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.
You can do most any renovations, but they’re not going to let you build an illegal unit, which this would be if it’s single family zoning.
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!
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