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203K Rehabilitation Loan

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203K Rehabilitation Loan

Mike DunskyGuest blogger Michael Dunsky from Guaranteed Rate Mortgage is back to take to help review a popular mortgage program known as the 203k rehabilitation loan.

The landscape of the housing market all over the country has changed drastically over the last few years. Foreclosures and short sales have become the norm not the exception. Many of these distressed properties that have been entering the market are not in the best of shape.

Some of them need a major overhaul! They have however, created opportunities for buyers who are looking to invest the time and effort to fix them up either to turn around and resell them or to live in as a permanent residence.

203k Rehabilitation LoanAs such, the 203K rehabilitation loan is a terrific mortgage vehicle for those buyers who would like to invest in repairs and improvements in a property. The Federal Housing Administration (FHA) which is a part of the Department of Housing and Urban Development (HUD) is the party in charge of administering various single family mortgage insurance programs.

The 203K is the primary program for the repair and rehabilitation for single family properties.

The 203K rehabilitation loan program is run through FHA approved lenders which submit applications from buyers to have the property appraised and have the buyers credit approved just like in a conventional loan process. The difference is that these lenders fund the mortgage loans and the Department of Housing and Urban Development insures them. HUD does not make direct loans to borrowers.

If you have not had the pleasure of your buyer’s financing with a 203(k) renovation loan then just wait, because soon enough you will.   With all of the distressed sales and foreclosure properties abundant, it’s likely that soon you’ll run into that home that needs either a little TLC or some major renovations.  Either way, the 203(k) loan is a great financing tool to help a buyer restore a home.

The 203(k) program was originally designed by FHA to help with neighborhood revitalization and is a fantastic loan opportunity to buy a home and put in a new kitchen, bathrooms, update electrical or plumbing…  almost any major and minor improvement you want. There is really nothing else available that allows for the flexibility that this program offers.  It’s a simple program opens the doors for the average home buyer to receive money to improve a home.

I love this loan for a few reasons:  First, the down payment requirements are minimal (only 3.5% of the acquisition cost which is the purchase price plus the renovation costs).  What bank do you know of that will give a construction loan to someone putting less than 10%  to 20% down?  None!  And the second reason I love this program is credit.  You know that credit score tightening has been big show stopper for many looking to buy a home, let alone buy and finance renovations.

A low FICO score can prevent a home purchase, especially a home purchase with less than 20% down as most mortgage insurance companies have minimum FICO score (some even have their minimum at 680!).  Most lenders will usually allow a score of no less than 640 for the 203(k) but some may still allow a score as low as 620.

Fico score for FHA 203k LoanPlease be aware that if a lender you know is allowing a 620 credit score now then be prepared to see this increase to follow current industry standards of 640.

I also like the fact that with 203(k) you have two options – the Streamlined K as some call it, and the Full K.  The real difference between the two are that Simple K allows only up to $35,000 for renovations and have a caveat that improvements cannot be structural in nature.  The Full K allows for any permanent improvement and no limit as to the amount as long as the loan does not exceed the maximum loan amount for that county determined by FHA.

There are a few other differences in paperwork between the two types of 203(k) loans but the premise is the same…  203(k) helps move inventory! If you’re sitting on listings or have buyers looking for a fixer upper then the 203(k) is definitely the way to go!

If you are looking for a Massachusetts 203k mortgage or any other loan product for that matter and want to work with someone that is very knowledgeable, has great service skills and competitive rates, I would give Mike a call!

Michael Dunsky can be reached at Guaranteed Rate, Inc which is located at 38 Pond Street, Suite 208  Franklin, MA 02038

Phone 508.528.1800

Michael.dunsky@guaranteedrate.com

Other Real Estate articles worth a look:

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About the author: The above Real Estate information on 203k rehabilitation loans was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Hopkinton, Milford, Southboro, Westboro, Ashland, Holliston, Medway, Franklin, Framingham, Grafton, Hopedale, Mendon, Upton, Northbridge, Shrewsbury, Northboro, Bellingham, Uxbridge, Worcester and Douglas.

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{ 19 comments… add one }

  • Jim Wilson December 14, 2010, 6:21 pm

    Bill this is a great summary of the 203k rehab loan program. I can see where this would help out those buyers who were looking to purchase a short sale or foreclosure that may need a little help!

  • Bill Gassett December 14, 2010, 7:28 pm

    Thanks Jim. Mike Dunsky did an excellent job putting together the benefits of a 203k rehabilitation loan.

