Question #1- What are the steps when buying a house with a FHA 203k rehab loan?          

I took this answer directly from the HUD website- the process is simple follow these steps and be sure to ask me for help!

The 203(k) loan includes the following steps:

	A potential home buyer locates a fixer-upper and executes a sales contract after doing a feasibility analysis of the property with their real estate professional. The contract should state that the buyer is seeking a 203(k) loan and that the contract is contingent on loan approval based on additional required repairs by the FHA or the lender.
	The home buyer then selects an FHA-approved 203(k) lender and arranges for a detailed proposal showing the scope of work to be done, including a detailed cost estimate on each repair or improvement of the project.
	The appraisal is performed to determine the value of the property after renovation.
	If the borrower passes the lender’s credit-worthiness test, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the allowable closing costs. The amount of the loan will also include a contingency reserve of 10% to 20% of the total remodeling costs and is used to cover any extra work not included in the original proposal.
	At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.
	The mortgage payments and remodeling begin after the loan closes. The borrower can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it is estimated to complete the rehab.
	Escrowed funds are released to the contractor during construction through a series of draw requests for completed work. To ensure completion of the job, 10% of each draw is held back; this money is paid after the lender determines their will be no liens on the property.

Question #2- Why are banks looking for buyers who are using FHA 203k and conventional loans only when selling bank owned properties?

When banks are trying to selling there properties they realize that in order to sell them they need loans that allow for repair escrows or can be financed “as-is”.  Regular FHA loans are great for purchases but most lenders need the repairs to be done upfront.  FHA 203k is your way around this.  I get calls from borrowers all the time who are told that they must get financing using the FHA 203k only- they are confused but once we go over the details they usually are excited to find out what the loan can allow them to do- replace carpets, remodel kitchens and baths, replace major appliances, etc, etc…

The questions I receive come from a variety of areas- from the simple “what is a FHA 203K” to the more complex “what is the FHA identity of interest form used for”.  If you do not see a question answered here or you are a loan officer and have had a similar situation but a different answer please feel free to comment as I do not claim to be the FHA 203k all knowing but I have done enough and do spend my time learning daily so hopefully the things that I have learned will help you as a consumer to make an informed decision. 

Questions #1- What is the FHA 203k rehab mortgage program?

In a nutshell- the FHA 203K mortgage program is a HUD insured loan that allows you to purchase or refinance a property that is need of repairs, rehabilitation or might just need to be modernized.  By using the program you can “gut” a property, add square footage, buy appliances, replace rugs or repair hardwood floors, and the list goes on and on.  The program comes in 2 flavors- the full FHA 203k program and the streamline FHA 203K.  Click on each term to learn more. 

Click here to see the full write-up as described by HUD. 

Question #2- How much money can I get to do my repairs?

This comes down to the type of program and what comparables are going for in your area.  If you are trying to use the FHA 203K streamline program then you are maxed out at $35,000.  If you use the full FHA 203k program you can get as much as the value will allow up to 110% of the as completed value of the property.  I will explain more about this down the road but I am currently doing one for a customer that is doing $150,000 of of additions and repair work! The program is meant to help everyone and everyones situation is different- so feel free to contact me and I will be happy to show you how the program can help you and your family. 

Question #3- What is the FHA 203k consultant and do I need one?

FHA 203k consultants are not required when doing the streamlined version.  However when you are doing the full version of the 203k program they are required.  I really recommend the FHA 203k consultant to everyone using the loan program.  I truly believe they add a lot of value to what you are doing as a consumer and they act as an advocate on your behalf.  In my area I have a specific FHA 203k consultant that I use for both Northern NJ and I also have someone I use for Southern NJ and PA. 

They are intregal players in the process and I would always recommend using them.  I am hoping to get them both to be guest posters here shortly and maybe they can answer a few questions in this series.  I am putting there contact information below. 

Northern NJ –Mike Grace 800-765-2099 mgrace@the203kconnection.com http://www.your203home.com

Southern/Central NJ and PA- Rich Allgood  215-882-1878  richallgood@verizon.net

Thanks for reading and I will be posting more questions and answers as they come in- feel free to comment!