FHA 203k Loan.... "But the Rehabilitation loan is such a hassle!" Or is it?
I know. There are so many people that shutter when they think of FHA loans and the FHA 20k Rehab loan. "There aren't any lenders that are doing them.", "They take way too long and are not worth the time and effort." Sound familiar?
I'm here to break the myth of the feared FHA 203k rehab loan. (Or at least give you my take and opinion!)
Back in April, as many of our Buyers were scrambling to get under contract to take advantage of the Federal First Time Home-buyers Tax Credit, we received a call from a couple that we had been showing homes to for months already. They heard about the "double Dip" opportunity and wanted in. For those of you that don't know, California extended it's own tax credit of $10k for first time home-buyers. You had to be under contract on or after May 1, 2010, and before January 1, 2011. Now, since the Federal First Time Home-buyers Tax Credit had a requirement of being under contract by April 30th and closing by June 30th, we were on a rampage (not so chaotic though).
We found a home in a desired family-friendly neighborhood in Encinitas, CA. This home had a NOD filed and a trustees sale was scheduled for 3 days from when we saw it. We wrote an offer (using the FHA 203k Rehab Loan as financing). This was tough as the seller was not able to credit any money for repairs, closing, etc... We got acceptance and had the trustees sale postponed for one month and we were in escrow!
Now, this is where it gets a little tricky....
Turns out, there are A LOT of requirements from the FHA for the condition of the home and any repairs that need to be done before the COE; i.e. health and safety issues.
This home wasn't completely dilapidated, but needed termite-infested wood removed (and replaced by a like structure), new carpet (it was all original), there was a roof leak, and the electrical was not up to code (the wiring was aluminum).
Here is a list of inspections we had done (after the FHA 203k Loan consultant had done a COMPLETE inspection of the home):
- Roof
- Sewer
- Electrical
- Chimney
- Plumbing
- Termite
- 3 separate contractors (they need to be able to work on a draw account)
- Lead-based paint
- Asbestos
- And I'm sure I'm forgetting one!
Once all inspections were done, our buyers had to submit a list of any other repairs they wanted to include, on top of the ones required by the FHA loan requirements, and the FHA consultant drew up an 20-something page excel-style "work order". Then we had to get bids from the 3 contractors to see which one our buyers wanted to do the work.
I promise this ends good!
Yes, the escrow was a little longer than normal (about 65 days), but it was SO worth it for our clients to take a fixer-upper and turn it into a beautiful home for their family using the FHA 203k Rehab Loan (they have a 1 year old son, and now room for more!) 
And Yes, there are lenders offering the FHA 203k Rehab Loan. It is the way our industry is going, just like the growing presence of foreclosures and short sales. I believe that this is wonderful for the neighborhoods that need a little TLC to up their curb-appeal.
My advice? Ask your Lender if they do the FHA 203k Rehab Loan and get out there and find your dream home for a fraction of the price! And also, you get to make the home your own; just like a custom-built home without the price tag.
Would I go through a FHA 203k Rehab Loan again? ABSOLUTELY.
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