Home Buying in East Atlanta>Question Details

Des, Home Buyer in Atlanta, GA

I recently found a property in Atlanta, an in area that I love, but the house is gutted and needs some

Asked by Des, Atlanta, GA Mon Jul 28, 2008

renovation work. The seller mentioned something about a construction loan. What are some steps I need to take in order to make this come together smoothly? I know I would have to pay for the cost of the home plus the cost of renovation. I have no idea where to begin. Help!
Thanks!

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17
Rob Weber’s answer
You can use the FHA 203(k) or the Fannie Mae HomeStyle Renovation loan to complete a project like this. There are pros and cons of going with one over the other but both are essentially the same loan except one is a FHA loan and the other is a conventional loan. Your max loan amount for the 203k "may" be less than the conventional counterpart (HomeStyle) and can be used for 1-4 unit properties.

A rehab loan (203k streamline / 203k full / Fannie Mae HomeStyle) can be used on a purchase to rehabilitate your home as desired (needed and/or desired repairs, even if the house is already in habitable shape) or or a refinance to update your home as you see fit. The HomeStyle as mentioned earlier can also be used on second homes and investment properties. Both programs can lend on one to four flat properties. FHA's 203k is pretty strict on eligible condo rehabs whereas the HomeStyle option is superior for units in the city that need rehabbing (or any condo for that matter). For anyone unfamiliar with the program, please read this sentence carefully, REPAIR WORK DOESN'T NEED TO BE DONE BEFORE CLOSING, I say this in caps because there are so many consumers out there who assume all work must be done before closing and I wanted to address that rumor right away. All work is done AFTER closing by your contractor. Having said that, here's where anyone with knowledge on the topic will offer a retort saying FHA allows for borrowers to do their own work... The reality is that even though FHA allows it, there isn't a lender in the country that'll allow you to do your own rehab. The foreclosure rate on "self helf" transactions is a staggering percentage and any lender who's offering this program knows this as well. While it's true that on an exception basis, underwriters have been known to let a borrower paint or do some very minor things, it's the exception and not the rule. If you're looking to do all of your repair work yourself, financed rehabs like what we're talking about aren't for you. To be fair, some local bank that uses their own money may do something like this but again, that's the exception, not the rule.

You could use a 203k to gut your house and re-build it (a portion of the foundation must stay intact) though you may want to consider other homes if you're doing that major of a rehab unless you really know what you're doing.

Whether you're doing a streamline 203k, full 203k or HomeStyle, the process is essentially the same, talk to a contractor (or multiple) to get an idea of what the cost will be and if you can afford it (you'll want to speak with a loan officer to make sure you can even get a large enough loan to cover your existing balance/purchase price + desired repairs). In cases where there is structural work (replacing a roof is NOT considered structural) which includes moving/modifying a load bearing wall or repairing the foundation would most certainly be a structural change and would require the guidance of an outside consultant tasked with overseeing the project and ensuring it's completed as expected by the investor (Fannie Mae or Ginnie Mae) as they have no other way to determine if the work was done properly or at all post-close, hence why the (HUD) consultant is so important to them and why they're required on larger jobs or complex/structural rehabs. This consultant will also ensure the contractor's bid isn't unreasonable and can if he chooses, use lower cost numbers for the job than the contractor used and the contrator MUST lower his prices to match the consultant's estimate to continue working in the program. You could look at your consultant as a sort of fairy god mother, they'll make sure you're not getting overcharged and the work they're telling you they'll do is feasible for what you want done to your house.

I've seen blogs/posts here and elsewhere that say these are more for cosmetic work, that's what lenders who can only do the streamline 203k tell you so they don't have to admit they can't close your client's loan that want larger rehabs than the streamline will allow or structural changes. When I worked at a lender (name withheld) in the past as a specialist, I heard co-workers around me who could only do streamline 203k's use this speel all the time, it was almost comical to hear, please don't be fooled by the salesmanship, you've done your research if you're reading this, you're a step ahead of most others. Your loan officer should be intimately familiar with the program and be able to offer you the full gambit of renovation options. The most knowledgeable Renovation Specialists work for lenders who cater to these products.

There's much, MUCH more to these loans but that's enough for now.
Web Reference: http://RobWeber.com
0 votes Thank Flag Link Wed Jun 6, 2012
Have you spoken to your mortgage broker you may not be able to purchase the home unless it will appraise, move in condition. lenders have "cracked down on these types of properties"... I would check on the lending prior to submitting any offer on the property .
http://www.lynn911.com http://www.homes-for-sale-dallas.com
Web Reference: http://www.lynn911.com
1 vote Thank Flag Link Mon Jul 28, 2008
With an FHA 203K you can borrow up to 30K for the rehab of the home at the time of closing. There are some rules about what the money can be used for who can do the work and the time line. But it is a great program .. call your lender and ask about an FHA 203K
1 vote Thank Flag Link Mon Jul 28, 2008
The 203k Renovation loan is still an excellent opportunity for potential home buyers and investors to hire a contractor and renovate a distressed property in order to make it a very good long term owner occupied investment with a good long term equity stake in the property from the day you move in.

Please check us out online at http://www.AtlantaRemodelingNow.com or http://www.TrueCraft.net

OR

Send me an email to jason@truecraft.net

I would be happy to discuss the great merits of the program with you.
0 votes Thank Flag Link Tue Jun 5, 2012
203K is the way to go. You are not limited to $30,000. We are the second largest 203K lender in the country. We lend our own money and provide our own draws for the renovation work. If you decide to proceed down this path, I agree with all of the agents....work with a lender that knows how to do these. Feel free to reach out to me anytime
0 votes Thank Flag Link Fri Apr 20, 2012
Des,
I am a former homebuilder and built over 100 custom homes in the 80s and 90s. So I am not afraid of heavy duty construction per se.

