Financing in 21771>Question Details

Meghan, Home Buyer in 20724

FHA 203K - 3.5% down? Any fees for low down payment?

Asked by Meghan, 20724 Sun May 10, 2009

We are looking at buying a fixer-upper in Maryland. I've been reading about the FHA 203K loans, and they sound perfect for this situation. I read that you only have to put 3.5% down on a 203K loan - is this still true in the current market? Are there any penalties for putting such a low down payment, like there are in the regular non-rehab FHA loan? Our loan specialist told us not to go for the regular FHA if we could put 10% down since all the fees make it painful. We have the money to put 10% down but we'd rather save our funds if we have the option to do so.

Also, is the down payment calculated from the price of the house, or the house rehab loan? For example, for a $200k house that needs $30k in repairs, would a 10% down payment be $20k or $23k?

Thank you!

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Chris Highland’s answer
Meghan,

The FHA 203k program has been available for over 10 yrs as a way to provide owner occupants with funds needed to purchase and improve neglected or damaged homes. There are no "penalties" for the 3.5% down payment they require. While FHA does reqiure a fee of 1.75% , typically added to your loan balance, and a monthly mortgage insurance included in the payment, all conventional loans with less than 20% require PMI (private mortgage insurance) which costs more. In addition, that higher monthly expense reduces the overall amount of the loan you quaifly for. The FHA 203K , as with most government programs, does require a bit of red tape to get the benefit. Your loan professional may not be proficient in this type of loan and may not be willing to do them. If that is the case, you can find lenders with the right experience with the 203k or other rehab loans.

The calculations used in the FHA 203k programs are based on the initial purchase plus the costs required to improve the home. Thus the end value vs the total money required to complete the improvements, typically within 6 months, must equate to the minimum 3.5% or better. I can provide you with recommendations of lenders that have a through understanding of this program if you would like.

As for the advice to go conventional rather than FHA because of the fees, there are a great many variables to consinder in choosing the best loan for you. The FHA program will almost always qualify you for more home as their guidelines are more generous. There are a few fees unique to the 203k such as inspection fees as the work is completed and plan reviews required prior to purchase. Having someone assist you who has an understanding of the process involved with rehab loans will make the process go more smoothly. Let me know if I can be of additional assistance.

This rehab just came on the market today. If you think it is the type of project you are looking for I would be happy to show it to you. FR7054339.
1 vote Thank Flag Link Sun May 10, 2009
Meghan, There isn't any penalties attached to puting a lower down payment. Maybe you are referring to better pricing on your interest rate (that is true, it could be a .25 to .5 better in discount points charged for a bigger down payment). The down payment on a 203k is based on the repairs and the purchase price. Your example would be $23K as the down Payment. Please reference my Web reference, it's take you to my blog about the 203k loan. It is a comprehensive video of 203k loans. The most viewed on YouTube. Good Luck! Mario
1 vote Thank Flag Link Sat Nov 14, 2009
The downpayment would be based off the total final value of the loan. FHA 203k would be the way to go.

I am a mortgage broker. If I can be of service, let me know!

MSmith@PrecisionFundingUSA.com

Marty
0 votes Thank Flag Link Sun May 10, 2009
Meghan,

We've been originating and processing FHA203K loans for 20 years and consider ourselves experts in this field if you'd like to discuss your personal situation. You mentioned the home only needing $30K worth of repairs and if this is accurate you may be able to to a Streamline FHA203K instead of a full blown one. Yes, there are different rates and fees for the K because essentially its treated somewhat like a construction loan. When using the 203K you are permitted to ask the seller for up to 6% help from the seller to apply towards prepaids or closing costs. Using a conventional loan with only 10% down you are only permitted to ask for 3% maximum help from the seller and you'd still have to finance your own renovation costs.

You can read our booklet online at http://www.myloanladies.com or http://www.1stpref.com at your leisure or you can email or phone us and we'll be glad to send out an easy to read booklet.

We can also show you a Good Faith Estimate of each loan type you are considering in order for you to make an educated decision.

We hope this helps answer your question and provides some additional information as well. Good luck!

Anne & Lora Coscia
Mortgage Loan Originators
1st Preference Mortgage, Perry Hall, MD
Web Reference: http://www.myloanladies.com
0 votes Thank Flag Link Sun May 10, 2009
First to answer your question about the downpayment, the current downpayment for FHA is 3.5% and is based on the sale price. There are no penalties for the lower downpayment, you will have to pay a one time mortgage insurance payment at settlement and a monthly fee until you have 20% equity. If you want to keep your money, do the 3.5% down. There are fees involved when you do a rehab loan, the appraiser/consultant charges fees for the estimates on what the value of the home will be when completed. Usually a percentage of the loan. To clarify, if you do a rehab loan you are looking for funds to fix up the house, correct. If you put 10% on conventional, not sure how you can get a rehab loan on a conventional. If you put 3.5% down on FHA, you can keep your funds and use them to fix up the house, and maybe by pass the 203K rehab loan and it's fees. It all depends on the work needed on the house. There are some distressed/bank owned homes for sale that don't need a lot work, just minor cosmetic work. Hope that answers your questions...looking in 21771 Mt. Airy, if you don't have a realtor, give me a call 301-758-1819, I'd be happy to assist you as it is my market area. If you want more information on my experience go to my web site, mdhappyhomes.
0 votes Thank Flag Link Sun May 10, 2009
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