203k loan and refinancing

8 Replies

Hello all,

    Earlier this year I purchased a duplex in Philadelphia and am currently house hacking.  Everything has been going well for the most part, but we are getting tired of living in such close quarters with out tenets quicker than we anticipated.

This brings me to my question. In real estate, a common goal is to use as little of your own money as possible. So, I want to apply some of my investing strategies to my own house which will be my primary residence for the foreseeable future. I want to find a fixer upper and debating on using a FHA 203k loan or not. We could get into the property with out the 20% down and have the renovation costs financed. This is where I need help. I know I need a licensed/insured contractor to do the work. But what is the process like from start to finish? I am not a contractor but I want to do some of the work myself (demo,painting , etc) to cut costs. Is this allowed? If so, do those numbers need to be factored in when contractor gives estimates?

  Also, once all the work is completed I want to refi into a conventional mortgage and get as much money back out of it as possible.  I am not extremely worried about getting all the cash back because it will be my home, not as much of an investment.

  If anyone has any experience with these types of loans I would love to get as much info as possible. Need to pick someones brain the has a full understanding/experience.



Hi Jay, Just a suggestion, Call a lender that offers 203k and pose those question to them. Wellsfargo offers  https://www.wellsfargo.com/mortgage/loan-programs/purchase-renovate/

Hi @Jay Sechowicz ,

I experienced a similar thing you are thinking about with the 203k. The rule that I heard with the owner doing work is that you cannot be paid for any of it. My contractor placed his bid to do all aspects of the renovation and then I did things like you mentioned, painting, help with clean up, hauled away trash to trim some of the costs. What this did was allow for my contractor to not charge me for this items in his scope of work. I attempted to refi out my improvements but this failed. Appraisal came in at 317k (I owed/had in it about 300k) but managed to sell the house a few months later for 420k so overall it worked out.

@Christopher Rutherford That's good you found a way to make it work still. 

Does your contractor have to submit estimate before loan is issued? So he submits a bid and then takes off what he feels your work was worth at the end?

Or do I just ask for a certain amount and then pay the workers as we go?

Thanks again,


@Jay Sechowicz Yes the contractor submits the bid. The bank reviews it and an appraisal is done based on work you are going to have done (to make sure the improvements make financial sense). The bank pays the contractor the bid price. It is up to you to try and work something out with the contractor to try and get some money off that. 

@Christopher Rutherford ok so I take out loan for house+renovation and then bank pays contractor directly and the goal is to have the contractor back pay you essentially?

One more thing Chris, is there any rules against refinancing into conventional mortgage after all work is done?

Yes you can refinance FHA 203k into conventional after all the work is done, assuming the equity is there.

But, let's not get ahead of ourselves: You say that "earlier this year" you purchased a duplex as your primary residence. At the closing table, you promised to live in that duplex for 12 months. On top of that, 203k is an FHA loan, and FHA is incredibly skeptical about counting departing residence rental income, and will only do it in a few rare circumstances (typically involving a job relocation or similar), which could screw up your lender-calculated DTI.

Before you get into the weeds about FHA 203k, I'd suggest first ensuring that you are qualified for a vanilla FHA loan. If you can't overcome those hurdles, and still want to do reno, Fannie Mae HomeReady requires 15% down for an owner occupied duplex. FNMA HR is much more REI friendly than FHA 203k.

@Chris Mason I don't have a specific time table for when this is going to happen I'm just doing some

Homework to try and plan the best outcome once I'm ready. Pretty just seeing what Is reasonably possible or not. Thanks for the input I'll look into the other loan you mentioned too.

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