It's been a little while since our last installment of the FHA 203K rehab loan question and answer so i figured I would use this time to take a few questions from some recent emails that I have gotten.
Bill in Lansdale, PA wrote in and asked:
Jeff- i have been reading a lot about 203K loans but i was wondering- how do i find a good FHA 203k consultant- do you have someone or should I go to the phone book to find someone?
Bill- great question. Finding a good FHA 203k consultant is like finding a good loan officer. You need to get recommendations and you need to do research to find the right person to work with you.
Don C in Mt. Laurel, NJ asked:
When buying a bank owned property what does underwriting normally ask for as far as a contingency reserve for 203K renovation loans and what happens if we do not use that contingency within the scope of work? Can I use it to put in a hot tub?
Good question Don! First- the hot tub questions comes up a lot! I wish you could but that is not allowable by HUD. You have a few options- you can either take the money and re-apply it back against your principal (bad part is that it does not drop your payment), so typically a customer such as yourself will find somewhere else to apply the funds. An example might be adding a deck or doing some additional work to another bathroom that was not part of the original spec of work. Your best bet is to think of that contingency as a lottery ticket and if everything goes according to plan you might be able to get some extra stuff out of the project- but don't go into the transaction banking on using that contingency reserve. The truth is it is there as an emergency fund in case of cost overs runs. Back to what the bank will ask for- its typically up to the consultant unless it is a REO property- the standard is 10% but on REO properties our companies policy is to require 15%.
Paul G from Baltimore, MD wrote in and asked:
Jeff- there doesn't seem to be a whole lot of companies that provide these types of loans- why is that? Finding information is tough.
Paul- you hit the nail on the head. The truth is there are not a lot of lenders who want to deal with these type of loans. The reason being is that they are time consuming and there is no many moving parts. Remember with a FHA 203K renovation loan you have a lot more hands involved. You have contractors, consultants, appraisers, lenders, Realtors (if a purchase), etc, etc... and the truth is if everyone is not on the same page it can be a mess. So lenders are hesitant to focus on these type of loans. Some lenders offer them but they don't specialize- be careful of this becuase this is typically where i get a lot of my customers. This is a whole post I could write just on this topic- but for now just do your due diligence and make sure to "interview" your potential lender. Hope this helps!
Well thanks again guys for writing in with your questions and I promise to get back to your questions quicker! Remeber- FHA 203K loans aren't for every customer or every situation but feel free to contact me to see if they fit your situation.
Comments(4)