Wow, where do I start. Thank you all for stopping by we appreciate your comments. This is a topic that comes up at least once per week from the borrower(s) and we have to explain it over and over again so the post was to hopefully inform borrowers that this isn't a good idea.

Kathleen, as always, you are very insightful and yes we all need to make a profit if we are going to hire people and keep our neighborhoods viable. Money needs to turn over at least three times in a neighborhood to keep it thriving. 

Thana, Mary Ann, and Carla, thanks for your comments.

Michelle, you may look into a FannieMae HomeStyle Renovation loan as the costs and fees are much lower. If you need more info or a referral to a good lender for this project contact me asap and i'll put you on the right track.

Kelle and David, thanks for stopping by. David the Title I loan program used to be just that, $25,000 for a SFR and we called it a "signature loan" that took about a week to close and was a second loan for smaller renovations. They are still available but a little more difficult to get and I understand they take about 2-3 weeks for funding now.

Pamela, I hear comments like yours all the time, a number of times per week. All I can say is that if you believe it can be done or you believe it can't be done, either way you are correct. Not because it is true but because you tend to forced it the way that makes you correct. Lets see, if you had a million dollar home and our loan limit is $500,000 in your area and the home needs $150,000 in work... your options are to purchase all cash or get a loan for $500,000 and only come up with $650,000 instead of $1,150,000 all cash. mmm. Even if you are in a bidding war and the price is well over the asking price... you can still finance $500,000 in this scenario. 

What if you client paid all cash for the home, then refinanced to get $500,000 back in their pocket including $150,000 for the renovation. At the low interest rates we see right now I can make more than 4 or 5% on that $500,000 and I bet your clients could too. In this case I wouldn't suggest an FHA 203k but instead a FannieMae HomeStyle Renovation loan which has NO PMI and otherwise works just like the FHA 203k. 

Thank you all for stopping by, this topic apparently hits home with allot of people. 

This is great feedback, you all seem to get it and understand it fully, why then, is it so hard for others to grasp the concept. Some people actually want to shop the contractor's prices... he buys a toilet for $250 and they find one for $150 they want a discount... put the sales tax, time to go get it and bring it back, and don't forget each item has to have profit and overhead built into it which typically runs about 10% each or 20% total.