  • Pam Crawford December 14, 2010, 11:04 pm

    This is a great product for the owner occupy to rehab a house that is a great deal. Looking into the investor rehab loans. Those are good product as well. Thanks for the article.

  • Renee Burrows December 16, 2010, 3:52 am

    This is a great tutorial on a 203K streamline loan and I learned a lot! Believe it or not, in Vegas, I have not had a transaction with a 203K streamline (yet!) I am sure (as you mentioned) it is only a matter of time for me!

  • Bill Gassett December 16, 2010, 12:50 pm

    Renee I am surprised you have never worked with a 203k rehab loan considering the amount of foreclosures and short sales out in your area!

  • Marianne Cherico December 16, 2010, 7:28 pm

    Bill,
    Seems like we are starting to see more of these loans, given the abundance of distressed properties. Thanks, as always for explaining them more thoroughly (or having Mike explain). Hope you have a wonderful Holiday Season.
    Marianne

  • Alex Cortez December 17, 2010, 1:49 am

    Very well-written article, Michael. Not many potential buyers are aware of all that the 203K program can offer, so getting this type of information out there to the public is critical in getting some REO’s/Short Sales off the market.

  • Nona Mills December 22, 2010, 6:37 pm

    Very well-written article, Michael. Not many potential buyers are aware of all that the 203K program can offer, so getting this type of information out there to the public is critical in getting some REO’s/Short Sales off the market.

  • Adrienne Randall December 29, 2010, 11:12 am

    Very well-written article, Michael. Not many potential buyers are aware of all that the 203K program can offer, so getting this type of information out there to the public is critical in getting some REO’s/Short Sales off the market.

  • Diane Malagreca January 14, 2011, 10:58 pm

    Dear Mike:

    Am I correct in that a buyer has to occupy the home as one of the requirements to get 203K re-hab financing. I work with some investors who are usually all cash buyers and I was wondering if there is any option available to them if they don’t have all cash? Please advise.

    Best,

    Diane Malagreca/Coldwell Banker Ditommaso Realty/718-667-8000 x 122 or 917-842-7936

  • Bill Gassett January 14, 2011, 11:21 pm

    Hi Diane – This is Bill answering for Mike only because I know the answer:) You are correct that a buyer has to occupy the home as a requirement for getting 203k rehab financing.

  • Marvin January 20, 2011, 7:30 am

    Bill,

    Glad to see the exposure you are giving the FHA 203k loan, hope lots of your buyers take advantage of it.
    I wouldn’t go as far as saying it’s a construction loan but never the less like you said…”What bank do you know of that will give a construction loan to someone putting less than 10% to 20% down? None!…well it’s pretty close to a construction loan “so you can say that again”

  • Paul Welden January 28, 2011, 2:20 am

    Hi Bill.
    It’s great to see more Realtors embrace the potential of the 203k to revitilize entire communities.

    Did you know that in the Boston/Providence area in December 2010, there were 62 FHA 203k loans completed and 1323 FHA 203k loans completed last year!?!?

    Just don’t forget to use a Certified 203k Contractor for your 203k’s. They are located on the 203k Contractor Directory at http://203kContractors.com.

  • Ray March 15, 2011, 1:27 am

    How easy is it for an investor to get a 203K loan?

  • Bill Gassett March 15, 2011, 1:47 am

    Ray it should not be a problem for you to get a 203k loan.

  • phyllis November 7, 2011, 5:36 pm

    Good article. Too bad they won’t let investors do it anymore.
    Wells Fargo here in Ca. has a similar type loan and they allow investors

  • Martha Fuentes July 8, 2014, 9:08 pm

    I have a historic house that needs work…it still
    has knob and tube electric. The windows need to be replaced. Also it has some asbestos that needs to be removed.
    It is 300 years old but it is structurally sound. I am a retired school teacher and
    can not afford to fix this house. Would I qualify
    For a rehab loan? Please give any feed back that you can.
    Thank you!

  • Martha Fuentes July 8, 2014, 9:08 pm

    I have a historic house that needs work…it still
    has knob and tube electric. The windows need to be replaced. Also it has some asbestos that needs to be removed.
    It is 300 years old but it is structurally sound. I am a retired school teacher and
    can not afford to fix this house. Would I qualify
    For a rehab loan? Please give any feed back that you can.
    Thank you!

  • Bill Gassett July 9, 2014, 12:25 am

    Hi Martha – there is no way for me to know if you would qualify for a loan. You need to speak with a mortgage broker to find that out.

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