203k Renovation in Chicago- Advice/General Contractors

Chicago, Illinois
Land & New Construction
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203k Renovation in Chicago- Advice/General Contractors

Joseph Turano
Member since 2022 路 8 posts 路 8 votes

Hi people,

I'm looking for any and all advice regarding the FHA 203k Loan/ Renovation process for multi-unit properties in Chicago. If anyone has experience (positive or negative) i'd be curious to hear what it was like. I've spoken to a couple people that have done it and it sounds like a fantastic possibility. However, with the labor shortage I'm worried finding contractors could be difficult- does anyone have any referrals? I've done some basic research on GCs in Chicago, here are a few I've come across:

  • Cobbelstone
  • 4ever Remodeling
  • Inland
  • 203k Remodel
  • 123 Remodeling
  • Arete Renovators, Inc.

If anyone has any experience working with one of these companies I'd be very curious to hear how it went.

My understanding is that when doing an FHA 203k loan, you go under contract, have a walk through of the property with a contractor (or multiple to get different quotes) during which you very specifically outline all work that needs to be done with what finishes etc, have a scope of work drawn up, that is provided to the lender, the lender then gives the green light, as construction is underway, there are draws after certain bigger projects finish, an FHA inspector comes through to make sure its done, THAT inspector is who then writes up a check for the contractor after approval is given, this goes on until the work is complete.


This product sounds amazing because you can immediately gain a ton of equity, customize it yourself, have protection via the inspector to ensure things are done properly/up to code, and you can put 3.5% down on the entire thing including construction costs!!


Sounds great but I worry about not finding good contractors that may not have reserves, could drag out work, or walk out on the job. 

This would be a first time purchase, and would likely keep it under 5% down.


Any and all advice would be much appreciated!

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Paul Welden
Real Estate Agent 路 Tempe, AZ 路 Member since 2011 路 1k+ posts 路 543 votes
4y

@Joseph Turano

I think it's always a good idea to use contractors for the 203k that have verified experience with the 203k or have at least completed a comprehensive education program on the 203k and also have their license, insurance, and financials vetted and verified. 

There are contractors who have earned an accreditation called a and those contractors may be your best option for what you want to do. 

When you get a property under contract where you're doing a 203k, you 1st want to get the HUD FHA 203k Consultant (selected by your lender) out to the property right away. This person does the FHA 203k inspection, determines what's required, takes into account what you want done in addition to the FHA requirements, and develops a scope of work and cost estimate.

Then, after you have that report from the 203k Consultant, you can give that report to contractors for "bidding."

But if you get a contractor with a price lower than the 203k Consultant's price, the 203k Consultant is NOT required to adjust/lower their price.

But if the 203k Consultant is experienced, then the price in their report will be equal to or very close to the contractor price.

There is a pretty good step by step process on how to efficiently do a 203k on the FAQ's at 203kContractors.com. 

Hope this helps! 

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  • Paul Welden
    Real Estate Agent 路 Tempe, AZ 路 Member since 2011 路 1k+ posts 路 543 votes
    4y

    @Joseph Turano

    I think it's always a good idea to use contractors for the 203k that have verified experience with the 203k or have at least completed a comprehensive education program on the 203k and also have their license, insurance, and financials vetted and verified. 

    There are contractors who have earned an accreditation called a and those contractors may be your best option for what you want to do. 

    When you get a property under contract where you're doing a 203k, you 1st want to get the HUD FHA 203k Consultant (selected by your lender) out to the property right away. This person does the FHA 203k inspection, determines what's required, takes into account what you want done in addition to the FHA requirements, and develops a scope of work and cost estimate.

    Then, after you have that report from the 203k Consultant, you can give that report to contractors for "bidding."

    But if you get a contractor with a price lower than the 203k Consultant's price, the 203k Consultant is NOT required to adjust/lower their price.

    But if the 203k Consultant is experienced, then the price in their report will be equal to or very close to the contractor price.

    There is a pretty good step by step process on how to efficiently do a 203k on the FAQ's at 203kContractors.com. 

    Hope this helps! 

    3Reply
  • John Warren
    Real Estate Broker 路 3412 S. Harlem Avenue Riverside, IL 60546 路 Member since 2015 路 6k+ posts 路 5k+ votes
    4y

    @Joseph Turano my experience as an agent has been pretty poor with these. Unless you have an amazing GC up front, you will struggle with the 203k. The main issue newer investors have is that you sort of have to be able to build a realistic scope of work up front, and your GC isn't going to walk every property you are interested in if they are the kind of GC you want to work with because they literally don't have time. 

    If your agent is able to help you narrow your SOW and if you can put all the pieces together (purchase price + construction= ARV or better) then the 203k is amazing. Really, this is the issue with any construction financing. You also need to have a contingency for what happens if construction costs over run.

    You also can look into the conventional construction loan program which is very similar. 

    0Reply
  • Paul Welden
    Real Estate Agent 路 Tempe, AZ 路 Member since 2011 路 1k+ posts 路 543 votes
    4y

    @Joseph Turano brought up a few items of serious concern, most of which can be easily resolved. 

