Hey Emmanuel - all great questions! This strategy is a valuable one, especially in this hot market. I think it's more important than ever to be prudent, and look to build equity rather than overpay and be under water from the gate which we're seeing a lot of right now.
To answer each question:
Does the 3.5% still apply to this loan?
Yes, since it's an FHA you only require a minimum of 3.5% of the total purchase + renovation costs. The down payment requirement is the same no matter how many units your property is, up to 4.
Is there certain types of construction that this doesn’t cover?
In general, it covers most conventional renovation items. What it doesn't cover is new builds on purchased land, etc. But alterations, renovations, additions, etc. are all covered.
Just don't try building like, a tennis court or giant pool house or something haha. It's renovations within reason. ("Reason" could be determined by the lenders renovation lending dept)
Is there a “certification” or some sort of special license that a contractor needs to work on a house under a 203K loan?
Nope! Any licensed, insured, and bonded contractors can qualify to be your contractor for the project. It absolutely helps if they've done it before, or are familiar with the process, but it's not at all necessary. What's more important is to make sure that you vet them out by calling their references, checking their reviews online, or getting personal referrals from friends or colleagues.
Biggest newbie mistake is to go with the cheapest guy, or only getting one bid, with nothing to compare to.
Start vetting contractors now, have a pool to pick from when you're in contract and call on all of them to come give you an estimate. Some won't show, some will be too busy, so you need to have a couple at any given time. You don't want to get caught without one when the time comes.
While the house is being rehabilitated, will I need to start making mortgage payments while it’s under construction or does it start once the house is done?
No! There's an option in the 203k loan that allows you to wrap up to 6 months of mortgage payments into the principal of the loan. This was something that my lender had no idea I could do, and unfortunately I got stuck with the payments on mine, for a house I couldn't live in.
That's why its SO important to have a lender that is very well versed in these loans on your team.
Do refrigerators, ovens, and other appliances fall under this loan?
Yep!
Any random advice you would give with this loan? Recommend or run far away from it?
The biggest separator of people that have a great experience or a bad experience is their team. You need experienced renovation loan professionals. Your lender, consultant, contractor, realtor - it's important they have exposure to these loans, or in the very least a great track record in every other part of their business.
Don't settle for anything less than stellar.
If they don't understand them, they'll attempt to give you advice, and usually it's unwarranted or unverified.
This holds true in all aspects of real estate, not just the 203k loan.
Hope this all helps!
