Is the FHA 203k loan program actually difficult?

7 Replies

My fiance and I are trying to purchase our first home and get in the REI game. We have been on the "funding/financial" step for a solid 3 months now, trying to figure out what we can afford. Our expectation is to do a live-in flip. We've been exploring options from conventional loans to hard money lenders - everything in between and around. The strategy that sticks out the most to us is the 203k loan, and we've been trying to work with a couple of lenders who supposedly offer FHA programs.

Simply put, we're wondering exactly how difficult it is to make a deal with a 203k Loan. Its quite possibly the best option out there for us. We plan to live in the home for more than a year (it will be our primary residence), and we love the idea of this loan because it gives us an ample amount of time to learn about construction and the market all while working on the property. 

However, it seems a lot of lenders who advertise offering FHA loans are put off by the difficulty of finding a contractor(s) willing to work around 203k loan contingencies and guidelines. Lenders seem to be more scared of the loan than the client!

Really, any info would be highly appreciated. We are incredibly tired of being stagnant and we want to move forward (a.k.a. BY A HOUSE). If I need to answer any questions to help clarify or give more depth to this subject, I'd be happy to accommodate.

@Ashley Huff we have done quite a few 203k programs and yes they are cumbersome and there is lots of hoops to jump through but there is a lot of upside. The terms and interest rate are very fair and with a lot of hard work you can build instant equity. Here in the pittsburgh market we have helped quite a few clients use the program and its been a success but its not going to be simple.

Alex Deacon, Real Estate Agent

@Ashley Huff From my personal experience I believe the hardest part is getting a good contractor lined up ahead of time. The loan paper work and inspections are more cumbersome than a typical loan, but if you have a good a contractor it's worth it. Having a contractor and FHA inspector that see eye to eye is good too. You want the repairs to go towards the stuff you care about, not a bunch of FHA mumbo jumbo that isn't adding value.

@Ashley Huff sounds like you are talking to the wrong lenders.  A great lender/LO will actually help you find a great 203K consultant and contractor.

The 203K is a GREAT program for the right person. Yes, they can be challenging with the construction part, but the underwriting is virtually the same as any FHA loan. As long as you know going into it that it's a pain in the butt to deal with the construction element, and that you cannot do the work yourself (which is the biggest turnoff), then this program can create a ton of equity on the right property for the right person.

If you need help finding a rockstar LO in TX who actually likes doing 203K's, is great at it, and will actually help you out and not huff and puff about it, PM me and I would be happy to connect you.

Best of luck!

Zack Karp, Lender in (#NMLS 197896)

Give Fannie Mae HomeStyle loans a look as well. 

https://www.fanniemae.com/content/fact_sheet/homestyle-renovation-product-matrix.pdf

Yeah, the paperwork and documenting does not scare me off. More so finding a contractor who will work with us and a 203k is the scary part. I'm afraid they will charge a lot more because of the obstacles 203k presents. We just have so many questions about the loan and need to talk to a loan officer so we can get help. We want that person every step of the way so they can straighten us out when we step out of line. I'm sure once we find the right loan officer, we'll get this ball rolling!

Originally posted by @Ashley Huff :

Yeah, the paperwork and documenting does not scare me off. More so finding a contractor who will work with us and a 203k is the scary part. I'm afraid they will charge a lot more because of the obstacles 203k presents. We just have so many questions about the loan and need to talk to a loan officer so we can get help. We want that person every step of the way so they can straighten us out when we step out of line. I'm sure once we find the right loan officer, we'll get this ball rolling!

Use a GC referred by the HUD consultant. Schedule both the GC visit and the HUD consultant visit to be concurrent, with you and your agent present as well. The four of you are going to come to a "meeting of the minds" right there on the spot about what needs to be done, about what it'll cost, etc.

A majority of the pain of 203k comes from using a contractor that is not 203k friendly and/or poor communication between the HUD consultant and GC. You're almost certain to blow your contract timelines if you pick a rando GC, and not a 203k-friendly one.

Yes, it's commonly known that the amount financed using 203k will be more than the amount paid in cash to a GC directly without a lender being involved. This is no different than a lawyer that's an expert in real estate law charging more for their real estate legal services than some wet behind the ears generalist lawyer that's never done a real estate deal and just passed the bar 2 weeks ago.

FYI: I probably talk to 30 people about 203k for every 1 or 2 that actually do it. Listing agents dislike 203k, that's a major hurdle. 

Chris Mason, Lender in CA (#1220177) and California (#1220177)

look into the home path properties before going for 203k in my opinion. Big hassle to go 203k with GC having to wait for his money they tend to stall your job to get cash first and fit you into the schedule. Can U go VA? Don' forget PMI payments for the pan gets added on. Good luck.

Charlie DiLisio

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