Home Buying in Chicago>Question Details

Eric, Home Buyer in Chicago, IL

I want to buy a home and go through FHA. Im a first time buyer, will I have to put money down and how do I get the money to fix it up. 2nd morg or per

Asked by Eric, Chicago, IL Thu Dec 22, 2011

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The loan you're looking for is a FHA 203(k) loan (actually, there is a conventional version also).

The 203k is probably the best way to go about this if you're looking to purchase + rehab as you stated. Many people will tell you that one of these loans are a nightmare and you should steer away from it but the truth is that a 203k isn't a painful process unless the loan officer is inexperienced in these loans (usually the case) or the lender has a bad reputation for killing deals.

Your loan will work like a normal FHA loan, anything that will not pass FHA's minimum health and safety standards (for simplicity, anything that could be a safety or health issue, exposed wiring, loose handrails, peeling paint, mold, etc) would need to be addressed in a bid from a contractor. The contractor is usually chosen by the client although sometimes a lender may have some feedback on contractors/General Contractors (GC) but that's lender/loan officer specific.

The pre-approval is done the same way as a normal FHA loan, if you qualify for a $200,000 loan, your 203k pre-approval will be for approximately that much as well (including rehab).

You can do something simple like a bit of cosmetic work, major appliances and maybe some paint or you could do something a bit larger such as a gut rehab of the property, it's up to you. Since this loan is based off the future value, the home appraising out after the repairs is usually not a problem (can use up to 110% of the after-improved value to determine maximum financing).

Last but not least, all the work is done by the contractor you choose (99% of the time 'self help' in any way, shape or form is not allowed by a lender due to increased risk of foreclosure). Your contractor will complete the project in the 30-90+ days post closing usually and in cases where the job is large/involves structural changes and you're not able to inhabit your home immediately after closing, you can finance up to six months of mortgage payments.

Lastly, I'll impart some advice anyone reading this should heed...

I'll tell you what I tell people in my seminars/presentations, find a loan officer that knows the program inside-out. Failure to do this will cost you time and money. If you're told to work on the house to fix repair items before you have keys, RUN the other way. Having a strong web presence, I'm privied to quite a few horror stories of people being told by their loan officer and sometimes their Agent to work on a home that they haven't been given permission make repairs on or haven't signed any waivers to protect them, PLEASE, DON'T DO IT, I really dislike hearing stories of how people have shelled out thousands of dollars working on a home that's not theirs and now their contract is in jeopardy. This is just bad business.

Bottom line, either get the right loan for the property you're trying to buy or find another one. Agents, it's your job to educate your borrowers on their options so they don't become another statistic.

The bulk of the post is from another one I did earlier this week that directly applied to you as well. (Feel free to browse through my old posts for more information about this and other rehab programs or the mortgage process in general).

If you have additional questions, feel free to ask. My contact info is on my website and my profile.
Web Reference: http://RobWeber.com
4 votes Thank Flag Link Thu Dec 22, 2011
Eric,

In addition to my last contribution, I want to add something I didn't at the start of this thread because I keep seeing the same incorrect information being spread by Agents and loan officers alike.

A 203k STREAMLINE is for cosmetic rehab (replacing a roof is believe it or not considered cosmetic) and your limited to 35k in repairs (really, you end up with ~30k being the maximum once you include the contingency reserve and financeable soft costs).

A standard 203k allows for structural work (5k minimum in work) or rehab work that exceeds the 35k mark, up to the hundred's of thousands of dollars (capped by the maximum loan amount based on the county). The cap in Cook county for instance effective as of the time of this post is 410,000. I just recently did a 203k that had 200k in repair work and another with 70k so you're certainly not limited to the 30k as most of the other contributors here would have you believe.

Another thing I discuss in my seminars and Realtor education meetings (usually as a guest speaker at a monthly/weekly meeting) is for the need to find a full service loan officer. If your client (speaking directly to Realtors now) goes with a streamline 203k lender and they end having to add additional work that requires them to switch to a full 203k or there turns out to be some structural issues, you'll have to start from scratch possibly putting your client's contract in jeopardy due to the delay.

Buyers, if you're looking for a specialized loan, you should seek out a loan officer and company who specialize in the product you're seeking. The majority of lenders out there are not full service Renovation lenders.

Rob Weber
Renovation Specialist
847.404.7006
Web Reference: http://RobWeber.com
2 votes Thank Flag Link Fri Dec 23, 2011
Eric, I could write volumes on the virtues and values of working with a FHA 203K (and have, btw); however, in this case, Rob has covered the topic masterfully. Basically, i recommend you nix all the other responses (as they are part correct and part incorrect....and, in finance, the devil is in the details. Never more so than with a 203K).

In fact, why not just call Rob and work with your for your home purchase. He knows the product and I would not hesitate to refer him a client since I only lend in CA at this time. 203K's are great; however, they can turn into a nightmare under incorrect tutelage Best of luck!.
1 vote Thank Flag Link Mon Dec 26, 2011
Also, I am a 203k and Renovation Specialist, and I am local. If you want, you can go to http://www.new203k.com and get a free guide to the whole process. You don't have to be contacted or feel like someone is trying to sell you a new mortgage right now.

