203 k loan?

Has anyone done a 203k loan? We are considering doing one the house we are purchasing. The sellers aren’t in a rush and know we have to sell our house and are pretty open to us doing whatever. Our realtor said it was an option and may be a good fit for this house. The house really does need to be renovated down to the studs in pretty much every room...
Any pros? Cons? We were planning to do the kitchen and redo the floors right away even not going this route

Re: 203 k loan?

I've worked with clients who have obtained 203(k) loans.

There are two kinds of 203(k) loans - the streamlined version (for renovations that will only cost up to a certain amount - I think it's $30K or maybe $35K), and the non-streamlined version (which takes longer, and has more requirements).

You really need a lender who is familiar with these loans, as there is a lot to coordinate.

With the non-streamlined version, there is an FHA planner assigned, and you may need an architect (again, depending on what you are doing), and a contractor who is ok with being paid in installments. It's not a lump sum payment but money that is doled out a bit at a time as the work progresses.

The interest rate is different (higher) on the renovation portion than on the loan for the purchase.

The house will need to appraise for both the current condition and for what it will be worth post-renovation in order to secure the loan amounts.

Another potential drawback is that it cuts into your budget. So if you qualify for $500K, and you want to do $100K in renovations, the house has to be purchased for $400K or less. In some areas, you can find fixer uppers that are priced low enough to make it work, but in others, it may be hard (or you may just have to scale back the renovations that you would use the loan for).

The advantages are not having to have cash or save up cash to do work on a house, and I think the loan rates on a 203(k) loan would be better than other types of loans that you might pursue to do home renovations.

A good loan officer would be more knowledgeable about the ins and outs to advise you on your specific situation.

Just wanted to mention that there are other types of renovation loans, similar to a 203(k) loan -- which is a type of FHA loan, that specific lenders offer. I know Wells Fargo has one, but I'm sure there are other loan programs out there.

But with these types of loans, you do have to be patient and organized, as there is a lot of detail to be on top of and a lot more red tape than your standard purchase mortgage.

Hope this helps!