FINALLY!!! Closed on my 203K.

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FINALLY!!! Closed on my 203K.

Arthur Banks
Real Estate Investor · Waukegan, IL · Member since 2013 · 367 posts · 80 votes

I plan to write a very detailed blog on my 1st experience using a 203k loan, but for now, I wanted to shout at the top of my lungs, that I FINALLY closed July 3, 2014 on my latest acquisition.  A 2 unit - each unit, 3BD, 1BA, 2 car garage (divided), full basement  with laundry for each.  Contract was accepted 3/11/2014, so it has been a very, very long process. Details to come!

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Jeff Onofrio
Specialist · Marlton, NJ · Member since 2014 · 92 posts · 55 votes
12y

@Arthur Banks - you said it best.  Your lender needs to have experience. While it is important to have an experienced contractor the lender can train any contractor if they know what they are doing.  FHA 203k and renovation loans are all I do at my company and the truth is they do not need to be as hard as they are but you need to do your DD on the people involved in your transaction and there levels of experience.  

I am personally planning to take the time to write more often about these products so that other BP members do not have to go through this same type of troubles.  

The FHA 203k loan is a great product and can really do a lot of good when done correctly.

Congrats! 

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  • Gilbert Lowe III
    Investor · Pittsburgh · Member since 2014 · 7 posts · 4 votes
    12y

    Congrats! This is very helpful!

    0Reply
  • Danny Duran
    Rental Property Investor · Mars, PA · Member since 2014 · 92 posts · 36 votes
    11y

    @Arthur Banks I am considering doing a 203K loan for a 4-flat (currently under contract). It would be a full blown one as the renovation costs would be greater than the streamline limit of $35K. I have a call with a loan officer, his 203K specialist, and @Brie Schmidt tomorrow morning to discuss the particulars of the loan and run a bunch of scenarios by them. The rigorous number of references (credit and previous work) didn't occur to me. I will certainly bring that up on the phone.

    I like the idea of having an FHA consultant to project manage and help certify proper contractor work. I also like that they release payments in milestones after approval and adhere to the strict budget.

    I sense that there are very few contractors who can meet the demands of FHA 203K and, therefore, can get away with charging more in their bids. Do you believe this is the case?

    Thanks for sharing your experience. It's a great help.

    0Reply
  • Ahmed Porter
    Contractor · washington, Washington D.C. · Member since 2011 · 204 posts · 64 votes
    11y

    Great I do alot of 203K and make sure you deal with a contractor who has did them before , You can tell he will have the paper work almost ready they ask for he same thing w-9 lic insurance three reference and the bid is all that is needed.Make sure you spell things out with the contractor is very key step . Anything you say put it in writing ex the plumbing you said were you save cost even in a tex you are out to save we are out to charge more money. Stream line is great did about 15 of them they would give 1/2 money up front and half once done now I think it's a 1/3 . its a little slower but it not a bad way to finance a deal good luck to you.

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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    11y

    @Ahmed Porter - Assuming you have a competent contractor who knows the process, how long would it take to close?  By the time we get inspection results back for @Danny Duran we will have 6 weeks till the closing date - is that realistic?

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  • Arthur Banks
    OP
    Real Estate Investor · Waukegan, IL · Member since 2013 · 367 posts · 80 votes
    11y

    @Danny Duran    I don't believe it's a case of contractors not being able to meet the demands, I think it's more of DESIRE to meet the demands. I can only speak to my situation, but I went thru 2 contractors before finding the current one. And with the first 2, it seems the mortgage company was experimenting or learning the ropes. There was so much misinformation. That is something that frustrates the contractor. All the back and forth and paperwork. Most contractors I know don't sit behind a computer all day dealing faxing and and emailing paperwork.  The current contractor needed what @Ahmed Porter  said but he also needed 5 customer references on top of the 3 business references (could be electrician, plumber and credit line with store, for instance). The first two contractors got pieces of necessary info, only to be told "Oh, yeah, now we need _____." That's frustrating. 

    Just make sure you bank knows what they are doing and tell you all that you need as well as what the contractor needs. Working with the consultant you shouldn't have the same issues that I had. I was told later I could've opted to hire consultant. Knowing what I know now, I would jump at the chance and pay the extra $500. 

