Financing in Chicago>Question Details

brian.bierna…, Home Owner in 60108

I would like to put an addition on my house. I estimate that the additions will cost between 90K and 100K. Could a 203K loan work for this?

Asked by brian.biernacki, 60108 Wed Jan 9, 2013

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Bradley Eggers’ answer

The FHA 203k loan would work great for your purposes. Feel free to give me a call for more details and to discuss further. This is a loan program our office particularly enjoys.

Bradley Eggers
Senior Loan Originator
One Mortgage
NMLS #: 222407
Cell: 847-744-0168
1 vote Thank Flag Link Wed Jan 9, 2013
Call Chris DePaepe, VP of 203k Loans at Guaranteed Rate: 773-848-4144,

She's the best when it comes to the 203k loans, my opinion.

Good luck!
1 vote Thank Flag Link Wed Jan 9, 2013

Contact Mary Kay Laurent with Guaranteed Rate at 773-516-6859. She will be able to guide you. It is at no obligation to you and it is free. Mary Kay is amazing.

Best of Luck,

Manuel Brown, Broker
iMove Chicago
1 vote Thank Flag Link Wed Jan 9, 2013
203K Contractors sometimes become people you like.
0 votes Thank Flag Link Fri Jun 28, 2013
Great detailed answer, thanks!
0 votes Thank Flag Link Sat Jan 26, 2013
We have a home equity product as Larry Suggested. It's a great product if you qualify. In your case you would need at least the $100,000 or so in equity that you plan on using for the home addition, and then an additional 20% worth of equity cushion on top of that in your current home to qualify. Unfortunately, in this market most people are not in that situation and are FHA 203k or Fannie Renovation loan candidates.
A basic example for a home equity loan to qualify:
Your home value $240,000
Your current mortgage balance $100,000
Your new equity line $100,000
Your 20%equity cushion $40,000
Most people do not have this kind of equity, and most people do not have free and clear homes. You can actually get a 203k loans if your house mortgage balance is higher that what your current home is worth. My other example illustrates this.

Furthermore, there is a common misconception that you need to use FHA approved contractors. There is no such thing as a 203k approved contractor. Contractors are validated by the lender. In most cases, the lender will make sure the contractor has at least 5% of the renovation budget in credit or in their bank account. They also look for excessive federal tax liens. The approval process is really easy. Who would want a contractor to start a $100,000 job on their house that couldn't produce $5,000 if they needed to? How would they be able to run to Home Depot or some other supplier to buy materials to start work, in a pinch, etc.?
You need to sign an INDENTITY of INTEREST FHA disclosure regarding your contractor that YOU SELECT. The contractor can’t be related to you. This is as much to control “kick backs” as stop you from employing your out of work brother-n-law.
0 votes Thank Flag Link Fri Jan 25, 2013
If you already own the home a 203K loan may not be your best bet. A home equity loan may be a better option. With a 203K loan for the amount of work you're looking to do, you'll be forced to use FHA approved contractors, (not anyone you like) and there's an inspection process. Typically these loans are used when a buyer is purchasing a property that requires work to make it habitable., not for adding an addition to their existing home.

What I'd suggest is sitting down with a local lender and see what's available to accomplish your objective.
0 votes Thank Flag Link Fri Jan 25, 2013
A 203k appraisal is based on 110% of the after completed value of your improvement. In your case this would be a refinance and the calculation would be 97.75% of that after complete value. Often additions such as bedrooms add significant value to your home--- as much as 30-50%.

A Simplistic Example:

2 bedroom house 1 bathroom worth $100,000
Add 2 bedrooms and a bathroom for $80-100,000
The aftermarket comparables are $220-$240,000 for a 4 bedroom 2 bathroom house in your area

Your 203k loan to value would be based on 110% of $220,000 on the low side
$220,000 x 1.10% = $242,000
97.75% of $242,000 = $236,555

The pay off on your first mortgage is $110,000 and you are slightly upside down on your home.

In this case you are slightly upside down your home and the 203k would still work.
Web Reference:
0 votes Thank Flag Link Fri Jan 25, 2013
Hi Brian:

We can help you with this. The main concern on a 203k loan, is the value after the repairs are completed. Give me a call or send me an email to discuss.

Best regards,

Patty Harrison
Smart Mortgage Centers
630-478-2684 /
0 votes Thank Flag Link Thu Jan 17, 2013
You should talk with your lender and go over your options.
0 votes Thank Flag Link Wed Jan 9, 2013
Hello Brian - a 203k might work for you -there are also conventional rehab loans as well that may be more fittng
I recommend speaking with a Loan officer who is familiar with these loan types.
I would be happy to help
Sam Sharp
Senior VP of Mortgage Lending
Guaranteed Rate
773 290 0455
0 votes Thank Flag Link Wed Jan 9, 2013
I would recommend calling your mortgage broker, they can give you the best answer to this. Best of luck!
0 votes Thank Flag Link Wed Jan 9, 2013
this is a direct call to your mortgage broker question
0 votes Thank Flag Link Wed Jan 9, 2013
Typically a 203k loan is for a purchase and repairs. I am sure some of the lenders here will let you know if there is a way to make it work.
A home equity line of credit may be a better option, and these are available, with the long term plan being a financing of the finished product, retire the 2nd loan and lock in a low rate for the future.
I am looking forward to hearing what others have to say, please let us know what you decide to do and how it all works out.
0 votes Thank Flag Link Wed Jan 9, 2013

I believe a 203k can only be used during the purchase of a home, not for a refi. What you are looking for is a construction loan. How much equity do you have? Maybe you can just get an HELOC for the work.

Best of Luck,

Ivan Sagel
0 votes Thank Flag Link Wed Jan 9, 2013
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