Anyone ever used 203k loan in Texas?

Buying & Selling Real Estate
5yFollow

Anyone ever used 203k loan in Texas?

Juan Campos
Dallas Tx · Member since 2021 · 112 posts · 31 votes

Hello, my name is Juan I have been studying realestate investing for about a year now, and have decided to pursue this as my lifes goal, I recently found out about the 203k fha loan, and I have decided to invest in my first property, I am in the Dallas Texas area, ( a very competitive saturated market )

I want to buy a multifamily unit (duplex) and use the 203k loan to renovate it increasing equity up to 20% in order to immediately refinance into a conventional loan ,pull a heloc and invest in my second property, I understand I need an exit strategy and I am currently working on that as well,but I believe I will develop that as I grow and dive deeper into this, I've never bought a home I'm still learning how to calculate numbers, if any of you have done any 203k loans do you mind sharing some information? What is your opinion on this strategy, and do any of you know any lenders thst specialize in 203k loans in the Dallas ft worth area ?

Thank you

5Reply
224 views

Most Popular Reply

Eric James
Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
5y

Make sure you read up and understand the whole process. In the end, you still need to find a good deal. You don't want to go through all the work and have your costs equal the market value. Your purchase price plus reno costs still need to be much less than the ARV.

5Reply
See this reply in the discussion

43 Replies

Jump to latestLatest
  • Bruce Lynn
    Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
    5y

    It's not easy, but perhaps possible with the right house. Also understand FHA may not be your best option, but your loan officer can check that out for you and suggest alternatives if you qualify. Make sure to use an expert that is very familiar with these types of loans. Lots of people will tell you they can do them, and that is correct, but you want a specialist.

    4Reply
  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    5y

    Make sure you read up and understand the whole process. In the end, you still need to find a good deal. You don't want to go through all the work and have your costs equal the market value. Your purchase price plus reno costs still need to be much less than the ARV.

    5Reply
  • Juan Campos
    OP
    Dallas Tx · Member since 2021 · 112 posts · 31 votes
    5y

    @Bruce Lynn

    You stated that it's hard, may I ask what you believe is the most difficult? As someone who is well versed in realestate what tips would you suggest me?

    Also do you know anyone in the Dallas are who specializes in these loans?

    And why not fha if I can refinance imediately after rehabbing the duplex given the numbers add up.

    0Reply
  • Juan Campos
    OP
    Dallas Tx · Member since 2021 · 112 posts · 31 votes
    5y

    @Eric James

    Thank you I am trying to understand as much as I can, have you done any of these 203k loans if so what tips would you give me ?

    0Reply
  • Stacee Evans
    Investor · Canoga Park, CA · Member since 2016 · 114 posts · 50 votes
    5y

    I have not done one, but I heard they are time consuming and sometimes the contractor does not get paid until the work is done, so you may need to pay the repairs up front and get reimbursed or find a contractor that is willing to get paid on the back end.  Sometimes the inspections can be delayed.  If you are able to make it work, it's worth it for the right property, but it will be a bit more work on your end. 

    0Reply
  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    5y
    Originally posted by @Juan Campos:

    @Eric James

    Thank you I am trying to understand as much as I can, have you done any of these 203k loans if so what tips would you give me ?

    About 6 years ago I had gone through all the red tape and was ready to close on a house with a 203k loan.....and then the seller backed out of the contract. The "hard" part is the red tape.

    1Reply
  • Juan Campos
    OP
    Dallas Tx · Member since 2021 · 112 posts · 31 votes
    5y

    @Stacee Evans I appreciate that

    On my side

    My brother is hvac/pool licensed

    A cousin of mine is a certified welder and electrician

    My dad is a lead maintenance

    And I have a very good friend who is a professional gc licensed and insured

    He builds homes from the ground up here in the dfw area beautiful projects! And homes. Comercial and residential so I know a ton of people that I've been talking to and are willing to help.

    I'm wondering have you worked with anyone whose done a 203k loan or know anyone in Dallas ft worth area that specializes in these type of loans

    0Reply
  • Juan Campos
    OP
    Dallas Tx · Member since 2021 · 112 posts · 31 votes
    5y

    @Eric James can you elaborate on this red tape ?

    0Reply
  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    5y
    Originally posted by @Juan Campos:

    @Eric James can you elaborate on this red tape ?