    Oh, yeah. Another issue I ran into.  As I was looking for a contractor, I was also looking for a plumber, HVAC and hardwood guy. I was only looking for the sub's because I was having a hard time finding a contractor and I was running out of time, so I figured I could kill 2 birds with one stone. As long as the contractor was ok to work with the sub's I was good. I got those three trades lined up. Got bids and finally found a contractor. Told him the quotes and he included their exact quotes in his bid. Doesn't sound like a problem, right? Wrong. Because the bid that was turned in by the contractor and not individual bids by all the trades, the contractor was on the hook to pay the subs as they completed their work. Still doesn't sound like a problem, right? Well, the problem is the first draw is for materials ONLY. So you can see the issue.  Since the contractor doesn't have a relationship with the subs, they won't float him money or credit, they want their money when THEIR job is done. Not when the project is done. All my contractor has is the material money. What I was told by the mortgage company who financed the project and eventually bought from the originating mortgage company is that I could've hired up to 3 trades along with the contractor, but they must submit their bids separately. Then they can get their pay as they complete work. Fortunately, I lucked out. The HVAC guy is a family friend and is ok waiting til job complete. And the contractor was able to get his subs to match the bids and they too are ok to wait. 

    I reiterate, ask questions and then ask more. Do like kids do and just keep asking "Why?" and then ask another question.

    1Reply
  • Devan M.
    Investor · Oklahoma City, OK · Member since 2014 · 96 posts · 13 votes
    11y

    @Arthur Banks 

    Hi Arthur,

    Congratulations on moving forward with your 203K deal, especially with all the set backs you've been through!  I do have a couple questions for you as I am looking into possibly doing a 203K in the next few months.  

    It seems like you've needed more cash out of your own pocket than you originally budgeted for in order to pay for various fees and foot the bill for anything that goes wrong, is that the case?

    Also, how long did it take you to find a lender that would do a 203K loan?  I've called a few mortgage brokers and they say they know of 203K loans, but either haven't seen one done or don't know who does them in my area.  

    Looking forward to more updates, and hope things go smoothly for you from here on out!

    -Devan

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  • Arthur Banks
    OP
    Real Estate Investor · Waukegan, IL · Member since 2013 · 367 posts · 80 votes
    11y

    @Devan M. The extra expenses that I ran into were the extension fees to keep the deal on the table thru closing. As far as running into unforeseen expenses, they keep back a portion of the total budget as reserves. In my case, they kept back just under $5K. We found some leaks in the plumbing that wasn't accounted for so that will come from the reserves. A change order is required with a copy of the costs and that too is paid with the final draw. Any money not used goes to pay down the principle or I can use to "upgrade" an area that was part of the original bid. For example, since I redid the kitchen, I could use some money to upgrade say, the appliances. But I couldn't put in new windows because they weren't in the bid.

    UPDATE: Currently, we have just about finished the interior of both units. Unit 1 is on the rental market as of last week. A few have commented it's one of the best places they've seen. So that feels good. I'm going to give it another week or so and re-examine the market. Being that it's October this week, it's getting harder to find renters. I may have to drop the rent. I'm right at market and had planned to come in just under. And I would've been if this was July like I had hoped to be ready to rent by.

    Below are a few pics. Not sure why the BEFORE pics are sideways. But oh well.

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  • Devan M.
    Investor · Oklahoma City, OK · Member since 2014 · 96 posts · 13 votes
    11y

    Awesome!  It looks like it's moving right along, and the hardwood floors look very nice.

    0Reply
  • Arthur Banks
    OP
    Real Estate Investor · Waukegan, IL · Member since 2013 · 367 posts · 80 votes
    11y

    Thanks!

    0Reply
  • Ahmed Porter
    Contractor · washington, Washington D.C. · Member since 2011 · 204 posts · 64 votes
    11y

    GLAD TO SEE IT WENT WELL FOR YOU  KEEP US UPDATED

    0Reply
  • Jaime Penix
    Investor · Tampa, FL · Member since 2014 · 104 posts · 32 votes
    11y

    @Arthur Banks I am in the initial stage of doing a renovation loan. I have lost several deals prior to this because I could not find a contractor to work with. It seems that with contractors there is a 40% mark up on the work to done when compared to hiring the subcontractors directly. Was that your experience as well? I am going through Wells Fargo, I am not sure if their process will be any different than yours. But Congrats!!!

