How does a 203k loan work
The 203k loan comes in two forms- The 203k Standard loan, which typically does bigger jobs which involve structural work like room additions, the 203k Streamline has a cap of $35k to do cosmetic remodeling like countertops, cabinets, paint etc..but no structural work. As far as what properties can be used for the 203k, it's basically any property that's 1-4 units. It must be your owner occupied property. Condos can only have the interior rehabbed. The repairs can be minor to major. Pretty much any propery described above qualifies. There could be a new kitchen in a property and the 203k loan allows you to rip it out and put in another one.
The underwriting guidelines for the borrower are the same as FHA since the 203k loan is an FHA product. The appraisal is done different. There are two values given on the property, an as-is, and an after improved value taking into account the anticipated repairs. Your final loan amount is driven off of the after improved value.
It is not any harder getting approved for the 203k loan, the offer you write to purchase the property should specify that you are using FHA 203k loan financing.
The way the repairs work, is that home closes escrow in as-is condition with no money fronted.
The lender by this time has a list of repairs that are to be done. The repair funds are given in draws and phases.
On the 203k Streamline, you get two draws and you work directly with the contractor.
On the 203k Standard, you get up to 5 draws and there's a liason, a HUD Consultant, that works with the contractor, lender and yourself.
The key is to get a contractor who's worked with this loan before and you can find them at 203kcontractors.com and other sites where they've been trained on the nuances of the loan.
ALOT of contractors do not working with this loan due to delays in them getting paid amoung other things, so the 203k experienced contractor is key.
Select a lender that does both the 203k Streamline and Standard loan, than select the contractor obtain estimates and turn them in to the lender and it'll take off from there.
The other answer below wanted to use friends to do the work, this isn't a good idea. It's better to use 203k experienced contractors who can work within the framework of the loan. Friends and relatives used to be allowed to do the work, but it caused nothing but problems so that went away.
If it's set up correctly in the beginning and you have the right people working on the 203k loan, it's not that big of a deal.
It's the people who just try to wing it, without the right people who have a bad experience.
I wish you the best. Mod cut!
Welcome to the forums, kwaltonucf!
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