    Paperwork, inspections, approvals, appraisals. You have to get an FHA approved inspector (I forget what these are called officially). He has to approve things. You have to get an FHA approved contractor to give you a bid for work.nYhe inspector has to approve, and the total costs have to be close enough to the ARV. Everything has to be approved and takes time.

    1Reply
  • Juan Campos
    OP
    Dallas Tx · Member since 2021 · 112 posts · 31 votes
    5y

    @Eric James

    I plan to do this once with a duplex to jump start my investment portfolio, sounds tough but not impossible, and I believe you mean a 203k consultant,

    Also since the gc is getting paid by the bank, would it be something that be paid after or before the repairs? In your case since the seller backed out on you, did you ever close a 203k loan or you just left it alone ?

    Thank you for your time and advice

    0Reply
  • Stacee Evans
    Investor · Canoga Park, CA · Member since 2016 · 114 posts · 50 votes
    5y

    Based on you knowing so many people that can do the work, I say go for the 203K if you get a good deal.  No I haven't personally worked with anyone that has done a 203k loan, but have spoken to people that have and the biggest complaint is the time it takes.  

    0Reply
  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    5y
    Originally posted by @Juan Campos:

    @Eric James

    I plan to do this once with a duplex to jump start my investment portfolio, sounds tough but not impossible, and I believe you mean a 203k consultant,

    Also since the gc is getting paid by the bank, would it be something that be paid after or before the repairs? In your case since the seller backed out on you, did you ever close a 203k loan or you just left it alone ?

    Thank you for your time and advice

    The contractor draws are on an FHA schedule and the contractors agree to this ahead of time. I didn't end up getting a 203k.

    1Reply
  • Jonathan StonePro Member
    Rental Property Investor · Camas, WA · Member since 2020 · 285 posts · 202 votes
    5y

    @Juan Campos

    Juan - Good luck with the 203k. I have looked into this as a future option for us but haven’t closed one myself. There are some threads here on BP on the subject. You should be able to search a few up. Make sure when you put your offer in you have long enough closing period as from what I have read that’s the most common hurdle.

    0Reply
  • Juan Campos
    OP
    Dallas Tx · Member since 2021 · 112 posts · 31 votes
    5y

    @Jonathan Stone

    Thank you I still plan to take time to make this move, saving up a bit more and making sure that I plan my exit strategy and run realistic numbers with no emotional attachments.

    And yes I have a place I am staying in while these renovations take place thank you!

    0Reply
  • Nate Bell
    Member since 2018 · 151 posts · 140 votes
    5y

    @Juan Campos

    I’ve done two of these loans, not in Texas. I love them. It’s no more work than any construction loan you’d get from a bank; I’ve also done several of those. Outside of friends/family, 203k is about the cheapest money you’re ever going to be able to borrow to do construction.

    With a 203k, my recommendation is to have a large cash cushion, like $25k, in reserves so that you can pay for changes/surprises out of pocket. The change order process with banks is painfully slow, and you’re going to want to keep the project moving. Unexpected surprises will come up, and you’re also going to want to add things, so just be prepared to pay for those changes directly.

    Also, on the front end when you’re looking for contractors, screen them initially by telling them that this is a construction loan and that they’re going to have to do bank draws. I wouldn’t bother working with one who hasn’t done this before; there are plenty out there. They’ll know (and you should remind them) that they’re going to have to front the money until the first draw. DO NOT front money. They have a payment guarantee, and any contractor worth their salt will have the funds/credit/relationships to get through draw process being paid in arrears.

    3Reply
  • Paul Welden
    Real Estate Agent · Tempe, AZ · Member since 2011 · 1k+ posts · 543 votes
    5y

    @Eric James @Juan Campos

    FHA 203k allows you to get a loan for 10% more than the ARV. So, even if the ARV comes in low, there's a 10% buffer you can still use to get the loan closed.

    3Reply
  • Paul Welden
    Real Estate Agent · Tempe, AZ · Member since 2011 · 1k+ posts · 543 votes
    5y

    @Juan Campos

    The difficulty most people have with doing a 203k is primarily caused by working with partners that are not at the top of their profession. 

    Without the right team to help you with the 203k, it can be a complete disaster and cause a lot of financial stress. 

    Your 203k team will consist of the REALTOR, lender, 203k Consultant, and contractor.

