Financing in Annapolis>Question Details

Britt Grothe…, Home Buyer in

Can you use an FHA 301k construction loan to buy an REO property?

Asked by Britt Grotheet, Sat Feb 9, 2013

We have been approved for the loan. The catch is with this type of loan my understanding is that we can't put more than 12% down.

What is the key to being the "winner" of an REO property? Having the most amount of cash to put down?

Help the community by answering this question:


the key is no contingincies followed by teh least amount of contingincies. The banks will choose a lower offer that is guaranteed to close with no contingincies over one loaded with inspections etc.
1 vote Thank Flag Link Sat Feb 9, 2013
Hi Britt! Consult a mortgage lender.
0 votes Thank Flag Link Sun Feb 10, 2013
No contingencies, no inspections. How large an earnest money deposit are we
talking? It would be a push to close in 30 days I think but our lender said doable.
Part of why the 203k works for us in the 6 month period it allows for construction and putting mortgage in escrow account since we will still be living in our current home during construction.
0 votes Thank Flag Link Sat Feb 9, 2013 have 12% down. Are you going to ask for any Inspections? Can you close in 30 days or less? Are you willing to close with the Banks preferred Title Company? Can you give a larger earnest money deposit up-front? This of course is the scenario if you are making an offer on this property if it becomes an REO correct? If this is an investor oriented property (a property that needs LOTS of work, way under priced for the market because of the work it needs, etc.), my biggest concern is you competing with an ALL CASH OFFER which the Bank will certainly look at first unless it is an FHA.
0 votes Thank Flag Link Sat Feb 9, 2013
Even with 203k loan, you still usually only need 3.5%.

The "winner" is simply the buyer willing to pay the most. The seller does not care the amount of the down payment.

You can buy a REO like buying from a regular seller.

Piece of cake.
0 votes Thank Flag Link Sat Feb 9, 2013
Hi Britt,

You can most certainly use a 203K rehab loan for a REO home purchase. You can really use that type of loan with any home you find that you want to do renovations. That is great you already have a contractor. I can help you if you are not working with any other realtors! I specialize in Annapolis! My husband is a lender that does these types of loans for my clients all day long! :) Call him for the loan part-even if you don't need me. His name is Brent Knipp w/Residential Home Funding 410-790-5074. Just let me know what WE can do to help!

Melissa Cheetham
Remax Advantage Realty
0 votes Thank Flag Link Sat Feb 9, 2013
Hi Britt, in my opinion, not only buying an REO for myself, listing REO properties in the past and respresenting Buyers successfully in these transactions, Scott has a great answer for you. The bank is looking for the "cleanest" contract possible. The fastest closing. The most money down in EMD possible. No contigincies or the least amount as possible. You want the bank to know that you are SERIOUS about buying and CLOSING on this property!
0 votes Thank Flag Link Sat Feb 9, 2013
Rachel - we have 10% to put down.
The owner has abandoned the property. We have an offer in on it as a short sale which the seller accepted. The BPO has been done. For some
reason the seller has totally dropped out and the house is being listed as a foreclosure with and auction date set for one month from now.
Anyway, another question is how easy is it to get FHA 203k 's to close in 30 days? We would need to submit our architectural plans as well as pricing from our contractor, right?
0 votes Thank Flag Link Sat Feb 9, 2013
With 10% down you may want to explore the Fannie Mae HomeStyle renovation loan --- I have a lender who works with that program as well. His contact info is as follows:
Justin Sherlock
Real Estate Mortgage Network (REMN)
Flag Sat Feb 9, 2013
With the changes that have taken place over the years with the FHA 203k program (i.e. a change in the banks who service them on the back end, no more self help, contractors can't be related to you, etc.) ... most of them are taking 45 days to close. Keep in mind it may not sell at auction, when a foreclosure doesn't sell at auction, it often times is listed as a foreclosure in the regular database under more "regular" terms (not auction).
Flag Sat Feb 9, 2013
With the 203k program, I've never been told there was a limit as to how much you can put down. But if you have more than 3.5% to put down (which is the min. on an FHA loan) you may want to explore the FNMA HomeStyle loan mentioned in my earlier post. With 20% down, you'd get rid of mortgage insurance. The banks think of cash as gold but some foreclosure properties are open to offers from owner occupants only for the first 15 days on the market, which keeps investors out of the picture for a stretch of time. Banks want to see strong offers with either no financing (cash deal) or financing that is appropriate for the condition of the home... often times foreclosures require a rehab loan depending upon the condition.
0 votes Thank Flag Link Sat Feb 9, 2013
@rachel best- we have a contractor and architect all lined up. However, the house needs structural work and our contractor ( while he does beautiful work) has not worked with a 203k loan. Is this a problem?
How do we contact you?
Thanks- Britt
0 votes Thank Flag Link Sat Feb 9, 2013
My email is or reach me via phone at 443-454-5959 --- feel free to check out my reviews on Trulia to see what past clients have had to say :) Your contractor simply needs to be prepared to handle the paperwork required by the lender on a 203k deal (including proof of insurance, licensing, references, etc.). The biggest and most important piece is making sure your agent AND the lender have experience with the loan program.
Flag Sat Feb 9, 2013
I believe you're referring to FHA's 203k rehab loan and YES! You absolutely can use this type of loan to purchase an REO property. There is another program out there that is underwritten like a conventional loan but also enables you to finance required repairs, it's Fannie Mae's HomeStyle loan (not to be confused with their HomePath program which is another option in some cases if the home is a Fannie Mae foreclosure). Feel free to contact me directly if you have any further questions! I'm actually a 203k specialist :)
0 votes Thank Flag Link Sat Feb 9, 2013
Oops! Loan is an FHA 403k. Thanks
0 votes Thank Flag Link Sat Feb 9, 2013
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