Would it be difficult for me to qualify FHA 203K since I'm already approve for FHA loan?

Asked by Kesha Brown, Miami, FL Tue May 3, 2011

The home I want to purchase, It need major work on the Inside

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Andre Shambl…, Agent, Miami, FL
Tue May 3, 2011
It used to be that you bought a home and then applied for a home equity loan to fix it up, resulting in two loans. But many lenders won't make rehab loans. Some won't fund equity loans at closing, especially if there is no equity.

A Streamlined 203K loan is figured into the original loan balance, resulting in one loan.
It can be an adjustable-rate or fixed-rate mortgage. The mortgage balance can exceed the purchase price of the property. Borrowers are not required to hire professional consultants, licensed engineers or architects.
The appraiser or home inspector can put together a list of recommended repairs / improvements.

Eligible Repairs & Improvements

The Streamlined 203K loan allows for simple repairs that can be easily estimated and completed. Many are considered light cosmetic repairs, but some will require hiring a licensed contractor if it falls out of the borrower's area of expertise. Here is an approved list of repairs / improvements from HUD:

Roofs, gutters and downspouts
HVAC systems (heating, venting and air conditioning)
Plumbing and electrical
Minor kitchen and bath remodels
Flooring: carpet, tile, wood, etc.
Interior and exterior painting
New windows and doors
Weather stripping & insulation
Improvements for persons with disabilities
Energy efficient improvements
Stabilizing or removing lead-based paint
Decks, patios, porches
Basement completion and waterproofing
Septic or well systems
Purchase of new kitchen appliances or washer / dryer

Special Conditions & Terms

No minimum loan balance required.
Borrowers must occupy the property.
Property cannot be vacant for more than 30 days.
Work must be completed within six months.
Work must be professional.
If job requires a permit, borrowers must get a permit and a sign-off.
Work must commence within 30 days from closing.

Repairs Not Permitted

Landscaping or yard work
Major remodeling
Moving a load-bearing wall
Room additions or add-ons to the home
Fixing structural damage

Requirements to Perform the Work

Borrowers can select among licensed contractors.
The lender will review the contractor's experience, background and referrals.
The lender will want a copy of the contractor's estimate and the agreement between the contractor and borrower.
Borrowers can also arrange to do some or all of the work under a "self help" arrangement.
Do-it-yourself projects require providing the lender with documentation supporting the borrower's knowledge, experience and ability to perform the necessary work.

Disbursement of Payments

Maximum of two payments to each contractor, including the borrower, providing the borrower works under a "self help" plan.
No more than a 50% advance is allowed.
Do-it-yourself allowances do not include labor; only materials costs are allowed.
Final payment is paid after submission of evidence of payment to sub-contractors / suppliers or other possible lien claimants.

How to Qualify for an FHA 203K Loan?

1. Find a Realtor who is willing to take you through this process. It is a difficult way to buy, so you need to have an agent with some patience, calm and reserve.

2. Find a loan officer who is certified in doing FHA 203K loans. Not all lenders handle them, and only a few loan officers are trained to deal with them. You have to select a lending institution that is large enough to have staff trained for this loan process and capable of doing all the paperwork. Smaller lenders cannot handle this process.

3. Find the house. The loan program is designed to help pay for major repairs needed, such as roofs, siding, mechanicals and electrical boxes. However, you can get funds to do some upgrading and remodeling of the house as well. There are many excellent fixer-uppers out there that would be great candidates for this program.

4. Once your offer is accepted, you will need to start getting bids on the work that you want to have done. Some of the work can be done before closing---especially if it is essential to making the house habitable. Other work can be paid for after closing with funds held back or held in "escrow" by the lender. Many times, the lender will want to escrow more funds than necessary to ensure that everything is paid.

What Else to Expect

When you get your loan, an appraiser will make a determination of the value of the property in its present condition and in its future finished condition. Appraisals basically involve the appraiser looking at comparable sold properties in the area to determine a value for your property. The appraiser looks at a severely distressed property as being under construction, with the anticipated finished house being almost like new.

There may be a few variations in your particular FHA 203K Loan scenario, but this should give you a general idea of how to get started and what to expect along the way.

