When using a FHA203K loan in North Carolina are you able to do totally renovate your home? For example how the Property Brothers on HGTV do.

Asked by Ashlee Smith, 28227 Wed Mar 28, 2012

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Rob Weber, Mortgage Broker Or Lender, Plainfield, IL
Thu Mar 29, 2012
Short answer: YES, you can do exactly what the Property Brothers do on HGTV and more (my wife loves that show).

Long answer:

As stated below, you can use the FHA 203(k) or the Fannie Mae HomeStyle Renovation loan to complete a large project like this. There are pros and cons of going with one over the other but both are essentially the same loan except one is a FHA loan and the other is a conventional loan. As Daniel said, your max loan amount for the 203k in your county is $303,750 and for the HomeStyle version, the max loan amount is $417,000 (this example assumes a single family residence, the loan limits are much higher for 2/3/4 flats).

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.

You could use a 203k to gut your house and re-build it (a portion of the foundation must stay in tact) but as one of the other contributors said, you may want to consider other homes if you're doing that major of a rehab.

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.

To the person below who said their loan specialist said 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.

I'm out of space here, if you'd like additional information, feel free to add more comments here for responses or email me directly.

I hope you found this "article" helpful, have a great day!
Web Reference:  http://RobWeber.com
1 vote
Here you can find the complete list of FHA approved lenders with experience in underwriting 203(K) loans in North Carolina:

Flag Tue Jul 26, 2016
Ashlee, I hope things are going well for you. Did your loan close? Did you have a pretty smooth loan or not so smooth? Hopefully things are going well for you! I'd love to see the before/after pics if you wouldn't mind sharing. My email address is in my profile if you need it.
Flag Fri May 18, 2012
The installation of a pool is a non-allowed addition for a 203k loan, or any main-stream rehab loan for that matter. You can include all of the other items you mentioned including the kitchen sink. :)

As for the contractor, if an area doesn't require contractor's have licenses then he doesn't need to have one but he'll have to fill out a contractor profile for the lender doing the 203k and he'll probably have to list references. In addition to that, he'll need to carry the appropriate insurance as well. Lenders usually require 500k-1m liability coverage. If he's not a licensed plumber or licensed electrician, etc (anything requiring a license), he can't write a bid that covers that unless he's acting as a general and only if a GC license isn't required locally. Licensed GC's can sub out any work they want and usually carry the standard insurance coverage so it's a simple process via that route.
Flag Tue Apr 3, 2012
One more question. I know you said that there isn't a lender that will allow me to do my own work on the house, but what If I have someone who does amazing work but isn't a professional contractor? I say this because my best friend's father is amazing at building and repairing and painting and all that good stuff and he's been doing this for years. The house that they lived in for her entire life is gorgeous and it was all his work but that's not what he does for a living he just like to do it. Is it possible to contract him?
Flag Fri Mar 30, 2012
Thanks for the great info! I do have a question I've heard there are some things that you can't do with this loan, for example you can install a new pool or something like that. I know you said that this loan allows us to do the same thing as the brothers. Does this include lighting, furniture and appliances? If so are qualifications for this loan similar to a regular FHA?
Flag Fri Mar 30, 2012
Daniel Fisher, Agent, Charlotte, NC
Thu Mar 29, 2012
Good afternoon, Ashlee.
In Mecklenburg County, NC, you can renovate a home with the 203k repair loan all the way up to the FHA $303,750 limit. If your renovations are below $35,000, you can use a streamlined process. Over that amount, you have to use a consultant. Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place.
Luxury items and improvements are not eligible as a cost rehabilitation. However, the homeowner can use the 203(k) program to finance such items as painting, room additions, decks and other items even if the home does not need any other improvements. All health, safety and energy conservation items must be addressed prior to completing general home improvements. Details are available at the below link.
Having several clients who have done them, I can say that you REALLY do need to work with a lender who regularly does these types of loans and which can recommend contractors who are familiar with the paperwork and payment requirements and process. If you appreciate an answer, please give "thumbs up". For the most helpful answer, please say thanks with a "best answer" click.
2 votes
*Thumbs up* :)
Flag Fri May 18, 2012
Dana Meadows, Mortgage Broker Or Lender, Cornelius, NC
Thu Mar 29, 2012
203k Loans are the perfect loan option for a borrower purchasing a home for their primary residence that needs work. It allows a borrower to finance improvements into a fixed or adjustable rate mortgage, rather than spending personal funds. There are very few limitations to the types repairs that can be done through a 203k Renovation loan, but the home must appraise subject-to-completion to support the purchase price and renovation costs.

