Common Misconceptions of FHA 203k Rehab Mortgages

By
Mortgage and Lending with AnnieMac Home Mortgage NMLS #38670
There’s some really big misconceptions regarding the FHA 203k mortgage, we’re going to talk about a few here.

The first one is that the FHA 203k rehab mortgage is hard.

It’s not! This isn’t rocket science guys, it’s really not that hard. The truth is the program really comes down to the people that are involved and the people that you have working with you on the project. If you have a lender who doesn't know what they are doing, if you have a consultant who’s only done a few consultant reports in the last 10 years, if you’ve got a contractor who’s never done one and you have a Realtor who’s never done one- guess what, you’re going to have a problem- big surprise! Here's the deal though, by selecting a lender with experience (someone like myself), who actually plays what we call the FHA 203k quarterback. You can reference my old blog about that. You will see that the program can be done quickly, easily and efficiently. Basically what this person does (as in myself), we coordinate the entire transaction:  1- we coordinate the buyer- we make sure that they are pre-approved 2- we coordinate the consultant to make sure that they are ordered up 3- we make sure that the contractor understands the FHA 203k program- they have to understand how they get paid and finally then we have the same conversations with the realtor. We mentioned that the realtors understand exactly, as well, because truth be told, when all of the parties don't understand and the expectations are not set we run into problems. If done correctly, the FHA 203k loan can be done quickly, easily and efficiently.

Next, the FHA 203k rehab mortgage program takes too long to close!

No, it does not! That is not the truth. I’m going to give you a prime example. I had a customer who came to me from a referral, a Realtor who had never done a 203k. You can reference her on my YouTube video here. She will tell you about her experience with the FHA 203k program. Truth be told, when she came to me she had no idea, now she loves it! Because, here's the deal, she came to me, I explained to the customer, I got them pre-approved, hooked them up with a contractor (actually a couple of them), he already had one as well, we explained to them how the program worked, he hooked up with our consultant, we all met out at the property and literally within 30 days we closed the loan. That’s right, guys, 30 days! Realtors ask me all the time, how long does it take to close one of these loans? It always comes back to the same thing-  it only takes a long as the client takes themselves because, ultimately, it’s a FHA loan.  The only difference is there’s a special escrow that’s set up. So the customer needs to select their contractors in a timely fashion. We do our work the same way we normally do. So if the customer sets up their contractors quickly and decides on somebody, we can close on of these loans in 30 days.  Again, working with experienced 203k lenders, consultants and contractors make all the difference. So when looking at doing this, I always recommend Mike Grace from the 203k Connection as my spot to go for my consultants. I also recommend Paul Weldon at 203kcontractorsdirectory.com. These are two great resources. And, of course, I recommend myself as the lender because I know what I’m doing!  If it’s a state I’m not licensed in or someone in my company that I cannot oversee, I will recommend you to a lender that I have worked with or that one of our guys have worked with in the past. We want to make sure the job is done correctly and out of the gate right. So please, do yourself a favor and deal with experienced people only. So, those are two HUGE misconceptions.

The third misconception is that you are required to use only certain contractors.

That’s not true either! HUD and FHA do not certify contractors. The 203k Contractor Directory has a training program and certifies people as their certification, but HUD and FHA do not have a certification. So, again, my job as the lender is to make sure that your contractor understands and, at the end of the day, not every contractor is going to want to do FHA 203k mortgages. It’s very simple- it doesn’t work for everyone. Most contractors aren’t well-funded enough to be able to do them. Now it doesn’t mean anything is wrong with them as contractors because some of the best contractors out there I know don’t do 203k's. At the end of the day, it’s not for everyone. So keep that in mind. And those are a few misconceptions and we’ll come up with more as we continue to go forward. Keep these in mind. Feel free to reach out to us and have a great day.
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Topic:
Mortgage / Finance
Location:
New Jersey Burlington County
Groups:
The FHA Mortgage Group
FHA 203-k and FHA 203-k Streamline Loan Group
Tags:
fha
renovation
rehab
203k
mortgage
misconceptions
jeff onofrio
anniemac home mortgage

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Rainmaker
312,051
Francine Viola
Coldwell Banker Evergreen Olympic Realty, Olympia WA - Olympia, WA
Realtor, In Tune with your Real Estate Needs

Great post to clear the air!  These rehab loans are a necessity, especially now,  and a major help for buyers.  I even had a colleague who had a successful closing on a short-sale using a 403k loan!  It can be done!

Dec 19, 2011 08:26 PM #1
Rainer
33,382
Jeff Onofrio
AnnieMac Home Mortgage - Mount Laurel Township, NJ
FHA 203k Lender and Homestyle Reno Specialist

Thanks Francine.  I closed one in November that took less than 30 days.  The biggest issue is lack of education but I am doing my best to teach everyone I can!

Good luck in 2012!

Dec 19, 2011 11:03 PM #2
Anonymous
Vito Simone

Nicely done Jeff...I totally agree that educating Realtors on how to make the program work for them and their clients is the key.  I have been doing FHA and FHA 203k CE Classes for many years and now doing 203k Workshops seems to be helping. I have a "203k Ready" program for Realtors, Buyers and Sellers you might be interested in. We can discuss it offline.

Readers of this post need to understand how imnportant it is to have a good "rehab team" to make for a smooth transaction and a successful project.

Good luck in 2012 to all!
Vito Simone
HUD 203k Consultant
www.203kServices.com

Dec 22, 2011 08:46 AM #3
Rainer
33,382
Jeff Onofrio
AnnieMac Home Mortgage - Mount Laurel Township, NJ
FHA 203k Lender and Homestyle Reno Specialist

Thanks Vito!

The team mentality is the most important part of what we do- without it you are bound for disaster. 

Lets talk offline as I would love to hear what you have- the more education the better for all!

Happy Holidays- Jeff

www.anniemacrenovationlending.com

 

Dec 23, 2011 10:01 PM #4
Anonymous
Kevin the 203k loan guy

Nice job Jeff on the 203k loan explanation.  You hit it on the head when you said you are out to educate peeps on this loan. People (Realtors included!) are afraid of this loan because they don't understand it and they instruct their clients to stay away from it.  Being that they are often the first touch with home buyers, it can stop the 203k loan before it has a chance to get off the ground.  Good luck in 2012!

Jan 03, 2012 08:15 PM #5
Rainer
33,382
Jeff Onofrio
AnnieMac Home Mortgage - Mount Laurel Township, NJ
FHA 203k Lender and Homestyle Reno Specialist

Thanks Kevin! I appreciate you stopping by and I am glad to hear that others agree that the 203k should be a first stop versus an after thought. 

So many homes out there need updating not just foreclosures and short sales too- all those baby boomers going into retirement whom haven't kept up there homes but are ready to move out and move on.  The potenial for 203k is enormus- hopefully we can get the word out. 

Jan 03, 2012 09:30 PM #6
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Rainer
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Jeff Onofrio

FHA 203k Lender and Homestyle Reno Specialist
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