203k and HomeStyle renovation mortgage

2 Replies

I️ recently started looking into these mortgage options to purchase a home that needs work. I️ understand that these require a contractor to complete the work. I️ have a few questions though that I️ can’t seem to find the answer to.

1. Who decides what work needs to be to the home?

2. This question depends on the first but could I️ use either loan for major repairs out of my ability and for cosmetic repairs do myself with my money?

For example if the house needs a roof, Hvac system, renovate kitchen, baths, and flooring throughout. Could I️ use the loan just for the roof and hvac installs and do the kitchen, baths and floors myself out of pocket?

Thanks in advance

I haven't used one of those types of loans, but it stands to reason that the house needs to be completed to FHA standards. You do the repairs to a condition where you can get a conventional loan in place. So no loose electrical wires, a working kitchen with a stove in place, working toilet, and several years left in the roof. Probably functional windows. No mold or water intrusion.

We had to have a property in pretty good shape in order to get a VA (veteran's) loan. I would wager this is similar.

Anyone who has used this lending product, please chime in.

@Tyler Berardinelli here are your answers:

1. On what work NEEDS to be done:  the appraiser will formally set this.  However, if you are using this loan type you need to know what type of work needs to be done on the home to qualify for a conventional loan.  I would certainly speak with your lender on this topic to be familiar with what is needed.  BUT with what you WANT done (meaning gutting a kitchen or something like that) then you will set that yourself.  Before the appraiser even goes to the property the appraiser will need all the bids from your contractors.  That's why it's important to know what is needed beforehand so you know what to offer on the property in order to fit all your contract work into the loan.  For the appraiser to know what the "After Repair Value" he/she will need to know what repairs are being done.  And these loan types are pretty specific on how the work is shown on the bid.  Also, keep in mind that a 203(k) is just for your primary home and it will not be available to you, even if you do use it for your primary home, if you own multiple properties.

2.  You are not permitted to do any work with these types of loans.  Each contractor must be licensed (if a license is necessary for that profession) and insured and also have references to their work.

Hope this helps but let me know if you have other questions on this.  Thanks!

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