For more information give us a call 786-704-8482
2 votes
Annette Levi…, , New York, NY
Wed May 4, 2011
Andre's answer is perfect unless you need over $35,000 for repairs or to make structural changes. But don't worry a lender can get you an unlimited amount for repairs and changes under 2 conditions:
1- You qualify for the amount of mortgage you need.
2- The work would improve the value of the home for more then it costs.
1 vote
Gregorio Den…, , San Diego, CA
Wed May 4, 2011
As Alma states, your loan amount will most likely be higher so you will need to be pre-approved again, but it should not be an issue as far as your credit if you were already approved. The main concern would be loan amount and thus debt ratio.
Web Reference:  http://WeFixRates.Com
1 vote
Suzanne MacD…, Agent, Succasunna, NJ
Tue May 3, 2011
Not at all, the qualifications for FHA 203k are identical to a regular FHA loan. The only difference is the loan amount. As long as you qualify for the amount of the loan, including both purchase price and renovations, you are 'good to go'. Good Luck! 203k is a fabulous product.
1 vote
James Willia…, Other Pro, Fresno, CA
Sun Nov 20, 2016
You should find a lender in your area who does 203K loans. There are "streamlined" 203K loans that can include up to $35k in renovation money in the initial mortgage & they're a lot easier and cheaper to do than the regular 203k program. If it's a foreclosure property there may be other options like the HomeStyle renovation mortgage.

0 votes
Irina Karan, Agent, Aventura, FL
Wed May 28, 2014
I don't advise to do 203K rehab on a foreclosure or a short sale property.
Too many potential issues that could make you loose your money.

1) You got to qualify for 203K rehab
2) Your property value has to be easily appraisable when you purchase,
and should be worth whatever money you put in after the loan is complete -
so when lenders do their math on appraisals before and after are happy with what
they see
3) Make sure there is no mold in this property. Mold remediation is expensive.

Make sure you have additional funds if you want any improvements like landscaping or
granite countertops.

For timing - large home improvement stores take longer than they promise...

Hope this helps,

Irina Karan
Beachfront Realty, Inc.
0 votes
..., , Lexington, MA
Wed May 4, 2011
Hi Kesha!

That's a great way to get a home you want but you should get your pre-approval updated for a 203(k) program and the new sale price plus the cost of improvements.
0 votes
Luis E. Loza…, Agent, Weston, FL
Wed May 4, 2011
0 votes
Alma Kee, Agent, Tampa, FL
Wed May 4, 2011
Hi Kesha,

You have to be approved for the higher amount that includes the repair/upgrade costs that you want done. Just wanted you to be aware of that.

Good luck!

All the best,
0 votes
Brent Kluge, Mortgage Broker Or Lender, Baltimore, MD
Wed May 4, 2011

The credit qualifications are identical. SO the direct answer is no, it is not more difficult. We do FHA 203k loans all across the country and have the process worked out smoothly.

I will assign you a "Project Coach TM" who will walk you through the ENTIRE PROCESS.

Please read up about it and give me a ring if I might be able to help. Call me directly. :)

Web Reference:  http://www.203kworld.com
0 votes
Alma Kee, Agent, Tampa, FL
Tue May 3, 2011
Hi Kesha,

It's crucial to find the right lender because some lenders will not get the sale closed on time and you may lose your deposit, appraisal fees, inspetion fees, etc.

Also you may have to you the contractors chosen by the lender to expedite your loan approval, i.e. HomeDepot and Lowes. try Fifth Third Bank, they are claiming they can close a 203K in 30 days! Most every other bank will require at least 45. If you can close in 30 days then your offer will be more valuable when bidding on bank owned fixer upper homes. And..... do not do anything on a Short Sale until/if you get the approval letter in your hands listing you as the buyer and an addendum signed by the Seller that he accepts all of the terms of the short sale approval letter. Also the asking price is "ficticious" on a short sale until it gets approved so you cannot be assured you can buy the property at the full asking price.

Good luck!
0 votes
Ray And Karen…, Agent, Mount Dora, FL
Tue May 3, 2011

203K program is very good for property rehab. You want to use a lender who has actually completed this type of the loan..

Most of the issues are in regards to what is being done, how long it will take and who is doing the work.

Again, find a 203K expert in your area who can point to previous competed projects.
0 votes
Tammy Deviley, Agent, Green Bay, WI
Tue May 3, 2011
Depends on what State you live in, The best person to answer this question would be your local lender you were approved for the reg. FHA with.
0 votes
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