Tours Travel

FHA 203K Loans – Blessing or Nightmare

Good news for homeless people. There is an opportunity through the FHA to purchase a home and rehab it immediately. The loan is called 203k and the benefits of financing your first home or your first home in more than 5 years in this way are numerous. First, you can buy a house with a 3% down payment plus closing costs that you can estimate as another 3%. One of the difficulties in buying a home is the ability to save for a down payment. Conventional loans require a 20% down payment and that can be a hefty sum. The second benefit is that you can rehab your home right away. Understand that, under normal conditions, a home buyer is limited to buying a home. Banks will generally not allow you to borrow above the value of the house and therefore you will have to wait to make that ugly house a place you want to call home. This is where the FHA shines. They realize that you don’t want to live in unpleasant conditions and they also want to help old neighborhoods clean up and become preferred neighborhoods. In Florida, it is common to have houses that appear to be demolished and houses that are Mc Mansions located on the same street or in the same neighborhood. So you can find the worst house in the best neighborhood and rehab it. In most cases, your equity after rehab should put you in a position to have equity in your home. This means that once the house is finished, in a perfect world, you could sell it for more money than you invested in it.

The FHA limits what you can borrow in your area. The amount is different in each county, so knowing the loan guidelines is essential when purchasing your home. Keep in mind that the guidelines change as the price of a basic home increases. In, St. Petersburg, Florida, as of the summer of 2017, the FHA limits you to borrowing up to $ 274,000. This means that you have to buy a house for around $ 200,000 if you want to have enough money for the rehab to turn the house into a jewel. So, once you’ve determined that you can finally take the step of becoming a homeowner, you need to plan your purchase and rehab through the FHA.

The first step is to find a banker who will grant FHA loans plus 203k. Your real estate agent should be able to help you with this or you can Google it or just call the bank you use and ask if they offer this type of loan. Once you have chosen the banker, you need to find out who is pre-qualified to borrow. Once you have your prequalification letter, you can begin your search for the perfect distressed home. This can be challenging. The price of the house you are looking for is in high demand. Investors are paying cash, buying and selling these properties. After a cash buyer walks in and picks up the home you are considering, you will learn 2 things. The first is that cash buyers pay close to or above the full price depending on the location. Second, you will need to act promptly and immediately make an offer at your first glance. The lucky thing is that you can research the property online, so when you drive around the neighborhood and physically view and inspect the property, you need to know exactly how much to bid for the property and also how much it will cost to bring the home to the condition you would venture into to move out and be livable. Realtor.com is the place to start. It shows everything that is for sale through mls and there are usually about 20 photographs of the interior of the house. Once you’ve selected a home, look it up in your county tax records or on the property appraiser’s site. This site will tell you how much the last owner paid for the property and when they bought it. You will know if the previous sale was a qualifying sale or a non-qualifying sale. This means that if the property was acquired as a non-qualifying sale, it may have been a gift, or transfer of title due to death or divorce, or foreclosure. You can also ask your real estate agent for comparable sales in the neighborhood. Look at the condition of those homes because they will still be on Realtor.com and calculate the price per square foot. Finally, start racking up costs for new kitchens and new bathrooms. Learn the difference between “builder grade” (low end) and what you want. He also values ​​the floors. Know the price of a new roof and a new air conditioner.

When doing a 203k, keep in mind that the rehab should be done with a minimal amount of moving walls or expanding space. Construction is expensive, very expensive. So reconfiguring the space will eat up your budget. You want to return the property to its original glory. Always keep in mind that it is important to maintain the integrity of the original architecture. Don’t try to make a square hole and turn it into a round peg. It will look strange and the value after the rehabilitation of the house will not be there. If it’s a mid-century modern home, keep the elements of the home modern and stylish. If it’s a former Sears craftsman bungalow, keep all the hardwood floors, crown molding, and cool features. Look at the application on your phone called houzz. It will become your place for any design questions.

Once you’ve made a purchase offer and it’s been accepted, there are a few important things you’ll need to do before closing. A 203k loan includes what is known as a “scope of work.” The scope of work is what will be paid for with the rehab money and is part of the closing documentation. This scope of work must be defined down to the last detail because once the loan is closed, changing anything becomes a nightmare. Once the loan closes, you can’t change your mind and say okay instead of adding a walk-in closet to the master bedroom, we want to take that space and make it part of the bathroom. You will be told: “No, it is not part of the scope of the work, I cannot do it.” To pin down the scope of the work, you will need to find a contractor who will do it and is qualified to do it and is approved to do a 203k build. In my area I could only find 3 contractors that did 203k things. Here’s the bad news. You end up paying full retail price for the rehab. If your plan is to move a wall or tear down a wall, then an architect will need to draw the plan so that the contractor can obtain permits. Drawings must be done before closing the loan and the cost of the plan must be paid in advance.

You are a captive of your contractor and they are going to make money from everything related to the job. I asked the 203k contractor what the profit expectation was for the scope of work. 15%, 20%? He said no, more like 25%. So I asked you, if my rehab loan is $ 100,000, after you take your $ 25,000 benefit, I will have a real $ 75,000 to spend on rehab, right? He said: Well, it doesn’t work like that. There is a shortage of contract labor, so contractors use their employees and keep them busy throughout the year to maintain their loyalty. Gone are the days of getting 3 bids and choosing. You’re lucky if the worker actually shows up and gets the job done. This is especially true in Florida, where the demand is off the charts. In addition, everything must be authorized and then inspected several times. All subcontractors are licensed or work for the licensed contractor. You, as a homeowner, can do some work and if you don’t want your budget to be ruined on things you could have done, then decide what you can do and do it to keep costs down. The good news is that there is a timeframe for which the contractor is accountable. You have to finish the job in so many months and a part of the money is withheld in case you have not paid all your subcontractors.

Even though the rehab is limiting major areas like the new kitchen and new flooring and new bathrooms, they are within reach and more than make up for any limitations you may have when taking out a 203k loan. It’s a great way to buy a home and make it a place you can call home.

Leave a Reply

Your email address will not be published. Required fields are marked *