203k Loan Financing
Hi all. I plan on mostly focusing on really distressed properties. From what I've heard, banks will laugh you out the door if you ask for a loan for these types of properties? How is everyone else getting financing for properties you can increase the value on via forced appreciation? Is the 203k loan the only way to do it?
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Good points raised here, and the contractor participation issue is real — it's one of the first things I walk borrowers through when they're weighing a 203k against conventional rehab financing. A few things worth adding to the conversation:
**On contractor restrictions:** The 203k doesn't technically require a "short list," but it does require contractors to be licensed, insured, and willing to work within HUD's draw and documentation process. A lot of quality contractors simply don't want the administrative overhead, which can shrink your pool and, as you noted, push costs higher. That's a legitimate tradeoff.
**On the community bank / relationship lending point:** Completely agree. Portfolio lenders — community banks, credit unions, private lenders — can be far more flexible on terms, especially once you've established a track record. The flip side is that most of them want meaningful equity in the deal up front, carry higher rates than a 30-year fixed FHA product, and the loans don't conform, so you're not getting the same long-term amortization structure.
**Where 203k still wins:** For a first-time investor or owner-occupant with limited capital, a 203k with 3.5% down and a 30-year fixed rate is hard to beat on a stabilized cost basis — even if the renovation budget runs a little higher due to contractor friction. After 31 years in the mortgage business I've seen investors underestimate that long-term financing cost difference. A slightly higher rehab bill on a 30-year fixed can still pencil better than a shorter-term portfolio note at a higher rate.
**The real answer:** It depends on your capital position, your investor status (owner-occupant vs. pure investor), your existing bank relationships, and the scope of work. Neither tool is universally better — they solve different problems.
Happy to dig into specifics if anyone is modeling out a particular deal.
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Jim DriscolL