooks · Answer

It seems like you're too far along into this to have no idea of your closing costs, even though they are of course based on your purchase price combined with your Reno costs, probably 5-6% of the total.  203k loans Do carry a half percent higher rate than ordinary FHA loans.  It should only take a few minutes for your lender to give you an estimate of total closing costs.....once you know your purchase price, Reno costs, property taxes, property insurance.

Federico Gutierrez · Answer

Sounds like 0.5% has you freaked out. Try to look at the bigger picture. Your financing this property an great interest rate is pennies on a loan for $100000 over 30years.

Look at the bigger picture, area your buying it will it continue to grow, Is the property a worthy investment. Is this a length project that will tie up your money or a quick slap paint and get tenants in?

Chris Mason · Answer

@David Rogers,

• Renovation mortgages will in all cases carry a higher interest rate compared to non-reno. Risk.
• Rates change daily; putting them on preapproval letters means nothing. To prevent people from feeling bait-and-switched, I personally do not put interest rates on my preapprovals.
• FHA upfront funding fee (UFMIP is the fancy acronym) is typically financed, and the same for everyone on a purchase. It's set by HUD and the same for all lenders.
• FHA mortgage insurance rate is set by HUD and the same for all lenders. 
• For reno, I'd really suggest focusing on reliability. If you feel your person is reliable and can close it, and you actually want the property, stick with them. Reno takes like 5x as much work behind the scenes to close.
• If you don't like that 203k has a higher interest rate, FHA has a really easy solution for you. Only requirement really is that you make six on-time payments first -- so instead of multiplying the payment at the higher renovation interest rate by 360 and flipping out, multiply it by six and stay calm.

Matt Motil · Answer

Single family, owner occupied will carry the lowest rates out there. That's what you'll see advertised. As you add factors, points get added. Think of it like adding risk and pricing it out. So a duplex with a rehab loan will have two dings against it on top of a bottom line loan. Depending on your credit, how much the loan is for, etc, can also factor into the rate and terms of the loan. Until you really know what the whole picture is, it's tough for the lender to be able to lock anything in for you aside from just ballpark pricing.

If you're looking for an alternate lender in #theland, I suggest Brian Hartwig at First Equity Mortgage Group. He's great, fast, and cost effective.

Brian Hartwig NMLS#238016

FIRST EQUITY MORTGAGE GROUP, LLC

NMLS #228224