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  • Arthur Banks
    OP
    Real Estate Investor · Waukegan, IL · Member since 2013 · 367 posts · 80 votes
    11y

    @Jaime Penix

    Yes and No.  My situation was not a typical situation though.  The first contractor TOTALLY underbid the job, thereby locking in my rehab budget with the bank. I didn't realize by how much until I started doing my due diligence by pricing material and getting separate quotes for different jobs (e.g finish floor, plumbing, roof, etc.).  I was fortunate to find a contractor to do the job for the stated quote by the first contractor who couldn't get qualified.  But in hindsight it was a blessing because we would've been short of funds. I don't remember numbers and not sure if I posted above, but the 1st contractor bid like $18K for both units. When it was all said and done I came in just under $33K (a little over $14K was labor) AND that includes the contingency reserves that were held.

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  • Vincent Crane
    Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes
    11y

    That's great, congrats. I plan on using a 203k loan myself when I buy my first owner occupied property to add some value

    0Reply
  • Carlos Fernandez
    Investor · Miami, FL · Member since 2015 · 31 posts · 18 votes
    11y

    This is an awesome thread. Part train-wreck, part med school surgery observation. Thank you for sharing so that others can learn from your experience!

    0Reply
  • Mark Smith
    Investor · Columbus, OH · Member since 2015 · 18 posts · 4 votes
    10y

    @Arthur Banks Thanks a lot for sharing, great posts.  Any further updates?  I'm looking to do a 203k in New York.

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  • Arthur Banks
    OP
    Real Estate Investor · Waukegan, IL · Member since 2013 · 367 posts · 80 votes
    10y

    @Mark Smith Sorry, I totally forgot to come back to this post. I eventually found tenants in November of that same year.  They wanted a 6 month lease and I wanted to get on a spring/summer turnover time frame so it worked out for both of us.  Great, young couple with an infant. Rent was always on time or early and they left the place in move in condition, save for a nail hole and towel rack had pulled away from the wall. I replaced wall anchors with stronger ones, slapped some mud and paint over the nail hole and was good to go.  The current tenant moved in right after the prior moved out, so I had no vacancy.  She is, well, she's not bad, but she started paying rent on the 4th or 5th about 5 months in. She's never been "late" as per the lease and doesn't cause any issues. My lease gives until 5th, so I guess I can't complain.  Although I will be shortening that grace period. So, so far all has been well. Thanks for reading.

    1Reply
  • Mark Smith
    Investor · Columbus, OH · Member since 2015 · 18 posts · 4 votes
    10y

    Awesome, congrats @Arthur Banks.

    0Reply
  • Caleb Brown
    Investor · North Chesterfield, VA · Member since 2016 · 42 posts · 5 votes
    10y

    WOW! I just went through this whole thread. 
    I am on the brink of putting in an offer on a house that is a total wreck and I plan to use a 203k loan. However this is making me take a careful look. @Arthur Banks, what would suggest to someone looking to do a 203k so that they avoid the problems that you ran into?

    0Reply
  • Arthur Banks
    OP
    Real Estate Investor · Waukegan, IL · Member since 2013 · 367 posts · 80 votes
    10y

    @Caleb Brown I would say find a lender and contractor that have done a few or better yet specialize in the loan. Use a consultant even if you qualify for the streamline. Here is another post I made.  At the end Steven Gesis has a link to a great write up on what to do and not do to be successful.  Hope that helps!

    1Reply
  • Noelle Yarn
    Virginia Beach, VA · Member since 2015 · 54 posts · 14 votes
    9y

    Thank you so much for this post.  Im looking into using a 203k for my 1st owner occupied property.

    0Reply
  • Kai Kopsch
    Real Estate Broker · Charlotte, NC · Member since 2016 · 569 posts · 351 votes
    9y

    Congrats to you @Arthur Banks and thank you for sharing your story.

    0Reply
  • Yogi Breeze
    Poughkeepsie, NY · Member since 2017 · 2 posts · 0 votes
    9y

    Is the 203k program still in operation.  I had heard it is being shut down?  Thanks.

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  • Corey King
    Investor · Austin, TX · Member since 2016 · 17 posts · 5 votes
    9y

    Thank you for sharing, Arthur!  Please, keep us updated.

    0Reply
  • Kendra Haten
    Real Estate Professional · Jacksonville, FL · Member since 2016 · 7 posts · 1 vote
    9y
    Thank you for this post ! I'm ready to place a offer on my first 203k you provided great feedback !
    0Reply
  • Karol Sawa
    Investor · Sarasota, FL · Member since 2014 · 7 posts · 3 votes
    9y

    Great post.

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