I'm seriously interested in using the streamlined FHA 203k loan to rehab a property. I have no clue how to

Asked by Chris, Indianapolis, IN Fri Jul 11, 2008

get the process started. Should I look for a realtor experienced in 203k purchases? I know I have to find a lender who does FHA loans. Also, what is the process like?

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Ute Ferdig, Agent, Newcastle, CA
Fri Jul 11, 2008
BEST ANSWER
Hello Chris. I think the most important thing is to have a loan agent who is experienced in doing 203(k) loans as they usually have the network of people that will be involved in doing the work. While you can do the work yourself, I would not recommend it because you have to get the work done within I think 6 months after the close of escrow. There are contractors who specialize in this kind of work and using them will ensure a timely completion. While 6 months sounds like a lot of time, it is not when you have to do the work in addition to your regular job. Plan on not occupying the property immediately after the close of escrow because most likely the property will not be habitable in the early stages of the improvement work.

As far as the process is concerned. When your agent writes up the contract, it will have a contingency for the inspection concerning the work that will be done with the rehab loan (up to $35,000). You'll meet with a contractor at the property who will inspect the property and go over a list of the things that you want done and then prioritize the items. Once you receive the estimate, you'll have to approve it. So essentially, as far as the contract is concerned, you just have the additional element of the 203(k) inspection contingency and the approval of the estimate. Everything else is handled on the loan end.

One more thing you need to know up front. The 203(k) is not a program for flippers. It's only available for buyers who intent to occupy the property.

You can go to the link below and just type 203(k) in the search field and you'll find an article that describes the process. I tried to include a direct link to the article, but Trulia Voices kept giving me an error message not allowing the message to be posted. Good luck with your project.
Web Reference:  http://www.wikihow.com
0 votes
List of FHA approved lenders with expertise in funding 203k rehab loans in Indiana:

http://203klenders.org/indiana-in/
Flag Tue Jul 26, 2016
Marita Topmi…, Agent, Indianapolis, IN
Sat Aug 30, 2008
Chris: Pick a lender; pick the property - an experienced lender will walk you through the whole process.
Streamline K: Repair must be $35K or less - no roof, structural, complicated plumbing or electrical repairs
qualify. You need 3% downpayment based on loan amount. Loan amount equals purchase price + cost of repairs + fees + 10 - 20% reserve. Your general contractor will estimate cost of repairs. Fees run about
$2500 - cannot be contributed by the seller. Half the repair escrow is given to the GC to start the job, the
rest on completion. Job should be done in 60 days. In a full blown 203K an FHA consultant must meet
with you at the home to do the repair estimate. Basic Rule: 203K purchase price + improvements +
fees cannot be more than 110% of finished appraised value. The contractor must be arms length from
buyer, be licensed, insured, bonding, workman's comp. Full Blown K is for the big projects and the fees
are generally higher because there must be more oversight. Get your lender together - he/she will
explain the whole process. Marita
1 vote
Tom Michalic, Agent, Indianapolis, IN
Tue Jan 15, 2013
WE CAN HELP... http://WWW.ECO-NOMICALCONTRACTORS.COM

OR CALL TOM AT 317-259-7286
0 votes
Deborah Madey, Agent, Brick, NJ
Sun Dec 20, 2009
Greg,

You might get more response by posting your question as a new thread.
0 votes
Greg, , Illinois
Sun Dec 20, 2009
Are there any cheap lenders in illinois doing 203k?
0 votes
Carmen Clayb…, Agent, Bargersville, IN
Fri Aug 29, 2008
Chris,

We have written several of these Purchase Agreements for our clients in the past.

As other have stated, other than a couple of lines on the purchase agreement, a qualified loan officer could best handle your concerns. It is really a simple process anyone on here could help you with.

