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Rehab Loans  - Proper Planning Makes Them Easy

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FHA 203K Loans made easy.

If you are not finding the quality in the home you had hoped to purchase, try attacking the problem with an FHA 203K Loan in hand. The 203K Program allows you buy a home that needs repairs, close on the home and then do the repairs after closing. The cost of the repairs is rolled into your total loan amount. The seller can exit the property without doing work orders and the buyer has full control the standards to which the work is completed.

If you are a buyer with some construction experience you may be able to do some of the work yourself and contract for the rest. If not, a contractor can handle the whole process. 

I spoke with Ken Steiner of Home Street Bank in Seattle recently and he gave me the 13 steps you’ll want to follow if you want such a purchase to proceed smoothly from offer to closing and repairs. Ken has had many years of experience with this type of loan. Not all lenders may agree with the process he describes and I welcome the input of others. Making the purchase of such homes as stress free as possible for buyers and sellers is my goal.

There are 2 types of FHA 203K Loans available (Keep in mind that Fannie Mae rehab Loans are different than FHA Rehab loans in that they require 20%. The FHA requirement is 3.5% down, and 4-unit owner occupied multi-family properties qualify.

1.       The Streamline 203K (or Cosmetic 203K) is good for up to $35,000 worth of work which may include a new roof, plumbing and electrical fixtures, paint and plaster repair.

2.       The regular FHA 203K loan allows for structural changes, foundation work and kitchen  and bath remodels.

The Thirteen Steps

1.       Contact an experienced FHA 203K lender and get preapproved.  

2.       Select the target property, negotiate with the seller and present the signed agreement to the loan officer.

3.       The loan officer assigns the case to a 203K consultant (not necessary for Streamlined 203K). Consultant fees in Washington vary between $600 and $1400 depending on the extent of the project.

4.       Obtain bids from licensed contractors, even if you plan to do the work yourself.

5.       Rehab documents prepared by the contractor, borrower, or consultant include cost breakdown, spec, buyer-builder contract, plans and a narrative. The loan officer will often assist the buyer with these documents.

6.       An appraisal is ordered by the loan officer and the appraiser is given the rehab documentation.

7.       Underwriting reviews the appraisal, title, and construction documents and gives final approval.

8.       Build permit if required is obtained from local authority.

9.       Transaction is finalized and closing documents are signed.

10.   Sale closes, loan closes, and an escrow account is set up for construction draws.

11.   Construction begins within 30 days of closing.

12.   Draw requests are submitted to lender, lender sends inspector to job side, draws are issued to homeowner.

13.   Construction completed within 6 months, final pay offs made and title is updated.

The process can easily be completed with minimal hassles when using experienced professionals. Make that fixer your dream home all on your original loan.