We are in the process of doing the paperwork for doing a full 203K renovation loan.
Before I get to benefits, let me say a thing or two about draw backs.
One thing I will say up front, these loans require more paperwork, and can be highly frustrating due to that complexity.
From a realtorâ€™s perspective, despite our attempt to minimize them, it has required multiple additional accesses to the house for contractors and 203K Consultant work than is present in a normal sale. My realtor has been to the house 2 or 3 additional times for this reason. It may also require some work at negotiations as due to the additional paperwork, the mortgage commitment aspect of the contract is usually delayed. My broker promised 32 days on the mortgage commitment, but I dropped the ball in contracting with the 203 K Consultants so we are going to miss that.
From my buyers perspective: We, the realtor, my partner and I, have done as much as can be done has been done, but Iâ€™m still sweating over the â€˜twoâ€™ appraisals for the property. One is the current value that has to match our hard work on the purchase price, and the other is the post renovation estimated value that sets my budget for the renovation.
Another draw back is the fact that our 203K Consultant gave us a list of things he called â€œ203K Mandatesâ€ that were required to be added into our renovations that were outside of our proposed kitchen renovation.
And if I was to step into my mortgage brokers shoes, let me just say that Iâ€™m surprised that I havenâ€™t received an e-mail or phone call telling me in a professional manner just how Iâ€™ve messed up the process, but I can hear the â€˜sighsâ€™ in his e-mails.
Benefits of a 203K Loan:
One of the best benefits I found to this program is that instead of looking at houses that were move in ready, I could now entertain the idea of buying something that even required a gut renovation.
Since my realtor had little experience with this type of loan, we are both learning about it. He will have something of value to take to his future client base, and all it cost us was our time and effort to explore the program.
I agree with Michael on purchase price +renovation expense and the possibility that a carefully aimed renovation can drastically increase the value of the property. It is one of the reasons we have limited our renovation to â€œmandatedâ€ structural and system issues found by our 203K consultant, and renovating the kitchen. We have also kept an eye towards future renovations projects. For example, our kitchen renovation will require a drastic increase in electrical support. Ergo we are working with the contractor to lay the ground work to support not only increase electric and plumbing to the kitchen but to the entire house, and to support a change to solar power in the next 10 or so years.
Another benefit was the fact that while I had to keep an eye to the current market value of the house, it did allow me to offer a little bit more for the house than I would have if was just going for the standard FHA loan. It also allowed me a bit of freedom when negotiating the â€˜laundry listâ€™ of deficits discovered by the home inspector.