My question is why would you tackle such a project in this market. If you were involved in the industry in some way I would encourage you to dive in. But as a novice you are almost certainly going to spend more renovating the home than you will be able to sell it for in the next couple of years.

If this is your dream home and you plan to live in it 15 to 20 years - then go for it.

If this is a home you need to sell in 7 years, keep looking.

I am now assisting many, many sellers who took out home equity lines, made improvements to their home and are now trying to sell them. They are finding they owe substantially more than their home is worth. This results in a painful short sale scenario.
0 votes Thank Flag Link Wed Apr 18, 2012
Des,

I'm actually going through this process on a personal home purchase in the EAV right now. There are a few lenders in Atlanta getting back into the renovation business pretty heavily so it's a very feasible, and a few of my clients have found, preferred way to get a great home that is exactly what you want. I started off on a 203K path myself but quickly discovered that wasn't the right move for us. The crucial piece ended up being the contractor and we learned that many banks "choose" contractors for their 203K programs more because of their ability to file paperwork than anything else. So, to make a long story short, we're buying a great home, putting an addition on it using the contractor of our choice and using a renovation loan that isn't 203K. The numbers looked a lot better going that route. We're using Fidelity but Prime Lending and Loan South all have excellent programs as well. I have great contacts at all 3 so if this is a path you'd like to explore I'll gladly share them.

Cheers and happy hunting.
0 votes Thank Flag Link Mon Apr 16, 2012
If your having a difficult time finding a home in good repair, you might want to look at FHA's 203k. This loan allows you to purchase a home as is and adds money for repairs or up grades, Before the Home Inspection I would suggest a feasibilty inspection.

I am a 203K Consultant Trainer, 203k Consultant and I own a Construction Company. We charge $150.00 for a Feasibility Study. A Feasibility Study Inspection is used to answer the question "is this property feasible" for the 203k loan. It is a quick walk thru inspection to identify what repairs must be done to meet HUD's property standards, your desired items and offer a ball park cost estimate before you have to bear the full expense of full blown Consultant Work Write Up.

This might be a good option for you. Check out the web site below for more information.

Garrett Feis Sr.
Douglasville, GA
404-925-7163
0 votes Thank Flag Link Sun Jul 25, 2010
Hi Des, My name is Jason Fritz. I am a licensed General Contractor and HUD 203k Consultant in Georgia. We have completed hundreds of 203k projects and offer very competetitive pricing as well as excellent customer service and overall project satisfaction. I would love the opprotunity to discuss your project with you.
You can visit our websites at http://www.TrueCraft.net or http://www.GravityConsultingGroup.com
or call me directly at 678-873-5260.
Thanks, and Good Luck.
Jason Fritz
0 votes Thank Flag Link Thu Jun 3, 2010
Just closed one a week ago. From my experience with the 203(k), choosing a knowledgeable lender definitely matters. The two I closed were not through the same lender.
Web Reference: http://www.jsgwm.webs.com
0 votes Thank Flag Link Sat Aug 1, 2009
Proceed with extreme caution! You would be wise to seek a house that needs little to no work; in the end it will likely be more affordable... not just for your pocketbook, but for your sanity, as well!

Make sure you count the costs VERY CAREFULLY if you really want to go any further and make sure you have not only the resources to see it through, but the patience, diligence and durability!
0 votes Thank Flag Link Thu Jul 30, 2009
Des...the FHA 203K renovation loan program is geared to handle the situation you are describing. We basically would add the amount you need for the renovation amount to the sales price and set up an escrow account to handle the renovations after closing. You would have to find a contractor that we approve to do the work. Please contact me for more information. These loans are very popular right now in the current market we are in.
0 votes Thank Flag Link Tue Jul 28, 2009
Des,

Couple of things to consider:
Be sure to verify ALL information provided to you by the seller with independent 3rd party professionals

Consult a mortgage broker/mortgage lender to determine what loan programs are available and what you qualify for. If the repairs are extensive, you may not be able to get a conventional loan.

Consult a local real estate agent or appraiser to determine the value of the house (both in it's current "as is" condition and after you complete the repairs)

Check with a couple of contractors to get cost estimates to repair/improve the property

If you get the property under contract, be sure to get a home inspection by a certified home inspector.

If you are purchasing the property as an investment, you might want to consider using a hard money rehab loan to purchase/rehab the property. Once the renovations are complete, you can refinance into a conventional loan.

Good luck,

Wade Munday
0 votes Thank Flag Link Sat Aug 2, 2008
Best place to begin is with a good lender. They can lead you into a good mortgage to meet your needs and also teach you about when to take it out during the renovation process..Be sure that the renovations that you are planning to make will not have you owning the most expensive property in the neighborhood. Remember, one day you will be the seller...Give me a call . I would love to help..
0 votes Thank Flag Link Fri Aug 1, 2008
I can help you with that....Send me your email or phone number and I will esplain the renovation process.

Thanks

Eric Stark
Web Reference: http://www.ericpstark.com
0 votes Thank Flag Link Tue Jul 29, 2008
Speak with your loan officer, he should be able to put together a loan that inlcudes renovation money, usually the renovation money is held in escrow until the renovation job is completed. If you need assistance figuring out the renovation cost, one of our sister companies can provide you an estimate.
Web Reference: http://www.kstrealty.com
0 votes Thank Flag Link Tue Jul 29, 2008
Des,
HI there, are you currently represented by a REALTOR? This would be a priority for you, please advise if I can be of service.
Web Reference: http://www.torilawson.com
0 votes Thank Flag Link Mon Jul 28, 2008
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