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Anyone ever use a 203(k) loan?
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Anyone ever use a 203(k) loan? - October 20, 2016, 02:22 PM

Wife and I are looking at homes, and we found a diamond in the rough, we are looking at 203(k) loans due to the size of the amount of work to be done (Full kitchen, 4 baths, move walls, flooring, appliances, etc).

Anyone ever use one, experiences, and lessons learned?


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October 20, 2016, 04:32 PM

My only experience was how to get around one.

They do charge you a bit more of a premium as compared to a conventional loan.
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October 20, 2016, 04:58 PM

Luckily never had to use one. I found hard money lenders for the purposes of rehabs and flips.

But I'm curious to see what experience others have had with them if they used it. Subs.



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October 20, 2016, 05:43 PM

Its a cluster for the GC unless they are used to working with it.

You might be better served by going conventional if you can then doing heq loan.
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October 20, 2016, 11:10 PM

Not a flip, will be our residence. We are working with a GC that can do 203's. We cant go conventional as we are keeping our current home and will be renting it. So, with our current mortgage, and the new home purchase, our qualifying loan amount for a conventional loan wont allow for the level of work needed.


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October 21, 2016, 07:54 AM

It is worth the premium if you 1. know nothing about construction and 2. have a tight deadline. With a 203 (k) loan, the bank is going to act on behalf of you and monitor construction and inspections. They will generate a schedule of values to be accepted by your contractor and that is how they get paid, so you know you are protected and the contractor isn't overbilling for work not complete. Ultimately it keeps the contractor honest and you get an extra set of eyes on their work.
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October 22, 2016, 08:34 AM

Quote:
Originally Posted by Heist View Post
Luckily never had to use one. I found hard money lenders for the purposes of rehabs and flips.

But I'm curious to see what experience others have had with them if they used it. Subs.
Shoot, I'd take a 203(k) over hard money any day. 2-6 points and 12-18% interest, only downside to a 203(k) is that you have to hold the property for a certain amount of time, I think it's 7 months. Flippers want to be inn and out. Plus, 203(k) is designed for owner occupants so technically you'd be committing mortgage fraud, though it's unlikely they'd catch you.


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October 22, 2016, 08:41 AM

I havent been able to find any numbers on the premium, does anyone have experience with what the premium over the expected interest rate would be?


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October 22, 2016, 08:43 AM

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Shoot, I'd take a 203(k) over hard money any day. 2-6 points and 12-18% interest, only downside to a 203(k) is that you have to hold the property for a certain amount of time, I think it's 7 months. Flippers want to be inn and out. Plus, 203(k) is designed for owner occupants so technically you'd be committing mortgage fraud, though it's unlikely they'd catch you.
12-18% APR!? F That! Seriously? Would that just be on the amount borrowed for the improvements?


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October 22, 2016, 02:17 PM

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12-18% APR!? F That! Seriously? Would that just be on the amount borrowed for the improvements?
Yep, it's designed for short-term loans where traditional financing isn't available. Different lenders offer different terms but usually they'll lend up to 65% LTV on the after-repair value or 80% LTC (acquisition and rehab). It is VERY expensive money but there are few traditional options out there for investors.


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October 22, 2016, 09:47 PM

i just did a fannie mae homestyle loan on my new house (same idea as 203k) and it's 4.75%. definitely more than I would have had for a conventional, but these type of loans aren't just for those who "don't know about construction". houses that need serious rehab will not qualify for conventional loans, so this was the only way to buy this house unless i was paying cash. it was a pain in the ass to get everything lined up. just to give you an idea, the offer was accepted in May and we closed in September and we had to dodge many potential deal breakers along the way. Then there's also the reno process which means i still need to keep my current house for a bit... But if you really want a particular house, sometimes this is the only way. in any case i'm in a million dollar neighborhood now so i'm not bitching. I'm just hoping that this becomes one of those things that ends up being worth all the bs up front.

Last edited by slow231; October 22, 2016 at 09:54 PM..
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