203k loan?

[Jarcese]

Has anyone on this board ever gone through with a full 203k FHA loan? I saw a post where someone was starting the process but I can't find the thread. Curious to see what is was like to actually go through with it. For those who don't know, it's a loan where the seller agrees to a price and then the bank gives you a loan for what you need to bring it up to your standards. So say you buy a house for 350k, the seller gets that and then you submit what you want to do to it with with plans and permits. Then you tack on that price to the loan and the bank disperses the money throughout the project. Pretty much the same as a construction loan, but it's insured by Obama and Co. so the bank doesn't get scared off. I think this is for foreclosures only, but I'm not sure.

I'm curious because I found a property that has been owned by the bank and has been sitting there for two years. The house needs 100k right off the top to live in it comfortably, no "luxury" things. The septic is condemned to thats 25k right there. I think that's what's scaring people away because this house has awesome potential in a good neighborhood.

The loan seems like a win/win for the bank and I, but I'm still really nervous.

Also, if you have done this type of loan, did the bank accept a low asking price in order to get you into a big loan? I ask because I need to steal this house to make it worth it for me, but I don't know if the bank wants to lose money up front in order to make money on the end.

How does this have anything to do with the garage you ask? Because it has a three car, two story garage you silly goose.

Thanks in advance if you have any good info.

 

[kazlx]

I attempted to buy a house with a reno loan about 5 years ago, when I was in the market to buy the house I'm in now. It was such a nightmare/headache/waste of time, that I just bought something else. Would have been a good buy too, even in retrospect. The problem is getting financing on something that is not livable. They don't make it easy.

 

[Jarcese]

That's what I've heard so far. I tried to get a construction loan on a gut renovation this year after I already was half way through it and it was hard to even find a bank that would talk to me about a construction loan since it was uninhabitable. Decided to find money somewhere else because those loans are ugly right now. The 203k has much better terms, but seems like it would be hard deal with the process and/or find a bank that does it.

The other thing that makes me nervous is that you can't do work yourself unless you're licensed. Also, the contractor has to pay the the first two weeks of the project up front until the release money from escrow. None of the people I trust to do work for me would want to pay 10k of their own money just to start a project.

 

[skyking]

If it was that good of an opportunity........it would already be gone. Lots of cash floating around out here looking for a return.

 

[volaredon]

cant do the work yourself that is turnoff for me in and of itself.... i do all my own work with the help of a couple buddies.... have never had the least trouble getting by Inspection.... usually the inspectors tell me they wish everyone would do their work the way I do mine

 

[Jarcese]

If it was that good of an oppertunity........it would already be gone. Lots of cash floating around out here looking for a return.

That's the final thing that's making me nervous. The good part about this loan is that they make you submit at least two bids from two different contractors. I'm able to go through the house for at least two soup to nuts full home inspections (not the half assed inspection)so I'll know before hand if it's a money pit or at least have a pretty good idea.

 

[elvee]

My wife and I refi'd our house last year (right before Christmas) with a 203K Full so we could do the roof rebuild and sunroom rebuild on our house. It is a ton of paperwork. We started the documents in August and just barely closed in December. We were originally supposed to close in October, but we got behind in getting paperwork filed. You have to have a builder who is willing to do a lot of paperwork and will be diligent in keeping up with record keeping.

Couple of things - technically the builder isn't fronting the first week BUT the loan program does not allow the payment of a deposit to the GC AND it is a major violation of the agreement for the homeowner to front a deposit to them. This can get everyone in trouble, and can cause the loan to be cancelled technically.

It is a fixed price bid. Those prices are verified by an FHA consultant you must hire to oversee the project. Their fees get built into the loan as well. Now, your consultant may be willing to play around with the columns to make the numbers work. In our case, we stayed on target for the final number. Some areas were over, some were under. It gets to be challenging to keep track of all of it.

There is a cap on the amount that can be borrowed based upon your location. It has nothing to do with the price of the house you are looking at, or the size of your refi. The max number is final. We got lucky and made it work. The house also has to appraise high enough (the projected finish value, not the as-is value).

You can do your own work IF you can provide proof that you are qualified to do that work. Some banks don't like it, but the program will allow it. Because of the tightness of the guidelines, and the need to stay to a fixed budget, it is almost impossible to make it happen yourself.

Overall it is a good program, and one I would recommend. There are some drawbacks. You are most likely going to end up with PMI. There is a ton of paper to file. You have to be done with all work within six months of closing of the loan. Work must begin within three weeks of closing. We worked with Wells Fargo. They do more of these loans than anyone else in the country. They also don't sell the loans after closing which isn't a bad thing.

If you have any specific questions feel free to message me.

