FHA 203K in Chicago - Agent Says it's a No Go on Multi Unit

Multi-Family and Apartment Investing
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FHA 203K in Chicago - Agent Says it's a No Go on Multi Unit

Joshua Rawe
New to Real Estate · Chicago, IL · Member since 2019 · 1 post · 0 votes

Hi All,

Pre-approved by lender for 3.5 down on FHA. Shopping for a house hack 2 unit in Chicago. Want to do low down payment and maybe 203k loan. Lender suggested it and was fine with it.

However, my current agent says no multi units will pass FHA inspection. Agent says they don't want to do an FHA deal. Current agent comes recommended and experienced.

Is their assessment accurate? Or do they just want to avoid extra work? Understandable if so, however, I don't want to jump to conventional if I don't have to.

Thanks!

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Paul Welden
Real Estate Agent · Tempe, AZ · Member since 2011 · 1k+ posts · 543 votes
6y

IMHO, the agent doesn't know very much about 203k's, because the great thing about 203k's is that the property does NOT have to pass FHA MPR/MPS prior to closing. With the 203k, you get to correct all those things AFTER closing.

So, go ahead a do an FHA 203k, or a Fannie Mae Homestyle, or a Freddie Mac ChoiceRenovation and have some fun!

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  • Paul Welden
    Real Estate Agent · Tempe, AZ · Member since 2011 · 1k+ posts · 543 votes
    6y

    IMHO, the agent doesn't know very much about 203k's, because the great thing about 203k's is that the property does NOT have to pass FHA MPR/MPS prior to closing. With the 203k, you get to correct all those things AFTER closing.

    So, go ahead a do an FHA 203k, or a Fannie Mae Homestyle, or a Freddie Mac ChoiceRenovation and have some fun!

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  • Russell BrazilBusiness Member
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    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y

    Multis in my market typically wont pass an FHA appraisal inspection either.....and my market is far too competitive to get a 203k loan accepted. I dont know your market, but I know that is the reality in my market.

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  • Sarita ScherpereelBusiness Member
    Real Estate Agent · Chicago, IL · Member since 2018 · 659 posts · 376 votes
    6y

    @Joshua Rawe That's not true. I've sold many multi units with FHA. It's not impossible especially if your agent knows what they're doing. While showing buyers a property for FHA, I point out things that may come up during the inspection. That way they know what to expect before writing an offer and paying for their own inspection out-of-pocket.

    There are 52 inspection items for FHA that will be reviewed. They follow under three categories of habit safety and market conditions.  It is a lot of work- if they don't know what you're doing. But once you do a few of these there's a bit of a rhythm to all of it. It doesn't mean that your agents bad or unwilling to do the extra work. But there is a niche in the market for this, that even the top agents in the city don't do well because there is a lot to know that differs from a traditional real estate transaction. Really it's about catching and identifying the many variables that might come up at the FHA inspection. Many Chicago multi units are 100 years old these buildings will have issues that need to be identified.

    I hope this provides some light on this. It’s not for everyone. Best of luck on your search!

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  • Jake FugmanBusiness Member
    Real Estate Broker · Chicago, IL · Member since 2016 · 256 posts · 250 votes
    6y

    @Joshua Rawe Shopping for a 2-4 unit using FHA can be challenging (specifically on the North and NW side), but very do-able. There is a "Goldilocks" zone to hit where you need to make sure the property is in good enough condition to pass inspection, but also not overly done to the point of exceeding FHA loan limit OR simply overvalued.

    Good rule of thumb is that any property were current tenants/owners are living (or recently lived) to a decent standard SHOULD pass. Beware of any listings that appear abandon, mid-rehab, REO or stated AS-IS because sellers are likely unwilling or unable to make any repairs that FHA may require.

    Good luck!

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  • Crystal SmithPro Member
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    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    6y
    Originally posted by @Joshua Rawe:

    Hi All,

    Pre-approved by lender for 3.5 down on FHA. Shopping for a house hack 2 unit in Chicago. Want to do low down payment and maybe 203k loan. Lender suggested it and was fine with it.

    However, my current agent says no multi units will pass FHA inspection. Agent says they don't want to do an FHA deal. Current agent comes recommended and experienced.

    Is their assessment accurate? Or do they just want to avoid extra work? Understandable if so, however, I don't want to jump to conventional if I don't have to.

    Thanks!

    Your current agent is not correct when he/she says "no multi-units will pass FHA inspection" That comment is an exaggeration. Finding one that will pass may be difficult and many sellers won't accept FHA loans because the building won't pass, which is why you should use FHA 203K. The purpose of the 203K is to fix, renovate,..... and what would you imagine is part of the Scope of Work- "Make the building FHA compliant" 

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  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    6y

    @Joshua Rawe I agree with @Sarita Scherpereel. I have done tons of FHA loans (203k too) for clients and the inspection is very rarely a concern of mine. On the north side where I work, I am much more concerned about loan limits and the self sufficiency test (only for 3-4 units) I think in all my years working exclusively with 2-4 units only once was something triggered by the FHA inspection, and it was a flat roof the seller sealed off access to decades ago and hadn't been up there to even check on it in 20 years. So we got bids and picked a contractor and a check went directly to them at closing for the repairs.

    Is doing FHA easy? No. Sellers will almost always pick another buyer who isn't doing FHA but it isn't impossible. What areas and budget are you looking in? There may be alternatives and still low money down, but it is very limited

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  • Matthew PorcaroBusiness Member
    Lender · Long Island, NY · Member since 2016 · 456 posts · 336 votes
    6y

    @Joshua Rawe

    So many red flags with what this agent said. They seem entirely misinformed and looking for the lowest hanging fruit rather than trying to help your needs.

    I’d look for a new agent and try again. You also will get accepted offers with a 203k loan. Don’t let anyone tell you otherwise. My market is hands down one of the most competitive in the country, and I bought a duplex with no issues only after making a couple of offers.

    I have a friend now with an accepted offer on a triplex in my area as well using a 203k.

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  • Bob Floss II
    Attorney · Northbrook, IL · Member since 2017 · 719 posts · 549 votes
    6y

    @Joshua Rawe Bad advice, a huge portion of my closings on 2 and 3 flats are with FHA owner occupied buyers. I would question if the agent is familiar with the market. They might be pushing you away from doing a 203K loan, which can be a pain and frankly many don't close, but the payoff is huge for the borrower. Regardless, the comment about FHA is nonsense.

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