Why is the FHA 203K Loan so Misunderstood (Maligned)?
Deborah makes many great points regrading the FHA 203K Renovation mortgage program. The FHA 203K is a great loan program. The reasons for opposing them are pretty much what Deborah mentions below.
One reason that many real estate agents want to run from them is based on a prior experience if they have ever done one before and it didn't go well. Most of the time, they did them with LO's and/or mortgage companies who did not have experience actually closing them. The FHA 203K can be a complex loan program if the loan officer does not fully understand it. Of course, the buyer and agents must have realistic expectations for the approval process.
HUD lists the closed volume of every lender. There are dozens and dozens of mortgage companies who have closedless than 5-10 203K's for the entire company in a 12 month period. Its even scarier how many only closed one or two in that time. You cant possibly expect them to know what they are doing.
Getting agents to set realistic closing dates upfront is my biggest issue. Some expect you to close one in 30 days with no issues and that is usually not the norm. This is especially the case if the buyer drags their feet with the contractor portion.
Working with the proper Loan Officer and company with the proper expectations being set makes for a much smoother transaction.
I have written several articles on the FHA 203K loan and continue to believe it is the most under used, misunderstood, and absolutely the most creative finance product available in todays’ real estate market.
SERIOUSLY, what other product will allow a consumer to finance up to 110% of the FUTURE value of their owner occupied property for either a purchase or refinance?????
Misunderstood is probably not the right word. Maligned would be more appropriate. Many listing agents are loathe to suggest buyers accept an offer for a 203K; sellers have rarely heard of them and, therefore, seldom question their listing agent’s sage advice; buyer’s agents are focused on finding the exact (perfect) home for the buyers; buyers don’t understand the product, the process and often just cannot envision the home as the “new and improved version”
Really, I get that agents, sellers and buyers don’t understand the program. After all, it is my job and that of other MLO’s to educate and counsel everyone in the real estate process on ALL options in the mortgage financing world.
What I do not “get” is that many lenders and Mortgage Loan Originators malign the program more than real estate agents or consumers. Well, that is not exactly correct: I do get it. But the reasons are usually masqueraded as dire warnings of nightmare processes and failed closings.
Take off the mask and FHA’s 203K Renovation loan is not scary at all!!!
The reality of why a lender or MLO does not offer the FHA 203K program is usually one of just a few reasons:
1). The lender does not offer the product; therefore the MLO HAS to sell against the product so the consumer will want something “SAFE” (in other words, something that MLO has access to). The alternative, of course, would be to lose the client to someone who can (and does) do FHA 203K loans. Bear in mind, probably less than 5% of lenders offer the FHA 203K loan.
2). The lender does offer the product, but has no process and procedure in place to be effective. The savvy and experienced MLO will run as far and fast away as possible from ANY product or process that will jeopardize their relationship with either real estate agents or consumer. (BTW, no fault can be assessed to the MLO in this circumstance. In fact, in my “mortgage past” I have worked for lenders who offered any number of products that I would not originate for my clients. Every lender does some things well and others not so well (based upon their investor relationships). As a MLO, you need to know what to hold them and when to fold them).
3). The most likely reason a MLO will (does) malign the 203K renovation loan is that they (he or she) does not understand the product and does not know how to educate the agent or the consumer. All to often it is easier to convince the agent or the consumer that a mortgage product is “BAD” rather than educate oneself to provide access to a full range of financing options.
If you are interested in learning more about FHA’s 203K Renovation Loan check out some of my previous posts:
Understanding the FHA 203K Loan: Part One
Understanding the FHA 203K Loan: Part Two
Understanding the FHA 203K Loan: Part Three
Interested in buying or remodeling your “Custom Home”? Need to renovate for life changes such as disability, parents or children moving home or need first floor access to bedrooms? The opportunities are almost limitless. Contact me for a no obligation consultation to thoroughly understand your options.
Deborah "Dee Dee" Garvin
NMLS #279125
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I am continuing to build my team of mortgage professionals. Please contact me to discuss how New American Mortgage and I can help you thrive in the mortgage industry. NMLS license and/or the ability to obtain one is necessary.
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