Financing in Chicago>Question Details

Jj, Home Buyer in Bucktown, Chicago, IL

? about FHA 203k two flat loan

Asked by Jj, Bucktown, Chicago, IL Thu Jun 4, 2009

If I want to purchase a two unit building with the FHA 203k loan to live in one unit and rent out the other, do I have to qualify to cover the entire amount. I.E., if I'm approved for $300k but the property plus rehab would be $450k, does the amount the rental unit would bring in factor into the amount I'm approved for? Or do I have to find a two unit purchase plus rehab totaling $300k, because that is what I'm approved for?

And, if I decide to purchase something like this, do I have to list the rental monies as "income" for tax purposes? If so, wouldn't that kind of negate the tax breaks of owning if it should put you in a different bracket by adding $15k to your income? Sorry for all the questions, I've been having a hard time getting banks (and realtors) to return phone calls or emails.....

Help the community by answering this question:


I'm guessing that your current lender doesn't specialize in renovation financing since you're posting on this site. I hope that you'll have more luck after visiting this site and the wealth of information in contains.

To answer your question, your "approval" amount will be a function of your income and income on the property you're looking to buy. I.E. your buying power will be higher (assuming reasonable taxes) on a 2 than a one unit, 3 vs 2, 4vs3. Since I don't know how you were approved (you said two unit but I can't see the application to know for sure), I can't comment on your max buying power at this time.

When you purchase the home, the appraiser will determine the market rents for the units and you'll get income credit for the units you won't live in. As for the tax implications, if you collect rent... you know the answer to that question. Your accountant I'm sure would be happy to make that answer clear as well.

As for owning a home, the mortgage interest deduction is a great thing to have and write-off on your taxes, whether or not you're eligible for this should be a discussion you'll want to have with your accountant.

On a parting note, I see that you're literally next door to my office (I'm in oldtown, bordering bucktown), feel free to contact me for an appointment and we can go over all your questions.

Click on my picture for follow-up information.
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0 votes Thank Flag Link Thu Jun 4, 2009
I wanted to add that if you want to know what the market rents are, you should ask your Realtor if that's a major part of your cost/benefit analysis for the property you're viewing (in general). Remember, 3-4 unit properties must be self-sufficient, the gross rents minus a percentage for "vacancy" (15% in Chicagoland) must exceed the sum of the principle, interest, taxes & insurance for the property.
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0 votes Thank Flag Link Fri Jun 12, 2009
Find and call a HUD/FHA Approved Consultant in your area and let him/her know what you want to accomplish.
Consultant's are knowledgeable of active FHA 203K Lenders, Contractors, etc....

You are welcome to email me directly with any questions at:

Jose S. Guerrero
HUD/FHA Approved 203K Consultant
Austin, Texas
0 votes Thank Flag Link Thu Jun 4, 2009

Question #1: If you are approved for $300k that is the purchase price PLUS the rehab. Not just the purchase price. Also, make sure your lender does 203k loans. Most do not.

Question #2: I am not allowed to answer, as I am not a tax consultant, accountant, CPA, etc. Please direct all tax questions towards those individuals.

Below I have 'cut and pasted' an email I sent recently describing the 203k process and how it works. I hope you find it beneficial. If you have any other questions, you may contact me anytime. My contact information is listed below.

The first step is to have your 203k lender walk thru the property with you and determine with you what work has to be done, and then what addtional work you want done. We recommend you use an FHA licensed Cost Consultant as well. They will charge you between $500 - $700 for this. The cost consultant we always use charges $550 on jobs under $35,000. It is not absolutely necessary on jobs under $35,000, but it is required on jobs over that amount. If you will not be using a cost consultant, then I recommend a walk thru with the contractor and lender together. If you are doing the work yourself, then just you and the lender. You should do this before you make an offer on the home. You want to be sure the financing will not be an issue.

Assuming the deal is accepted by the selling side and the scope of the project is determined between you and your contractor, you both would sign a bid/contract detailing what work is being done, what the cost of the materials are, and what the cost of the labor will be. It has to be spelled out. The 203k program also allows the homeowner to allocate money for appliances - including washer/dryer etc. If you are getting appliances you would need a detailed printout from the retail store where you would be purchasing those appliances. At this time there are some other forms signed by the borrower and contractor basically saying the same thing - I'm using you as my contractor and my contractor is charging me this amount.

While all this is going on the appaisals need to be ordered. The appraiser has to complete two appraisals - the as is value at purchase and then the value of the property once the work is completed. The appraiser we order from charges $600 combined for both appraisals. This also includes his reinspections determining that the work has been completed.

Please note in all FHA 203k transactions (regular or streamline) it could be up to 30 days after the closing before the contractor receives the first dispursement to start on the project! The contractor would not receive the last dispursement until the work has been approved by the homeowner and the investor.

If you need our help, please don't hesitate to contact me. We are in your area all the time and would be delighted to serve as your 203k lender.


Kurt Clements
Senior Vice President

GSF Mortgage
3933 75th St
Aurora, IL 60504

Office: 630.806.7016
Cell: 630.430.1091
0 votes Thank Flag Link Thu Jun 4, 2009
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