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What's your experience with FHA 203k Rehab loans?

By Ralph Gorgoglione

Real Estate Broker/Owner with Metro Life Homes RS-78439 / BRE #01708344

August 20, 2010 02:49 AM

What's your experience with FHA 203k Rehab loans?

I almost had an opportunity with some of my clients for them to utilize a FHA 203k loan on a bank-owned property, but they ended up cancelling, rightfully so, due to the insurmountable amount of repair needed to the property.

But I just wanted to see how many of my ActiveRain peeps have utilized a 203k loan with your clients, and what your experience was.

Did it roll out smoothly? Were there issues / bumps / hurdles?

How did the disbursement of funds after the close of escrow to the contractors go?

How much in rehab funds were your clients allowed?

I'm actually looking forward to working with one of these loans with my clients.

Enquiring minds want to know...........

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Erika Rogers

Red Rock Real Estate ~ Southern Utah's Largest Independent Brokerage - Saint George, UT

St George Utah Real Estate & Relocation Specialist

Hi Ralph, I haven't had anyone use this type of loan yet, so I'm anxiously watching to see other responses to your post:)

Aug 20, 2010 04:09 AM

Karen Fiddler, Broker/Owner

Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA

Orange County & Lake Arrowhead, CA (949)510-2395

I love these....I've used them very successfully for just what you describe...bank owned homes that can't qualify for normal FHA financing. The key is to have a lender very familiar with them. Mine does....but I'm in an escrow right now where the lender is a moron and it's awful. We are almost 45 days past the original 60-day escrow and all I can get from him is "well it's a complicated loan" ugh.

Aug 20, 2010 05:24 AM

Donne Knudsen

Los Angeles & Ventura Counties in CA - Simi Valley, CA

CalState Realty Services

Ralph - Not sure someone like myself who has only done a few of them is the expert opinion you are looking for. Every single one I have done has been different and challenging in their own way. Everytime I do one, I learn something new I didn't know before. Would I do another one, ABSOLUTELY! I still think they are a wonderful product for our market here in Los Angeles county where run-down, dilapidated, dumpy REO's and short sales dominate the market.

To answer your questions:

Yes & no. It rolled out smoothly until we ran into issues and hiccups along the way. Standard 203k's are definitely more challenging than the Streamlined, which are rather simple and straigt forward. Standard 203k's have quite a few more steps in the process that just typically lend itself to a few bumps along the way because of the additional professionals that are involved in the transaction.

Once again, disbursements for Streamlined loans are simple and straightforward because there is typically only one maybe two different disbursements and they were for one maybe two different types of services. With a Standard, there may be a couple of disbursements and they are typically to the GC but there are quite a few conditions for disbursement and sometimes these conditions can be a source of issues and/or problems (at least for me they were).

In a Streamlined 203k, funds are maxed at 35k but for a Standard there really isn't a limit, it can up to whatever the improved property value will appraise at.

I hope this answers some of your questions but once again, I want to preface my responses to the fact that I am not an expert on these loans. I have not done hundreds of them, only a handful of them and once again, every one of them was a learning experience. Having done a few now, I would most certainly not be deterred from doing another one, especially since I know so much more about them now.

In my process of doing these loans, I have met and talked with so many MLO's that have said that after doing one or two of these loans, they would never do another one. I think for those MLO's, they may have not been able to learn from their experiences.

Aug 20, 2010 05:26 AM

Alan Bruzee

Long & Foster Real Estate, Inc. - Rockville, MD

We've had several of these loans work, but the buyer has to be organized and realistic. They take longer than normal loans, probably 60 days or so, and everything went like clockwork once the loans were out of underwriting.

Aug 20, 2010 03:15 PM

Tammy Lankford,

Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA

Broker GA Lake Sinclair/Eatonton/Milledgeville

For me, the problem was finding an attorney to do it. Most local attorneys did NOT want to have a drawn out process of escrow of funds from closing day. But the contractor we hired to do the work was great, provided great invoices and was prompt in getting all aspects done. My folks put in all new windows, a new HVAC system and replaced kitchen cabinets and appliances in a 1980 home.

Aug 20, 2010 04:41 PM

Ralph Gorgoglione

Metro Life Homes - Palm Springs, CA

California and Hawaii Real Estate (310) 497-9407

Donne,

Thanks for the comments. Although you state you have not done many, the info you posted is very informative and exactly what I was looking for!

Aug 20, 2010 05:24 PM

Steven Fishman

Independence, OH

These are all I do. Each one is different and the main issue's come from the delays from the contractors and the borrower failing to get what is needed expeditiously. DO NOT BE AFRAID OF WHAT YOU DON'T KNOW!!! These are becoming a loan of necessity more than a loan of desire. As stated above the KEY is in getting a loan officer who is completely familiar with the loan product and their guidelines. Remember just because a lender offers the product that does not mean they do it the same way as another lending institution. Each lender will implement their own specific lending guideline overlays that will differ from a competing lending facility. Another complication I often see is a lending institution may only offer the FHA 203K streamline which limits your buyers to a maximum of $35K in non structural repairs so that lender will attempt to advise the buyer to get $50K in needed repairs consolidated into $35K. Remember these loan products are not only for bank owned and HUD homes, with our aging inventory and over 100 million homes over 20 years old and growing this is a great tool to keep in your arsenal. The stigma that is attached to these loan products are not as bad as one may hear.

Aug 20, 2010 07:46 PM

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Ralph Gorgoglione

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