You should probably start out by figuring out how much the improvements you are thinking about are going to improve the value of your home.
0 votes Thank Flag Link Sun Jan 6, 2013
Eric, Great and diverse responses on this thread. Do be aware that, as a general rule of thumb, your mortgage payment will increase $6.00 for every $10,000.00 added to the mortgage balance. So, a $100,000 of improvements will cost approximately $60.00 per month. Sixty bucks and you get is "Your Way"....just an option to consider. Best to you!
0 votes Thank Flag Link Thu Jan 12, 2012
Unless you just want painting and carpet, most people end up spending too much and their monthly payment becomes bigger than what they expected. Just be EXTRA conservative when come to cost estimation. Another option is to buy something already fixed. You buy what you see. Enjoy your home the first day you own it. And Seller may throw in home warrranty as well.
Web Reference: http://kkyan.com
0 votes Thank Flag Link Thu Jan 12, 2012
If you are considering buying a property to fix up, do not overlook Fannie Mae properties. These are foreclosed homes that will typically have the words "HomePath" in their description. Check out the site to see what properties are available now.

The main advantage of this, and I'm surprised that nobody has mentioned it, is that you can buy a property for 3% down, like FHA, and get a loan for $35k rehab costs, like the 203k streamline with a major major advantage:

You DON'T pay mortgage insurance on the Fannie HomePath loan and when you run the numbers, the entire loan, whether standard or with renovation money, turns out to be cheaper to the borrower. In addition, the HomePath renovation can be used to do more repairs than the a 203k, still nothing structural, but definitely more types of work.

Not many lenders are capable of doing these loans, so do your due diligence in finding somebody to handle it.

Additionally, check with certain local banks (I'm not advertising referrals here) for what is known as a portfolio renovation loan. For 5% down, you can avoid all the regulatory hassles of the previous loans. You'll start off with a much higher interest rate, need a very high credit rating, and then have to re-finance fairly quickly after you renovate, but this type of loan can be an advantage for certain borrowers.

Good luck
0 votes Thank Flag Link Tue Jan 3, 2012
Most FHA programs require you to put 3.5% down with a minimum of a 640 credit score, (which is in the marginal to good range). Try and find some local assistance programs that will help with the down payment. Also check state assistance programs.
0 votes Thank Flag Link Tue Dec 27, 2011
FHA loans require you to put 3.5% down and allows you to get a seller concession for the closing costs. If you need to get a rehab loan you need to ask for an FHA 203K loan. I would however recommend that any homebuyer have at least a years worth of expenses saved to ensure they can make it through any lay off in our current economic climate.

Marco Gomez
The Goodlife Team
Keller Williams Landmark
Serving Queens, Brooklyn and Nassau in NY
0 votes Thank Flag Link Mon Dec 26, 2011
Yes, there are different venues where you can get the money to purchase the property and also to fix it up. Please call me and I can help you. You can reach me at 708-310-9031. Thanks
0 votes Thank Flag Link Sun Dec 25, 2011
Greetings Eric,

Find a qualified loan officer who can walk you step by step through the process. Contrary to popular belief, banks ARE lending money, and as discussed below the 203k is the way to go. You may experience a bit of a hassle factor, but hey, if you qualify at the end of the day you will get the loan which allows you to purchase your home.

Bill J Deligiannis
First Centennial Mortgage
630-788-5288
Web Reference: http://www.BJDLOANS.com
0 votes Thank Flag Link Thu Dec 22, 2011
If you are thinking about using the 203(K) to rehab this property, I can do the home inspection and the feasibilty study to make sure the property is even worth it. I can also do the work write up for the 203(K) FHA loan if you decide that is the loan you want to use.
If you have questions from a 203(K) and home inspection stand point contact me any time.
0 votes Thank Flag Link Thu Dec 22, 2011
You can do a 203k on these. Not many lenders are doing them, and a lot of them dont know how to. So if you go this route, make sure you have an experience loan officer. This 203k will give you up to 35k extra to spend on remodeling. Most importantly, get a good agent to represent you. This way you have someone to walk you through the process, at no cost to you.
0 votes Thank Flag Link Thu Dec 22, 2011
Hi Eric,
As the other two agents answered, you will need a 203k loan,especially if you want to finance thru FHA. The home has to be in a habitable condition for them to approve the loan. Credit is important as well. Additionally,
there are down payment assistance programs available, that can possibly get you up to 6k in down payment assistance depending upon the price of the home. There are many financing options, don't know if you are a veteran, because there are special veteran home buyiny programs out there.

Give me a call and we can discuss your options in further detail.

Best regards,
Gregory Shephard
Real People Realty, Inc
708-955-6172
0 votes Thank Flag Link Thu Dec 22, 2011
Eric -

No one is doing 2nd mortgages but you will need a 203k loan. If the home will appraise, you can get up to 35k over the sales price. Yes - you will have to put 3.5% down of the whole loan - purchase price plus money to fix up. You will typically need at least a 640 credit score and then you can get the money gifted from a close relative. You can roll closing costs into a loan. If you are looking for a fixer, HUD homes can be done for $100 down. Check out my blog for some first-time buyer tips on many things. And do yourself a favor and deal with an experienced real estate broker to protect your interests.
0 votes Thank Flag Link Thu Dec 22, 2011
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