Anyone Ever Get a 203K Construction Loan?

Hi,
My husband and I were in the process of purchasing a non mortgageable property with a 203K when we were sadly outbid by a cash buyer. A friend of ours has also recently purchased a house with a 203K loan that would not have been conventionally mortgageable otherwise.
The 203K program is a FHA/HUD loan intended to rehab existing properties ( rural as well as urban). In order to qualify the property must be intended to be your primary residence. Not all banks offer 203K so you might need to ask around.
There are two types: streamline which allows you to borrow up to $35K and a regular where the maximum you can borrow depends on the average income in your county. There are several inspections you will need. A FHA inspector will actually determine the extent of work needed and then inspect the house as the work is completed before more funds will be released. You need to have cash reserves in addition to a 3-5% down payment to get started.
I believe it does have to be a property purchased with in the last year to qualify.
It can be a lengthy and trying process, it is a great way to by a property that needs work without having to take out a high interest construction loan.

Here is the link to their website for more info:
http://www.hud.gov/offices/hsg/sfh/203k/203kmenu.cfm

A friend used this loan about 8 years a ago when they bought a fixer upper. I beleive the only thing that was a drawback was they had to use their own money to start and get re-imbursed as they finished projects giving them the money to start the next project. They did everything themselves so it took a year from demolition (only the frame of the house remained) and redo everything.

GOOD LUCK!!!

Danielle,

I work for a State Department of Banking and Insurance, and I have never heard of that sort of a loan either.

With the housing market being what it is, and all of the foreclosures and shifty dealings going on in this economy, I would be very, very careful about signing for a loan of any sort, particularly if you have never heard of this type of loan.

While this loan may be on the up and up, I would insist that your mortgage broker allow you to have an attorney look over any loan agreement, and explaining it to you and your husband, before either of you sign anything!

There are just two many dishonest people out there now trying to make a buck off of other's misfortune, so my advice would be to protect yourselves from anything that you don't understand, or may be in the fine print, by consulting an attorney before signing anything!

D.

I did one of those loans years. They are great a lot of restrictions. Make sure you are working with a contractor that understands you get paid in drawers as work is finished. I am not sure if this type of loan is still available. If it is it is a great way to do your first construction loan. After being in it for a year you should refinance to a loan that has a better rate.

Yes, I have (I'm a loan officer). It can be used for both purchase and rehab of an existing property or refinancing and rehabbing an existing home.
Ex: It can be used to purchase or refinance a single family home and turn it into a 2-4 unit owner occupied property.

Just like a regular construction loan the FHA 203(k) is based on the future value of the property. These loans are strictly full documentation loans.

All you need is the regular 3 -3.5% down.

Hope this helps.

You know that expression Buyer Beware.........well, that's what this is all about. We had gotten approved for one but were never told up until almost the very end that we actually wouldn't get the money for the necessary approved repairs until they were done. We could not find one contractor who would do the work when they heard a 203K loan was involved. I would try to pull from your mtg rep everything you can about this, because we almost ended up w/a delapitated house, a 5 year old & newborn standing at the curb.

Hi Danielle,

My husband and I are going through the process of getting a 203k construction loan right now. I sent in all the pertinent information to our mortgage broker and he will start the process.

A 203k loan is not the only way, but based on the value of your home this is the best way to go. The difference between the 203k loan and a normal loan is that they based the money being lent on the future value of the home instead of the existing value.

I hope this helped.