New to Real Estate · NJ · Member since 2020 · 124 posts · 63 votes
I’m looking at a two-unit property that needs substantial work, but the price is almost there. The sellers are only accepting cash and 203k offers. I don’t have enough cash on hand for the whole thing, hence these questions.
I imagine I would need a standard 203k, as this place needs a full rehab. Does anyone know how easy these are to get, how long they take, etc? Would I have to live there for a year, and is refinancing the same process as a conventional? Anything else I should consider, especially the, let’s say challenging times right now? If anyone has ever done these in NJ, it would be great to hear about.
Haven’t ever gone the private money route, and given my limited experience, I don’t imagine this would be too viable at the moment.
@John Walter it will take about 3 months to close, and they need a whole bunch of information like bids and insurance from contractors. They also need to send out someone that will essentially be checking the construction work when you are ready for draws. They charge a few hundred per draw and this specialist person cost me $1,000 for an initial visit. They also come up with a rough budget. The company I used factored in a huge contingency (I think it was like 20%). I was able to get them to lower that to 15% (which I think is still high for what I was doing.) HUD just changed the rules so you would have to ask the person who is doing it for you a lot of questions. The money would go directly to the GC (unless you are doing the work, but they have certain criteria you need to pass). If you don't use all the construction money it goes to paying down you principle however your monthly amount will not change. For example you take out a loan of $150k for acquisition and $150k for construction, $300k total but only spend $100k on construction your total payments would still be on the $300k not the $250k you actually spent. There is a way that since you took $50k to pay down the principle that you can have them "adjust" the loan (I forget the proper terminology they use), but it's not guaranteed. Hope that helps some.
@Kevin Blanchard I think the term you are searching for is "re-amortizing" but FHA loans do not have this option, to the best of my knowledge. Best thing to do is to refi after the rehab is done or at least 6 months after the loan closes, whichever is later.
@John Walter With the right 203k team members (REALTOR, Lender, HUD approved FHA 203k Consultant, and Certified 203k Contractor), you can close 203k loans in 45 days and avoid many problems that some people experience with rehab loans.
203k Loans are FHA loans and require the primary borrower to reside in the property as their primary residence for a minimum of 1 year. So, on your 2-unit scenario, you would be required to reside in 1 of the units as your primary residence for a min of 1 year. If that's not a viable option for you, consider a conventional rehab loan like the Fannie Mae Homestyle.