203k vs. construction loan

2 Replies

I talked with a lender today who doesn't do 203k but instead does construction loans. I'm curious as to what the advantages are over using a construction loan is versus the 203k. What I got out of the conversation was that the 203k was too much work - but it seems like the same amount of work some HMLs do. I can think of @Travis Sperr of Pine Financial in CO and MN who help do this. I believe Pine gets an itemized list of ALL the repairs needed and hands out the money once jobs are completed in a certain order.

And lastly is 203k only FHA, or can you get that on a conventional as well?

im not sure what the specific advantages of construction loans are, @Steven J. , but yes 203k is only fha, so when they say 203k is too much work, it may be their oppinion of the regulations that FHA puts on these type of loans, as opposed to their contruction loan, which is not government backed.

@steven_johnson - a few distinct differences between 203k and construction/rehab loans.

203k financing is for owner occupied only. It is a great product when you can use it. I bought my first multi-unit property using a 203k loan on a HUD property. I put about $30,000 of 203k repair funds into the property and lived there for just over a year. It is my best cash flowing property. 203k loans are only too much work for mortgage brokers that do not know how to do them. When working with the right mortgage professional and contractors it can be a breeze. FHA loans have become increasingly more expensive in rate, fees and PMI.

To your question about conventional - you may check out Fannie Mae homepath properties/financing. As owner occupied you can do as little as 5% down and borrow $35,000 in repair money. As an investor you can do as little as 10% down and still borrow $35,000 in repair money. This loan doesn't even require an appraisal, so know your values.

Construction/Rehab financing - Can be either owner occupied or an investor purchase. If owner occupied it will likely be a local bank offering the loan. Sometimes require 20-30% down on costs, depending on the lender.

Hard Money financing- This is what we offer every day, a more expensive product but higher leverage. In some cases no money out of pocket to get the deal closed. As an example our loan is 70% of after repaired value (cover all costs- purchase, repairs and closing) - we charge 4 points and 15% interest but with little money into the deal it can be easy to qualify and/or do multiple deals.

All financing options are a tool for the right deal.

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