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.
Please check us out online at http://www.AtlantaRemodelingNow.com or http://www.TrueCraft.net
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I would be happy to discuss the great merits of the program with you.
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.
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.
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.
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.
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!
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.