We always check the verbiage with the lender before our purchase agreements are submitted to the list agent. I know a very knowledgeable loan officer for this program, that has been on the Radio talking about this very program. Simply email me if you are still interested and we can handle all of the details and get the ball rolling.
0 votes
Marita Topmi…, Agent, Indianapolis, IN
Fri Jul 11, 2008
Chris, I've got a loan officer who has done hundreds of streamline 203k's. That is the way to go.
Call if you are interested in a hook up. Marita Topmiller 513.4652, marita@maritatopmiller.com
0 votes
Eric Karrfalt, Agent, Noblesville, IN
Fri Jul 11, 2008
I think you have two questions wrapped up in one. First, Good advice from Judy Jones. Find a loan broker that is a direct underwriter for FHA loans. This just makes the process easier. Then see if they have ever done an FHA 203K. You really need an experienced loan officer to do these as there are many i's to dot and t's to cross. There is a delay in paying contractors so this becomes an issue. If contractors are waiting on their money, they will usually charge a premium for their services. It's just the cost of doing business. There are also many specifications that need to be met. A very doable loan, but never easy.
I might ask, why FHA 203k? It is much easier to structure your rehab with other financing. Construction loans, equity loans, lines of credit, etc. Money supply is tight but there are financial institutions who will work with you if you have good credit, a track record, or some business plan for your rehab. Check out credit unions, local banks, savings and loans. Many offer various types of financing that is outside the box of conforming loans. My experience is they are usually conservative, so good credit and cash invested is preferred. Home improvement stores also offer special credit for materials for rehab projects. If your starting out with no cash and little credit. It might be tough getting started.
Second, I don't think there is such thing as a 203k purchase. HUD advertises their foreclosed homes that qualify for 203K financing, meaning they need work, but 203 k financing is a term for just the loan. You can use 203k financing for any home that qualifies and needs rehab work, not just the HUD repos. 203k is just the financing instrument. If you are looking for homes to fix up, yes, I recommend finding a realtor who can assess various homes for sale for their feasibility. There are lots of homes that can use fixing up, but I have seen many good intentioned rehabbers get upside down on a project. They buy too high, invest too much, and then have a beautiful home that is overpriced for the market. I might also suggest looking at VA repos that offer financing. Some of these are very attractive purchases. The VA just adjusted their program to 5.75% financing and do not rely on credit scoring for financing. I have details if you are interested. Check my profile for contact info.
0 votes
Cindy Brenem…, , 46123
Fri Jul 11, 2008
Chris,

I have a client who is working through this process right now. It is a little more complicated but it doesn't have to be frustrating. I know there are not very many lenders who offer 203K financing. I can give you the name of a lender on the Westside if you would like to contact me.

Cindy
Century 21 Realty Group
cbreneman@c21rg.net
Web Reference:  http://www.CindyBreneman.com
0 votes
Jody Jones, Agent, Elkhart, IN
Fri Jul 11, 2008
Chris,
I just helped a client go through one of these loans earlier this year. The rules are very specific for this type of loan and very few loan officers/mortgage brokers even want to handle them. My client found someone in Fort Wayne that was terrific. If you want the contact info email me, I will be glad to pass his name along, although I would think the agents in your area could also give you names.

My client had the property he wanted..it was the worst house in a very nice little neighborhood. VA repo, we thought he could go 203K streamlined, until the FHA underwriter saw something in a repair estimate the indicated possible structural damage due to termites. BANG! No more streamlined..if anything on the property needs structural, you have to go the full 203K loan and that is a much longer, more expensive process. Also, if you are going to have to hire some of the work out, make sure your contractors understand that they may be waiting a while for their $ and get that understanding IN WRITING between you and the contractors. My client only got a verbal with his and the man drove him crazy calling for more money as the project went on. Finally, make sure whomever owns the paper on the property understands that you are going 203K, the bank that held my clients property was horrible to work with, at times, my client and myself were ready to give up on this one!

Make sure the rehab you are going to do is not going to over improve for the local market conditions..your agent can help you determine that as well. In my clients case, he purchased for around $54K, put in $30K, and walked in the door with a tad over $10K in equity in his pocket. Its a great way to go, if you are careful where you buy/how you buy and are aware of the pitfalls you may encounter!

Jody Jones
Century21 Landmark
Elkhart, IN
em: jjones@calllandmark.com
0 votes
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