The 203K Loan - Open discussion and need advice on FHA Consultant
NC BiggerPockets Community,
This is directed at those of you who are interested in the 203K loan.
Done one or more 203K loans? Great! Who would you recommend as an FHA consultant/contractor?
Never done one? Also great! Hopefully my post can get a conversation started about this type of financing. If even one person can learn something from this I will consider this a successful post.
After reading the BiggerPockets book "Investing in Real Estate With Low or No Money Down," my wife and I have began doing detailed research on using a "203K" loan (part of FHA) to renovate a home. The book does a good job of explaining the basics, like the renovation/rehab costs being packaged into the mortgage, but there are a few critical parts that are left out of the book that we uncovered through research. (See below)
- Maximum FHA loan amount for Mecklenburg County is $294,515. This means that the maximum home amount (including repair budget) would be about $368,000 if we want to pay 20% down - https://entp.hud.gov/idapp/html/hicost1.cfm
- There are 7 approved 203k consultants in Charlotte. From what I can tell, you have the option of using them either as your home inspector or in addition to your inspector to verify the necessity of improvements for the 203k loan (you have to use one) - https://entp.hud.gov/idapp/html/f17cnsltdata.cfm
- For regular 203k loans, there is a minimum of $5,000 in repairs to add to the mortgage of the house. I can't find a maximum amount. https://www.hud.gov/program_offices/housing/sfh/203k/203k--df
- For limited 203k loans, there is a maximum of $35,000 in repairs, there is no minimum. Also limited 203k cannot be structural repairs. https://www.hud.gov/program_offices/housing/sfh/203k
- Mortgage Payment Reserves, which is an amount of the renovation budget set aside to make mortgage payments while the property cannot be occupied for up to 6 months. This means you don't have to live in place while it is being renovated AND you don't have to pay your current rent AND the mortgage for the newly acquired property during the time it is being renovated.
- I don't think you have to use specific contractors to complete the work, you only have to use a 203k consultant - pg. 386/1009
- There is no specific time frame that repairs must be completed in a 203k loan. The 203k consultant will basically set a reasonable timeline for the repairs to be complete. The key to all of this would be finding a great 203k consultant. It may also be worth having a 203k consultant come to see the property to determine the amount of repairs, just like we would with a home inspector.
- Any unused rehabilitation funds in a 203k loan will be reapplied to the principal
- There is no early redemption penalty for any FHA loan.
This is the basic research I have done so far. Let me know if any of you find this helpful and/or if there are any missing/incorrect points. Again, just trying to open a dialogue to facilitate learning and improvement.