 

[kazlx]

That's why I gave up. For those exact reasons. The house I was looking at was basically mid renovation. It was mostly finish work that needed to be done. The drywall was done, but needed to be taped and mudded, it needed floors (was just bare concrete), some stucco work on the outside of new windows, and a roof. All of the interior stuff I would have easily done myself, but when you factor in that everything has to be done by licensed contractors, it went out the window. It's not hard to burn up the cash you would have spent on just buying something relatively turn key. I got tired of looking and wasting my time at houses that needed a lot of work or short sales or foreclosures. I hear of people buying them, but don't actually 'know' anyone that has bought one.

I bought my house from people that were upside down on their mortgage, but they were moving for his job and his company just footed the bill for the difference between what they owed and what I paid....

 

[Jarcese]

Thanks a lot, just what I was looking for. We already looked into the max loan amount for the county and it's roughly 530k. You may be hearing from me in the near future.

 

[mngundog]

Has anyone on this board ever gone through with a full 203k FHA loan? I saw a post where someone was starting the process but I can't find the thread. Curious to see what is was like to actually go through with it. For those who don't know, it's a loan where the seller agrees to a price and then the bank gives you a loan for what you need to bring it up to your standards. So say you buy a house for 350k, the seller gets that and then you submit what you want to do to it with with plans and permits. Then you tack on that price to the loan and the bank disperses the money throughout the project. Pretty much the same as a construction loan, but it's insured by Obama and Co. so the bank doesn't get scared off. I think this is for foreclosures only, but I'm not sure.

I'm curious because I found a property that has been owned by the bank and has been sitting there for two years. The house needs 100k right off the top to live in it comfortably, no "luxury" things. The septic is condemned to thats 25k right there. I think that's what's scaring people away because this house has awesome potential in a good neighborhood.

The loan seems like a win/win for the bank and I, but I'm still really nervous.

Also, if you have done this type of loan, did the bank accept a low asking price in order to get you into a big loan? I ask because I need to steal this house to make it worth it for me, but I don't know if the bank wants to lose money up front in order to make money on the end.

How does this have anything to do with the garage you ask? Because it has a three car, two story garage you silly goose.

Thanks in advance if you have any good info.

Just had one installed about two years ago, think I paid about 6K.

 

[camarotoolman]

I just missed a little 2-1 for $8500, probable good have got 50k fixed up.

 

[SGKent]

203K will require a lot of paperwork on your part. I used to do them a long time ago. They are basically designed to be an FHA insured loan on a property that needs work. The lender is giving you the money to buy the home and to fix it up too. It is insured by FHA. You are either willing to play by their rules or you can forget it. If you are a control freak or impatient you should pass right now. Yes you can do the work yourself if you can show you are skilled in that trade.

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/faqs203k

 

[Jarcese]

The realtor told me the last people to make an offer had a bid of 25k for new septic and 19k to hook up to town sewage. The town says the house is permitted to hook up to sewage, but not zoned for it? I had a bid for around 6k to replace a small septic on a rental property, but the house is only 900sf. This house is 2500sf plus the digging in that town in brutal not to mention everything costs more around Boston. I was thinking 25k sounded about right, but I know nothing about installing septic tanks and I would get my own bid of course.

 

[Jarcese]

203K will require a lot of paperwork on your part. I used to do them a long time ago. They are basically designed to be an FHA insured loan on a property that needs work. The lender is giving you the money to buy the home and to fix it up too. It is insured by FHA. You are either willing to play by their rules or you can forget it. If you are a control freak or impatient you should pass right now. Yes you can do the work yourself if you can show you are skilled in that trade.

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/faqs203k

This is good news. How to they judge whether you're capable or not? I can make my work look good if you don't look too close Really though, I did a full reno on another house from dry wall in by myself recently. Would this qualify as "proving" my capability?

 

[CNGsaves]

Sounds like you need "white knight" investor for capital so you could avoid the whole hassle/paperwork of FHA. Another way is provide enough collateral of your own so no need for FHA in the first place . . . obviously this is giant gamble if you put up your 401K or Dad's house or whatever. Buying house outright would also take away stipulation that you couldn't do work on your own house . . . thus, would give you profit potential all on your shoulders.

Been to auctions during worst of 2008 to 2010 housing crisis and 3 BR 2 BA brick house on 1 acre w/ attached 2 car garage AND detached 3 car 2-story garage (w/ loft apartment over garage) only went for $140K because it was near floodplain. Guy who bought it paid cash so he could skip required flood coverage that bank would've required. Sure that house/land is worth around $200K now that drought's in full swing - - little chance of every flooding again. Another auction house I tried bidding on sold for $120K as it had flashflood few years back due to builder error w/ surrounding ponds/stream . . house now is worth $175K to $180K after some minor fixup in basement.

Good luck if you decide to take plunge . . . most of time your gut is right when you think it will be winner in the end.