    REALTOR needs to not be afraid of the 203k and excited to use it. There is specific verbiage HUD requires in the purchase contract to protect the borrower and disclose some of the 203k contingencies to the seller. Reference HUD SFH 4000.1

    Lender needs to have experience with the 203k. In the CE REALTOR classes I teach on the 203k, I always use the example that the lender is like the quarterback. The need to know the rules, guidelines, paperwork, processes, etc. If they don't know what they are doing and don't have 203k experience, your 203k process will usually resemble the Cleveland Browns on a Sunday afternoon. So, make sure you verify the lender's 203k experience. HUD has 2 databases of 203k lenders that can help give you a good start. Reference HUD SFH 4000.1

    203k Consultant is required to be selected by your lender. So, it's very, very important to work with a 203k-experienced lender. 
    Reference HUD SFH 4000.1

    Contractor need to know and understand the 203k. The contractor needs to either be properly educated on the 203k or have verifiable experience with the 203k. While any licensed, insured, and bonded contractor is allowed to do the work, without 203k education or 203k experience, the contractor won't know the different versions of the 203k, timelines, guidelines, bid/estimate format, payment process, etc. and will be basically winging it. I recommend and use contractors that have the accreditation as a Certified 203k Contractor. 

    You're only as strong as your weakest link ... select your partners wisely. 

    Hope this helps! 

    0Reply
  • Juan Campos
    OP
    Dallas Tx · Member since 2021 · 112 posts · 31 votes
    5y

    @Paul Welden

    I really appreciate the detailed feedback, I definitely need to find a solid gc But I've been searching and it is tough

    I know 2 one indeed builds houses 🏘️ for a living has his own lender he's a good friend but isn't familiar with a 203k loans, however he said to get intouch with the lender and find out if they can work something out. However I feel more comfortable with someone who specializes in these loans and a realtor that does the same it's very tough but not impossible to find, so far I haven't had much luck.

    0Reply
  • Paul Welden
    Real Estate Agent · Tempe, AZ · Member since 2011 · 1k+ posts · 543 votes
    5y

    @Juan Campos

    I looked on the Certified 203k Contractor database and found a Certified 203k Contractor in the DFW area. 

    So, it's not tough if you go to the website. 

    0Reply
  • Paul Welden
    Real Estate Agent · Tempe, AZ · Member since 2011 · 1k+ posts · 543 votes
    5y

    @Nate Bell

    For the FHA 203k, the cost for change orders is already built in b/c the 203k has a 10%-20% contingency reserve added to the construction costs to pay for unknown costs and change orders.

    So, no reason to have a large cash cushion to pay for changes/surprises out of pocket. 

    Hope this helps! 

    0Reply
  • Nate Bell
    Member since 2018 · 151 posts · 140 votes
    5y

    @Paul Welden

    I didn’t say there wasn’t a contingency. Accessing it is the problem. There’s a review process where they evaluate the proposed changes and it takes a couple weeks to get approval. That puts everyone in a difficult position. The contractor will be pressured to keep the project moving at risk of not getting paid.

    My contingencies have been 10%, which doesn’t go very far.

    1Reply
  • Account Closed
    Investor · Member since 2019 · 17 posts · 3 votes
    5y

    Any solid GCs referrals that has had 203 experience?

    By the way, @Paul Welden, the contractor in site you shared is slammed with work and doesn't service Dallas- only Fort Worth.

    1Reply
  • Kyle MccawBusiness Member
    Property Manager · Keller, TX · Member since 2011 · 1k+ posts · 1k+ votes
    5y

    @Juan Campos sounds like a great plan. I would like to suggest finding the property first and the rest will fall in place. With the market today, finding deals will be the hardest part of your plan. Keep in mind 2-4 unit properties are not as common in DFW as other parts of the country. Just focus on the end result of owning real estate and you will do great.

    McCaw Property Management4.4911 Reviews
    WebsiteView Page
    1Reply
  • Juan Campos
    OP
    Dallas Tx · Member since 2021 · 112 posts · 31 votes
    5y

    @Kyle Mccaw

    Thanks Kyle, in today's dfw market bidding higher seems to be the only way to acquire property, which would defeat the purpose of attempting to buy a distressed property to rehab in order to build equity I'm trying to save up more.money from my job.and my wife's to have some reserves I plan to buy my first duplex under at or under 200k

    However I'm not really sure howmuch to have in reserves for closing costs or for the gc.

    0Reply
  • Juan Campos
    OP
    Dallas Tx · Member since 2021 · 112 posts · 31 votes
    5y

    @Paul Welden I called this person and have emailed him seems he only services Fort worth area unfortunately, I have found one lender who claims to specialize in these sort of.loans, since it's my first loan what questions would I ask ?

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free