Can I use an FHA 203(k)

Question

I am having trouble finding a good answer to my question. I know with an FHA loan you must occupy the residence for at least one year before you are free to use it as whatever you like, but does the FHA 203(k) loan work the same? Hypothetically, could I use an FHA 203(k) loan to renovate a house while I live in it, then sell it after one year for a potential profit or must I stay in it longer? If that is possible, it seems like a good idea. My plan would be live in the house for a year, have it renovated to increase its value (plus it appreciates a little), then either sell it or cash out refi into another property.

Paul Welden · Answer

@Jarret Durst

The regular FHA loan and FHA 203k follow the same occupancy rules. The regular FHA loan is known as the FHA 203b. So, the FHA 203b and FHA 203k have the same occupancy rules.

You must intend to occupy the property as your primary residence for a minimum of 1 year, but if you can refi after 6 months into a conventional loan, you no longer have the 1 year occupancy requirement. But if you refi into a conventional loan as an owner occupant compared to a non-owner occupied conventional loan, which will have higher interest rates, you may want to check on the occupancy requirements before making that decision.

Hope this helps!

Jaron Walling · Answer

@Jarret Durst Before you get excited to make FHA 203k loan offers I'd encourage you research the challenges involved with it. Most investors agree it's probably the hardest way to get deal done. There's a lot of discussion in the forums on 203k loans.

Dave Skow · Answer

@Jarret Durst- the plan you  outline should be fine

Jason Wray · Answer

Jarret,

FHA & FHA 203K are the same and they do have a 12 month "Expectation" for 12 months for you to live in the home or one of the units.  However if you could refinance the home after 6 months and transition the home into a conventional loan.  You could then move out and treat it as a rental prior to the (12 months).  When you refinance on the REO - real estate owned section you list the home being refinanced as primary but intended to be use as rental/second home.

You might hear that you cannot refinance the home and move out but you 100% absolutely and move out if you set it up "Correctly".  This is where a seasoned Banker/Loan officer wold come into play to make sure the 1003/REO/application is done correctly.

Jarret Durst · Answer

I’ll do some research in the forums and see what other people have said about using this specific loan.

Luckily, there is a local rehab loan that is also FTH that requires 5% down and has similar occupancy rules as FHA but not as strict.

Fredy Sandoval · Answer

I agree with @Jaron Walling  do a lot of research about all the requirements, most people think that they can do the renovations themselves, but the bank will require a licensed contractor to do them. And the downpayment is based on the purchase cost + project cost.

Jarret Durst · Answer

Thanks man, I appreciate the reply!

Jason Wray · Answer

Yes, you can reach out anytime.

Holden Mitchell · Answer

You seem like you know what you are talking about! Is there a way I could ask for more clarity on the "correct" way to do this?

Can I use an FHA 203(k)

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