In addition to FHA 203k Renovation loans, a borrower can use a Home Style Renovation loan, which is a Fannie Mae/Conventional Renovation loan program. This is popular with borrower who need a loan above the FHA loan limit (which is based on the county that you are in) or borrowers wanting to remodel a Second Home or Investment property.

Renovation mortgages are much more complex than a traditional mortgage loan. I highly encourage you work with a mortgage professional with a great deal of experience in this area to ensure the best knowledge and mortgage experience.
1 vote
Kathleen Tur…, Agent, Charlotte, NC
Thu Mar 29, 2012
203k loans can be a great opportunity for an owner occupant buyer who wants to buy a home that needs work, but doesn't have the cash on hand to make the necessary cosmetic repairs and updates. As with any loan, though, you must qualify for said loan. Your best bet is to do your homework and speak with several lenders experienced in 203k lending BEFORE making an offer on a house. 203k loan regs dictate how, when & by whom work must be completed. If you are not a rule follower, this type of loan is not for you!
1 vote
Terraceunder…, Home Buyer, Charlotte, NC
Thu Feb 6, 2014
that my fav
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0 votes
Thomas Young, Home Buyer, Phoenix, AZ
Sun May 26, 2013
From my experience with 203k loans, the best advice is to use a lender that offers assistance via third party with 203k processing.
This shortens the closing time by weeks. Try http://www.cfs-mortgage.com/203k for more information.
0 votes
Dale Sayotov…, , Orlando, FL
Thu Mar 29, 2012
FHA 203K is a federal program; so I believe it is the same throughout the country. Here in Orlando,
FL it is a good idea to work with a lender familiar with the ins and outs of 203K loans. I work with
a couple of lenders who can do the loans. Dale http://www.orlandohomes-forsale.com
0 votes
Jerry Grosen…, Agent, Germantown, WI
Thu Mar 29, 2012
FHA 203K loans are available for you to make improvements on your newly purchased home. The best source for more information is a lender who specializes in these loans. They will give you the lastest and greatest updates regarding this or any loan products that are out in the market.
0 votes
Greg Myers, Agent, Gaitherburg, MD
Thu Mar 29, 2012
Yes with-in guidelines. The FHA 203K program will not let over improve the home that the improvmments exceed the appraised value for the home upon completion or the average value for the neighborhood.
0 votes
Gloria Fridr…, Agent, Waxhaw, NC
Thu Mar 29, 2012
This is a great question. My advice would be to speak directly to a mortgage broker who has worked with this type of loan. As a real estate agent, I have attended seminars that Fairway Mortgage has given. Matt Gray at Fairway Mortgage (704)749-3692 is very knowledgeable in this type of mortgage and can see if they house you are interested in would be eligible for the 203K loan.
0 votes
Andy Matejka, Mortgage Broker Or Lender, Greensboro, NC
Thu Mar 29, 2012
Good question Ashlee. Reality tv has caused some confusion with borrower's realistic expectations, but you pose an interesting question nonetheless.

FHA loans, whether they are 203b or 203k are for owner occupants that are purchasing a primary residence. Therefore, technically, the Property Brothers' would be ineligible for an FHA loan because they are "flipping" homes if I recall correctly.