    The contractor portion is solved by using contractors with the accreditation as a Certified 203k Contractor. And @Joseph Turano is correct that your GC is NOT going to walk every property with you unless you pay them. This is one of the reasons the HUD FHA 203k Consultant exists. They can do a quick feasibility analysis to help you understand a very basic scope of work, but when you need more a detailed report, they will do a WWU/SOR that can be used for your 203k loan, and this WWU/SOR will also include a cost estimate that can be used to help gauge contractor's bids.

    And thank goodness that the Standard 203k requires a contingency reserve to be automatically included with your 203k loan (10%-20%), but the Limited 203k does not. So, if you do a Limited 203k, just make certain the rehab pricing stops at $30k to allow room for the contingency reserve and other loan fees. 

    And the Fannie Mae Homestyle along with the Freddie Mac CHOICERenovation loans are the conventional mortgage cousins of the FHA 203k.

    Hope this helps!  

    0Reply
  • Eudith Vacio
    Real Estate Agent 路 Chicago & NWI 路 Member since 2015 路 860 posts 路 521 votes
    4y

    Hi @Joseph Turano - I am in favor of 203k loans. I just purchased a 3-unit last year that was a streamlined 203k loan and the process was fairly quick and easy. I had a general inspection and then had an appraiser view the home and he called out certain things that he thought needed to be fixed and was added to the loan. I was able to renovate the rest of the home with 85% of the funds. Part of the funds is held back for a cushion or if something unexpectedly happens but can eventually be used as the project is closer to finishing up. I had the appraiser come to my property once when I finished 90% of my work to verify and now I am using the rest of the funds to renovate other parts of my property since I had money leftover. 

    If you go with a full gut 203k loan, then you will need to involve a HUD consultant - I didn't want to go that route because its more fees. If you want some recommendations for lenders, feel free to reach out!

    1Reply
  • Paul Welden
    Real Estate Agent 路 Tempe, AZ 路 Member since 2011 路 1k+ posts 路 543 votes
    4y

    @Eudith Vacio

    I think you meant you did the Limited 203k, as opposed to the Streamline 203k, which was eliminated back in Sept 2015. 

    And regarding the HUD consultant, you are correct they are only required on the Standard 203k but should be used also on the Limited 203k so that everyone, including the contractor, knows what will be required by FHA. It's about an extra $600 fee on the Limited 203k but well worth it for the info you receive.

    Congrats on your 203k loan! 

    Great to hear when they work out well.

    0Reply
  • Liz Cole
    Member since 2025 路 1 post 路 1 vote
    1y

    @Joseph Turano I'm currently considering a 203k loan. How it work out for you? Did you find a contractor and how did it go?

    1Reply
  • Eudith Vacio
    Real Estate Agent 路 Chicago & NWI 路 Member since 2015 路 860 posts 路 521 votes
    1y

    Hey @Liz Cole 馃憢馃徑

    You should definitely consider an FHA 2023k loan, probably one of the best decisions I made. Lenders / other realtors advised against it, but honestly I think it was due to a lack of knowledge and understanding. This loan give you the opportunity to take advantage of cash from the bank + build up equity. Even if you wanted to do a small rehab, its worth the time and effort!

    1Reply
  • Jonathan KlemmBusiness Member
    Moderator
    Contractor 路 Chicago, IL 路 Member since 2016 路 4k+ posts 路 2k+ votes
    1y

    What's up @Joseph Turano - Ton's of really great questions - I am personally a HUGE van of the FHA 203k, hometyle, and choice renovation loans all of which are federally insured renovation loans.

    If you have the ability, (i.e, pay 1.5% more down payment) I'd suggest the homestyle renovation loan. You will likely have to put down 5% instead of 3.5%, but it is more flexible than the FHA 203k.

    With any of these renovation loans, you want to make sure EVERYONE (Agent (two great agents above in @paul de and @Eudith Vacio), lender, contractor, and HUD consultant) on your team has done a couple before.

    With the FHA 203k specifically, you will have more "REQUIRED" work that is required by HUD (hence my suggestion above to go with the homestyle) when your HUD consultant comes and walks the property to develop the SOR (Schedule of repairs), then they will give you blank BORs (Bid of repairs) for your contractors to submit their bids. There are 35 different categories on the BOR, and each category needs to be separated into labor and material (i.e, Sidng = Labor $3,500 and material = $2,000).

    Happy to link up again and walk through the process in more detail if that would be helpfu.  Also, connect yourself with a good lender like @Zack Karp or @Jose Valdovinos!

    [email protected]
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    1Reply
  • Eudith Vacio
    Real Estate Agent 路 Chicago & NWI 路 Member since 2015 路 860 posts 路 521 votes
    1y

    Thanks for the shout - out @Jonathan Klemm 馃槂 I appreciate it . 

    @Joseph Turano - Jonathan is a 203k General Contractor, someone that you can link up with and can you walk through some of his current and past rehabs. Definitely ask the contractors if they have any current jobsites that you can visit. I never soley rely on photos, I want to view the properties that they are currently rehabbing & get some references because there are really bad contractors out there. It is SO easy to get your GC license in Chicago so definitely do your due diligence. Always keep in mind that you can change contractors even after you close on the property so you are not tied to anyone! best of luck, keep us updated!

    1Reply
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