I've been doing some research on FHA 203k loans, and I'm a complete newbie to investing so I still have a few questions. I've seen online (usbank.com) that the current average rate for a regular 30-yr FHA loan is 2.625% and the APR is 3.678%, and that I should expect a 203k loan to be roughly 1% higher (3.625% rate, 4.678% APR). I assume these are relatively accurate numbers, but I have little experience so it's possible I'm not researching in the right places. Please correct me if those are inaccurate numbers. I have also seen that I should anticipate roughly 0.85%-1% extra for PMI. My question here is whether or not that extra % for PMI still needs to be accounted for, or is it already baked into the percentages above?
My second question has to do with the points charged and other closing costs. I've seen that I should expect to be charged around 1.75%, or 1.75 points (themortgagereports.com). Again, if this is not an accurate number in your experience please let me know. I know that you have to hire a HUD consultant if the renovation is large enough, but are there any other closing costs involved in a 203k loan besides the typical closing costs of a conventional loan (i.e. property taxes, insurance, appraisal, etc)?
My reccomendation with 203k loans is to make the lender prove they have extensive experience with 203k and recent closed loans. They will help a lot, but a lender that says they do it but no experience can you create a lot of headaches. I tried to do a 203k, got approved, found approved contractor, got the bid, and 1 week before closing the lender decided they didnt want to do the 203k portion and the only option I had was to purchase FHA, and do the repairs on my own. It worked out a lot cheaper for me but more time and headaches doing the work and contracting myself.
Thanks for your feedback David! Do you think that saving money with the regular FHA was worth the headaches that it caused (not considering the additional headaches caused by the inexperienced lender)? I've thought about using regular FHA loans as well, but my logic is that there are so many old properties in the areas I'm looking that I figured if I was going to use a low down payment loan (already a bit of a headache) that I might as well do a 203k and get some repairs out of the way from the start.
The FHA 203k Loan does have a higher interest rate than the traditional FHA loan (FHA 203b). The rate can be 1/4% - 1% higher ... on average.
The APR will generally have a larger spread compared to the FHA 203b because of the extra origination fee and additional costs associated with the 203k.
PMI is for conventional loans and MI is for FHA loans. FHA loans will have an upfront MIP fee (mortgage insurance premium) of 1.75% of the loan amount and a monthly MI of .85%.
Regarding the HUD approved FHA 203k Consultant, FHA requires their use is required on the Standard 203k but optional on the Limited 203k. However, you should use a HUD approved FHA 203k Consultant on all 203k's.
Additional costs on 203k's include but not limited to:
- extra origination fee (part of closing costs)
- 203k consultant WWU/SOR/Inspection fee (paid at time of service)
- Inspection/Draw fees (added to loan amount)
- Title update fees (added to loan amount)
contingency reserve based on rehab costs (added to loan amount)