Using an Fha 203k loan to flip a property

20 Replies

Good morning BP, i wanted to know if anyone has used a fha 203k loan to flip a property. If so what was your experience like? How fast was the bank paying out for work needed? Any stories would be nice. thank you

First of all, fha loans are for owner occupants only.....you have to sign affidavits that you will live in the house for at least one year.

Draw schedules are similar, or better, to draws a contractor normally gets.

When I was looking for my first home, I dabbled at a 203k loan. 

If you are strongly considering going that route, I would make sure that the lender you go with has a lot of experience with it. 

You also need contractors who are licensed to do the work for something like that (if I remember correctly). They have to work with the bank as far as getting paid, it can be a real hassle for them. Especially if the work that needs to be done isn't estimated correctly from the beginning. 

@Kevin Sheppard I did a live in “flip” but I still live here. I ended up with a beautiful house to live in and a 75k HELOC which I’m using for a down payment on a duplex that is set to close next week. I originally intended on flipping the house and making a big profit since I found a beat up house in a really desirable location. But realized I dIdnt want to move, so I found other alternatives to invest that “sweat” equity. It was tough work and a lot of long nights/weekends since I work full time. But it has given me more opportunity.
@Kevin Sheppard I would take everyone’s advice with a grain of salt. Including mine. You have to work with the cards you are dealt. If that happens to be a 203k loan, then just bust your a** and make it happen. That’s the best advice I can give. My market was red hot when I was searching, it took me 9 months to find the deal I wanted and another year to renovate it. I also didn’t know what I didn’t know, so there were a lot of curveballs thrown at me during the whole process. But we are very capable of making anything work with persistence and hard work. Most people don’t want to put in the work. Knowledge is important, but action is more important. Combine the both and you get the results you’re looking for.
Originally posted by @Kevin Sheppard :
@Matt K. what do you mean no one would want to deal with it?

the hassle of all the paperwork attached to a FHA loan, cash deal (or hard/private money) is much easier from the seller side and less of a chance that it falls through.

@Kevin Sheppard , I am in the process of doing a Fannie Mae Homestyle loan which is a similar product. This is perfect for a live in flip. You need a lender that is familiar with the process and a very organized, very patient contractor. There is a lot of very detailed estimates they need to provide. Everyone told me to stay away from them, but the purchase was 315k and I was putting 150k into it....so getting my hands on 465k cash was not possible for me. If you can live in it for two years as a primary and avoid paying taxes on what you sell it for.

I purchased a HUD home with an FHA 203k loan in 2016 as my first flip. There are advantages and disadvantages, but be prepared to be very frustrated, and SHOP FOR A LENDER. My lender had no clue what they were doing and took 116 days to close, which caused me to pay 3 HUD extension fees.

A few important notes:

-They hold a 15% contingency, so your "real" rehab budget is $29,750. Your budget must be less and they release the remaining funds on completion. 

-You must work with a contractor. Your contractor must agree to their terms. 

-50% down and 50% on completion inspection. Not favorable to most contractors. 

-You must do and detail every tiny bit of work that whatever appraisal you get details. Example: If your scope of work says "Tear off and replace roof" and your appraisals states there is a shingle missing, you must also update your scope of work to show "replace missing shingle referenced in photo XXX". 

-You will revise every document 30 times. At the beginning of every month, be ready to send your statements in. 

Summary: This loan was a huge headache, BUT it allowed me to buy a home at 22 years old with 3.5% down that I now have $90k of equity in even after a cash out refi. The numbers worked and it ended up being a great vehicle to get me into an 80% position and a brand new house. Do your homework when finding a lender though, and just be prepared for what lies ahead. 

@Brian Ellis " I would take everyone’s advice with a grain of salt. Including mine. "  I think Real Estate truisms are my new religion.  I think I am somewhere between the OP's situation and yours.

But here's the truth: More like a Truckload of salt. I see the BRRRR calculator and the HML calculators. I'm finally composing my "Bias Calculator" so I can translate from REI-ese to English. Pretty sure I can smell success somewhere now.....

As others have said, you could do a live in "flip" or house hack, but you have to live there and you're supposed to live there for at least a year.