What is a 203K loan?

Dave: This week we had a special guest John Leach Branch Manager of Mortgage 1 lakeside office John is our 203k specialist. John a lot of people don’t know what a 203k loan is can you tell them a little bit about what that is?

John: Sure a 203k loan and is a rehabilitation loan that’s insured by HUD. It allows borrowers to roll in repair cost into their mortgage rather than purchasing a home and having to come up with all that money out of their own pocket after closing to do repairs to a property.

Dave: With the way the housing market is right now there are a lot of people overbidding for homes that are in very good condition. This might be an opportunity for people to get into a home that might need repair and not have to come up with the cash after closing?

John: Correct with the lower inventory levels right now some of the houses at on the market aren’t in the best condition for buyers. We’re finding that a lot of homes that are available are a little run down are a little outdated. the 203K loan is a terrific product that allows them to replace a roof or put new windows in or put all new carpeting in. Basic renovation repair items that new home buyers can get into repairs that can be in-depth or costly.

Dave: It’s not really for the addition per se but it’s more for the renovation of the current structure is that accurate?

John: Partially accurate yeah there are two types of 203k loan loans. One is what’s called a 203k limited program. Which is one for just basic repairs and renovations to a property kind of like we were just talked about that you know put a new roof on or putting new windows in new flooring may be a new furnace or something HUD also has a full 203k program which involves a HUD consultant and in that program they can put additions onto a property they can add a garage to a house now that is not existing you can do a lot more structural work to the property whereas with the limited program you can really do anything.

Dave: A 203K loans harder to get than a regular mortgage? I mean what’s the difference between applying for a regular mortgage and a 203k mortgage?

John: They’re both FHA insured loans, we follow the same guidelines when it comes to underwriting the file. Other than a little extra legwork from a standpoint of getting bids secured do a little more paperwork with contractors. 203K underwriting follows the same rules and guidelines is FHA.

With regards to down payment money. We do is we take the sales the price of the property plus the cost of all the repairs you want to do add those together multiply that by three and a half percent and that’s what the down payment is based on.

Dave: The down payment is based on the on the final loan?

John: Correct on the final, what we call acquisition price which is sales price and repairs.

Dave: From a credit perspective or an income perspective is there any difference when applying for a 203K loan?

John: It’s exactly like a normal FHA loan or even conventional loan from that standpoint. Generally, we like to see credit scores of at least 620 or higher. There are no income limits to the program. Obviously, depending on a borrower’s current income will determine how much of a mortgage they qualify for.

Which kind of leads me to one other point. The best place to start with the mortgage preapproval first find out exactly how much of a mortgage new home buyers qualify for and work backward.

Dave: That’s so true, People start shopping for homes before they talk to a lender.

John: They should really be getting a preapproval first especially for the 203K loan program. If borrowers know their loan amount is maxed at $150,000 and they are looking at houses that are $140,000 that only gives them about a $10,000 and for repairs whereas if the borrower is at $150,000 and if they find a house for let’s say $120,000 or $100,000 they can have a lot more room for renovations to the property.

Dave: Last question, are the home buyers allowed to do their own repairs? Do you need a licensed contractor and does that contractor need to be approved?

John: Great question actually and it’s can be a sticky point or has been a sticking point. When it comes to doing the repair work, all repairs have to be completed by a licensed and insured contractor. Even if the homeowner is personally a contractor that’s purchasing the home as a personal residence they still require that all repairs are done by licensed insured contractors. The 203K program will not allow anybody to do work to the property themselves. Basically, it’s to make sure that somebody doesn’t get too far into a project or get in over their head and then they’re not able to finish it in meeting the specs on what they started the project as far as all repairs.

Dave: How much time is allowed for the repair work?

John: Borrowers get up to six months for HUD generally with the limited programs those are generally repairs they’re going to be done within sixty days with the full program if you start getting into structural repairs then you might take up that five or six month period but generally the timeframe from beginning the completion of the loan is about 45 days okay just because of the additional paperwork due to the contractor bid requirements etc sure but it really doesn’t if you’re dealing with a loan officer that knows what the program is about and how it works it sets the right expectations you’re really not adding that much extra time to the process may be about an extra two weeks.

Dave: not bad at all. John, how can people reach out to you if they want to touch base with you on the 203K loan program on two or any type of a mortgage?

John: I kind of specialize in 203K Program but I have the ability to do any mortgage at all. The best way to reach me is to text me or call my cell

203K Loan Program

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