However, the FHA203k loan program does allow one to borrow up to 110% of the "after renovations" appraised value and does allow one to include appliances and such. Yet it is still a more difficult process that isn't the best option for most properties or buyers depending on your own circumstances.

email or call me for more details if you'd like.
0 votes
The property brothers is just a show about rehabbing, it shouldn't be taken literally as to how rehabs are done. What they actually do is what actually is completed but the process and the way the show is filmed isn't how anyone rehabs their house (unless they have a lot of cash laying around and wing it).
Flag Fri May 18, 2012
Hey Ashlee,
Sounds good. My next question would be whether or not the Property Brothers' themselves are the General Contractor for the project.....Since the 203k is an FHA loan, there are a lot of guidelines and restrictions that must be adhered to according to the lender who ultimately is lending you the money but using the property as colatteral and trust me....not every property nor every borrower are good candidates for the program. With my bank and its investors; the borrower must have their 3.5% down payment plus 20% of the renovation costs. Sometimes, not the best for first time home buyers...Further, some lenders also restrict the amount that can be borrowed for renovations which will impact your transaction.

This is good though, you are learning and understanding about it which is the best way for you to decide if it's right loan for your family!

Thanks for getting me straight on the show too!
Flag Mon Apr 2, 2012
Hey Andy! I don't think they are flipping the houses because they work with couples who want a new home that is their dream home, but they don't have dream home money. One brother shows the occupants homes and has them choose the one they want. They close on the home and the other brother starts the reno. They totally re-do the home with the owners imput and style.
Flag Thu Mar 29, 2012
Robin Faison, Agent, Kannapolis, NC
Wed Mar 28, 2012

GREAT QUESTION! This loan is limited in total cost and in the type of repairs allowed. So, if you were planning to take the house down to the sub-floor and studs in some rooms, you might want to re-think the house that you are purchasing with a FHA203K loan. When I talked to a mortgage consultant who specializes in this type of loan, Dana Meadows, I was surprised that granite kitchen counters can be installed with this loan and that plumbing was also permitted with this loan. Dana told me that the loan was mostly designed for cosmetic repairs.

I would recommend going to a knowledgable lender and the government website to learn more about how this loan works. It is nice that an appraiser checks the work of the contractor before draws are released to the contractor. With all of the short sales and bank owned houses, you should be able to find a suitable house to renovate and enjoy! Feel free to email me with questions. I think that my listing on 9717 Barkridge Rd would be a good house for a FHA203K loan.

Wishing you success,
0 votes
Craig Bynum, Agent, Charlotte, NC
Wed Mar 28, 2012
Yes, depending on the version of the 203k you obtain. Feel free to contact me and I can explain further. I was a Sales Manager for Wells fargo before.
0 votes
Shawn Knight, Agent, Charlotte, NC
Wed Mar 28, 2012
There are two different types of 203k loans. There is the Streamline 203k and the Standard 203k. In a Streamline you can do just about anything up to $35,500, as long as it is not structural. I'm a certified 203 k specialist in the area and would be more than happy to discuss all the differences with you if you'd like to contact me. Good luck!

Like Susan said, your lender can also help you. We've worked with Trey Perry in our office before and his contact is:
Trey Perry
Mortgage Cons-Reno
7930 W KENTON CIR, STE 300
Huntersville, NC 28078
NMLSR ID 594342
Office (704)949-1203
Mobile (704)813-3404

Shawn Knight
Helen Adams Realty
0 votes
Susan Zongker, Agent, Charlotte, NC
Wed Mar 28, 2012
Hi Ashlee, I'm am not sure if you can completely gut it from top to bottom, but know it is possible to do both cosmetic and structural changes to the home. This is the "full blown" 203K loan that allows for the structural issues also.

Your best bet is to speak with a lender who has done these types of loans as it's kind of a specialty product. If you don't mind, I will share a good contact with you. She has an office in Cornelius and can also travel to a south Charlotte office.

Susan Dewar
New American Mortgage
19615-B Liverpool Parkway
Cornelius, NC 28031
(704) 224-6003 cell
(704) 323-6526 office
(704) 512-0782 fax

Best regards and let me know if I can help you with anything.

Susan Zongker
Hines & Associates Realty
0 votes
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