FHA 203k Clarification for my first deal!

3 Replies

Hello BP family! I was recently approved for an FHA loan of 125k. My goal is to house hack in a duplex, however, in Atlanta I am having a difficult time finding an available duplex in my price range. I’ve discussed with my lender the option of a 203k loan but my question for you is does this loan only cover renovations to update an property to FHA guidelines or can it be used for any renovation to the property such as additions? Being that duplexes at that price point are hard to find I am interested in a single family home with a basement that I could live in and rent out the top. I’m wondering if the 203k loan will cover finishing a basement and adding a bedroom, bathroom, and kitchenette area. If so that that will open up my options greatly. If the home is in move in condition price hypothetically at $80k, can I use the remainder of my $45k to turn the basement into an apartment?

This is sort of a gray area. With borrowed funds there are a lot of rules to follow here is how they can trip you up. 

You must use a licensed contractor for all the work the bank funds, which requires full permits and using this contractor is going to be expensive. They must be very qualified, licensed, insured, bonded, good with documents and a very procedural bank. This means you need a really solid contractor who will charge you more. 

They can only lend on what an appraiser says the property will be worth once fixed (purchase + repairs), so if your purchase price plus repairs is higher than what they think the property will be worth. They won't lend on it. 

If you go over a certain value or percentage on the rehab funds, you must pay to have a consultant monitor the flip and handle payments. This adds another cost to the process. 

The FHA203K is awesome, I used it on a fourplex in 2013 and learned a ton. Here's a blog post on it. 

Hey Shequila, I am too looking to utilize an FHA loan on a multi-unit property. I am still learning how it works however from what I've gathered there are two types of a 203k loan: a streamlined 203k and a full 203k loan. It sounds like what you are trying to do might require the full loan which is anything requiring more than 35k in renovation costs for the property. However Ive included a link below which details the difference btw the two loans and what you can and can't do in regards to renovations. Hope this helps!

Streamline vs Full loan

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