203k or Conventional Loan???

Question

Hello BP community. This is my first post on BP which means I am newbie to the community. I've actually been a member for about two months now. First off, let me just say that you all are true inspirations and I would like to thank all that have contributed to making this such a resourceful commodity for my wife and I to pull from! You all rock!

Here's my dilemma: We have been considering purchasing a multifamily duplex using a 203k fha loan. Our initial thought was to purchase the property with a low downpayment, rehab the property and bring up the value of the property (for future investment strategies), live in one side and rent out the other side( House hack). I've pitched the idea to our realtor and he's on board with the strategy, but has never worked with a client that plans on using the 203k. I don't have a big issue with that. what concerns me the most is when we pitched the idea of how we wanted to fund the property using 203k to the lender, he was not on board with the option (in-house lender to realtor company). Primarily because he does not have any experience with this type of loan. We both are aware that this can be a daunting process with the amount of paper work and procedures that come into play when using this type of loan. He then suggested that we go the conventional route to purchase the property, then take out a person loan to fund the renovations. I personally don't want to take out two loans for one property, would rather have one loan that can address both needs. Sorry for the long narrative, I guess my question is, should I consider going the conventional route and taking out a personal loan to cover renovation cost? or search for a different lender that has experience with this type of loan, who understands the procedures behind the 203k?

Would also like to know if anyone has used this type of loan to fund properties? What was the process like? Did your lender have experience in dealing with this type of loan? Open to all advise that can aid in my decision making!

Bob Okenwa · Answer

@Leonard Burks

The lender has already shown that they are both incapable of processing such a loan, and that they are trying to steer you to a product you do not necessarily want. I'd ditch the lender and make a few calls to find one that can process the loan you want. This is your business, your money, and your credit on the line here. Try and make the best decision for you and find a lender that can help you achieve your goals in the manner you see fit.

John Mainwaring · Answer

I had a buddy complete the paperwork for the HomeStyle loan, it was reasonably straight forward.  I got a bid from a contractor who specializes in 203k (when we were still pursuing it) and it came back at $215,000.  My friend and I went through our list of local subs and found everything was marked up 2-4X, usually to the higher side.  The HomeStyle is a Fannie Mae product where the appraiser comes back after work is completed two do the walk through, I haven’t researched it at all to see how it compares to the other products out there.  It has a $35k cap with 10% of that being contingency, I don’t recall there being any limits to the use of the renovation dollars.  It got a bit messy as my handler left the company and communication was difficult at a time when we had to do a change order.  I know the higher allowance 203k has a lot more moving parts, nothing that I find would be afraid of taking on.

I’m still working on the property a year later after the subs moved out.  We moved my inlaws into it after the year and I’m using it as quasi live in flip now.  It’s a long term hold, very unique property that would work well as a vacation rental.

Leonard Burks · Answer

@John Mainwaring in doing my research about the loan, I've found that many people have said it's a grueling process. Which is something I'm not reluctant to. Did your lender provide you with a list of approved 203k contractors? or did you have to search them on your own? Did the Homestyle product allow for you to replace appliances and things such as HVAC unit? What did you decided to do with the property once completed?

Leonard Burks · Answer

@Bob Okenwa Thanks for sharing your knowledge. Since then, I've notified the lender that I would pursue other lenders that have a history of working with a 203k. I'm starting to realize to just trust my initial instinct.

John Mainwaring · Answer

It was a headache for us, we ended up going with a similar product, Homestyle, as we could not find an appraiser willing to do the numbers for our house.  I have a good friend who was willing to do the paperwork to become the approved contractor and that was a straightforward process. I wished that I had just left the scope of work to capital projects, it wasn’t worth the hassle dealing with drywall/paint/cosmetics trying bring up the value when I have a huge HVAC scenario that needs to be dealt with now that everything is completed.  The other issue we ran into was delays from weather and having a portion of the project that depended on three different subs to get their own job completed before the next could start.  WE had a massive hail storm in the town nearby that set all the roofers back months and rain for weeks on end made set my stucco guy back just as much.

I’ll do it again for a live in flip or house hack for all the projects that I don’t want to pay out of pocket for and to get the house habitable enough to move into and complete the work with my own crew.

203k or Conventional Loan???

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