Connecticut 203K - First Investment

11 Replies

Hi everyone,

I am learning about the FHA 203K loan to potentially finance my first flip, but am having trouble finding this info...

In Connecticut, exactly how long would I be required to live in a 203K property before re-selling or renting it out?

Thanks!!

Hi, I know this is an old post.  203K loans, you are required to live in the property for a year.  You can rent out other units if you want.  You can finance up to a 4-unit multifamily with a 203K. I currently hold a property financed thru a 203K.  IMO 203K is best for buy and hold investments. Because of the 1 year live in requirement plus whatever time it takes to fixed up the property.

Hi, I know this answer is late to the game but I also did a multifamily with a 203k loan. The process was really painful but the end result is worth it. If I remember correctly, the loan requirements are that you INTEND to live there at least a year but I don't think there's any follow up or audits to make sure you're actually living there. So I think you can intend to live there when you buy the property and then change your mind a few months later. 

I think the 203k is really valuable in a multifamily scenario because of the low downpayment. Multifamilies are more expensive than single families and so is the downpayment. It's really nice to be able to drop the low 3.5% downpayment for the 203k. Also, if you use a 203k to rehab a multi, then refinance out of the 203k loan, you can then use ANOTHER 203k loan to go into a single family home. It'd be hard to go from multifamily to multifamily, so if you want to use the 203k, use it on a multifamily first. Hope that helps!

@Stephanie Cabral

 Did you end up refinancing out of your 203k?  I'm really curious to hear more about your strategy.

Hi Kim, I did refinance out after the loan seasoned for 6 months and went conventional. Refi requirements are a lot easier to pass than purchase requirements. For example, no reserve requirements!

A word of caution in that - if you're doing something during the rehab process that puts a lien on your property, for example I converted to city water and financed it through MDC which put a lien on my property, be very careful because MDC won't subordinate their lien...that means, you may have a hard time refinancing because the new lender can't get a priority position so you'd have to pay off the loan to get the lien released in order to refinance. I happened to get lucky and was able to refinance once but then I was looking into refinancing again (long story) and it didn't work because of the lien.
 

@Stephanie Cabral Thank you for sharing! When you refinanced, was appraised value much higher than the amount of your loan? When I had my appraisal done for the 203k they appraised the house at the exact amount that my loan ended up being, so I'm not sure I'd have enough equity at this point to be able to get out of paying PMI. Do they typically appraise based on estimated value after rehab?

 @Stephen Quesnel I think this is actually a good way to go for a flip. I bought my house for 133k, put in 50k in renovations (which were financed through the loan) and just had it appraised and I have $50k in equity. All I had to contribute was the 3.5% of 183k.

Mine happens to a buy and hold, which I use as my primary residence but I don't contribute to my mortgage. Pretty nice deal, all thanks to the 203k. Did you already do your deal?

 @kimgiannolo - my after repaired value was significantly higher than the loan, but that's just how the numbers worked out. I think the requirement when approving the loan is the lender wants to see the after repaired value will at least equal the value of the loan. I agree though, if you refinance and you're at 0% equity, you won't get out of pmi. I didn't completely get out of the pmi but it was significantly reduced since I had so much equity. I didn't realize pmi is not a binary question where you either pay it or you don't. Mine was reduced proportionately to the amount of equity I have so I was paying almost $200 in pmi, now I pay just under $50. 

Have you already refinanced? If not, did you get your loan under the new FHA laws? They require the PMI for life so if that's the type of loan you have, you might as well refinance it now: you know eventually you'll want to refinance to get out of your pmi and if you wait until you're up to 20% equity the interest rates may not be as nice as they are now.

Kim - I want to clarify - when I was applying for the loan, they did an appraisal to determine the after repaired value. THAT ended up being right around the amount of the loan I was applying for. When I was refinancing 6 months later, I had to do another appraisal and THAT'S when the appraised value showed I had $50k in equity.

@Stephanie Cabral A reduction in PMI is still worth it, I didn't consider that aspect. That is wonderful that you were able to get so much equity after your rehab. I financed my house in 2012 and I was given a timeline when I would be able to get out of PMI so thankfully there is no lifetime PMI.

Before you refinanced and did your second appraisal, did you have any idea you would be getting so much equity?  That is incredible.  I've tried looking at comps in my area and I can't seem to find anything quite like my house that was recently sold.  Only a small handful.  If you don't mind me asking, what lender did you use for the refi and who did your appraisal?  Also, did you see a decent drop in your interest rate?

Thank you!

Originally posted by @Kim Giannola :

@Stephanie Cabral A reduction in PMI is still worth it, I didn't consider that aspect. That is wonderful that you were able to get so much equity after your rehab. I financed my house in 2012 and I was given a timeline when I would be able to get out of PMI so thankfully there is no lifetime PMI.

Before you refinanced and did your second appraisal, did you have any idea you would be getting so much equity?  That is incredible.  I've tried looking at comps in my area and I can't seem to find anything quite like my house that was recently sold.  Only a small handful.  If you don't mind me asking, what lender did you use for the refi and who did your appraisal?  Also, did you see a decent drop in your interest rate?

Thank you!

NO, I had no idea I'd have so much equity. It was my first deal and I worked the numbers so I would be able to have the tenants pay the mortgage. That was my one and only goal. The equity really just was lucky. I had an adjustable rate on my first purchase so I didn't see that much of a change on my interest rate. But I was refinancing for stability in my rates, not a reduction. I used a broker, both times, and for my current project I'm using the same broker. I inboxed you his info. I'd ask a broker whether it's worth refinancing now based on your numbers - where you are in your loan, the value, and if you can get a reduction in rate or pmi. Good luck!

Thank you, I will do that!  :)

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