203k loans
I have been reading up a little bit about 203k loans and from what I understand so far, the bank will give you a loan for a foreclosed home, and also set aside rehab money in an escrow for the purchaser to fix up the house. Would this be a good idea for someone wanting to fix and flip a home considering you find a good deal on a property?
Yes, I have had clients in Connecticut buy homes via 203k loans that they would not have been able to purchase otherwise because of all the improvements that were needed to make the home livable.
There should be mortgage brokers/lenders and realtors in your area that specialize in 203k purchases. Link up with them and let them guide you because it is not the same process as a typical multi-family owner occupant house.
The first thing you need to know about 203k loans is that they are only for owner occupants. You can't use them to buy an investment property that you are not going to move into and live in. While you are supposed to live in them for at least a year, I have seen people who got a really good deal refinance out of the loan after about 6 months and then turn around and sell the property. Just know that if you do this, you won't be able to use another 203k loan for two years unless you can show there was a significant reason you needed to move (like you were moving because of a work change at least a certain distance from you house, or moving into a significantly larger home, etc)
Definitely talk to a mortgage broker/lender who handles a lot of 203k loans to find out more about this.
Originally posted by @Kara Hooppell:
I have been reading up a little bit about 203k loans and from what I understand so far, the bank will give you a loan for a foreclosed home, and also set aside rehab money in an escrow for the purchaser to fix up the house. Would this be a good idea for someone wanting to fix and flip a home considering you find a good deal on a property?
Kara-
Yes, but this loan is for owner occupant, as long as you intend on owning and living in it as a primary dwelling, you are good to go, here are a few pointers:
1) Use an experienced 203k lender, not someone that has done (1) or (2) just google 203k lender for your immediate area, call (3) get best rate, listen to experience pick (1)
2) Its all about value, in some cases you can go 110% of appraised value, giving you more money for your renovation if you need it, depends on your situation and market. Be REALISTIC! do not get carried away, play conservative on your first deal, leave some room for error.
3) Find a qualified and experienced contractor, do not settle for cheapest, you want experience here, because their is a significant administrative burden not only paperwork, proper formatting, but also financial constraint on the contractor as these sometimes have $0 prepayment to contractor. Keep it simple, search the 203k contractor database, you wildlife one in your area, call a few then pick best one.
These are the basics if you need more help send me a private message, happy to help.
what clues should you look for when talking to a contractor to know if their experienced?
Great info @Steven Gesis. You nailed it, make sure you work with a lender with experience doing these (for example, we have an entire team dedicated to just 203K loans), because an inexperienced lender in 203K's could turn your process into a 90 day mess.
And that 203K contractor database is great, because these contractors have to PAY for this, so you can be confident using someone who is educated and certified.
I can say from first hand experience (as can many people here on BP), don't cut corners for the cheapest contractor!
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Lender (#NMLS 197896)
- Zachary Karp Mortgage Team,
- 847-387-5513
- http://www.zacharykarp.com
Originally posted by @Zack Karp:
Great info @Steven Gesis. You nailed it, make sure you work with a lender with experience doing these (for example, we have an entire team dedicated to just 203K loans), because an inexperienced lender in 203K's could turn your process into a 90 day mess.
And that 203K contractor database is great, because these contractors have to PAY for this, so you can be confident using someone who is educated and certified.
I can say from first hand experience (as can many people here on BP), don't cut corners for the cheapest contractor!
Zack, thanks for reinforcing that, it sounds like you have some experience with this as well. We have completed over 600 of these renovations for clients and one thing I have learned and really think is important to note, the strength of your team will dictate the success of your deal. These can get complex and if you do not have reliable talent that knows how to navigate it, it will be a mess and your renovator will be a fail or at least not what you expect.
Originally posted by @Rynel R.:
what clues should you look for when talking to a contractor to know if their experienced?
Rynel, simply ask for references, ask them to show you past portfolios of completed work. here are a few examples of completed 203k jobs.
@Kara Hooppell I used this loan as well and im just finishing up the work. I believe you are able to refinance out of it