 

[GarageEnvy]

I'm an appraiser and usually have at least a couple of 203k jobs per month. Elvee is pretty much right on with the information he provided. They're not just for foreclosures. They are FHA insured loans. The biggest issues that pop up from an appraisal standpoint is the spread between the "as is" and the "as completed" values with the work being done and additional work being done by the homeowners. It's not uncommon for there to be supplemental work agreements as the renovation progresses. Typically buyer's only pay attention to cosmetic things. Yes, I know it's wrong and crazy but watch buyers and you'll see them fuss over wallpaper and carpet without even asking about a septic or A/C unit. The point is that money can be well spent on renovations that add little to the market value of the house.

On the second issue, there's too many people like us (GJ members) that can't help but DIY portions of the renovation. I had a final inspection last week for a 203k job that was a classic example. Everything on the 203K list was done properly by the contractor but the homeowner had torn apart backsplashes and electrical sockets and hadn't finished. So, it couldn't be signed off on.

A third, less common problem is to have the renovation balloon in scope. If the remodel gets a bad case of the "you might as wells" it might wreck the valuation too.

On the septic issue. Be very careful! FHA typically requires connection to public sewage when feasible. Feasible has been re-defined several times. If it's available in the street, it's definitely a consideration. Feasible is typically defined as less than 3% of the value or price of the house. On the plus side, the lack of a working septic renders the property ineligible for most forms of financing so the pool of buyers is smaller and the value of the home may be lowered by an amount greater than the cost to fix the septic or connect to sewer.

 

[Jarcese]

Really appreciate the answers. I have a condo and a rental property right now and selling either of them won't get me enough money for downpayment plus repairs. I don't wan't to sell both of them. FHA actually gives me the possibility of keeping both and renting them while buying a "forever home" as my wife calls it. Not looking for info on whether it's a good or bad buy, just looking for info on the process and whether it's worth it or not.

I agree that the homeowner is usually a pain in the ***. I would probably stay out of it as much as I like to do my own work.

Have you ever heard of being permitted for town sewer, but not zoned? I know the septic is the main reason driving people from this house.

 

[GarageEnvy]

I have never heard of any zoning regulation pertaining to sewer. Typically zoning is concerned with land uses, sizes and setbacks.

 

[Jarcese]

I thought it sounded weird. The house is set back behind another house. I'm wondering if maybe the sewer line has to run through the other property, but there is a perfectly good path through the property along the driveway to the street. It seems like more of a hoop to jump through for the town than an actual problem. Thanks again.

 

[billspit]

R

Have you ever heard of being permitted for town sewer, but not zoned?

I've never heard of such a thing. But some communities are really weird.

 

[nitsuj02532]

I did a 203k loan on a house in MA just last year. Its a paperwork headache, and the bank's regulations may make it harder than you could ever imagine to get it done UNLESS you have the $$$ to put up for all the rehab costs.

I had to do a septic and it took calling ~50 contractors and getting quotes and explaining the 203k process to them to find one that was willing to work on their payment terms, it ended up costing about $5k more than my original quote that was submitted from the first contractor that backed out and I had to pay that difference out of pocket.

The 203k consultant plays a big part in what you 'have to' do...the one I had was really good, my bank required that anyone that does any any of the 203k work have a CSL, fortunately my father in law does, so he filled out all the paperwork for the remainder of the work that they required and with the consultant knowing that, he was pretty easy on me and didnt add too much, and priced everything really low on the 'project plan' so that i could keep m mortgage down. If i had the money to put up to pay for the septic in full, then i could have just just put the septic under him and subcontracted it out since he has an UR license, but unfortunately i didnt have enough to put up for that plus all the other projects i needed to do.

The house with all 203k improvements has to appraise out to within 110% of the loan that you take out or something around that number, so if the house needs 100k, and cost 350k then when youre done with everything it would have to appraise out at 450k and they figure this out on the appraisal before you close after they make a list of improvements needed.

 

[jlckmj]

I sell real estate and have had several clients use both the streamlined, and the full 203k loan. In my opinion it is one of the few federal loan programs that work the way it was intended to work.

In fact, my son is a general contractor, and has gotten involved in the loan program also. He loves it because he knows the money is there when his work is finished, similar to a builder getting draws from a bank on a new house. The consultant checks his work, and if done properly, he gets paid, period. It is more paperwork, and the process takes more time vs. a conventional loan program, but it works.

It is great for 1st time home buyers because they typically put all their money down on their new house, then have nothing left over for repairs.

It is good for the neighborhoods, because it allows your typical family to buy what would normally be left for an investor (slum lord) to buy because they are the one's that have the money to do the repairs.

It is good for the owner (bank or private) because it gives them a larger pool of buyers.

Good luck, Jim