Category Archives: 203K Loans

203k Loan Diary – Part 6

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This is a multi part diary of 2 buyers as they walk through the purchase of their “new” home. I use “new” loosely – It’s new to them but this home is in  dire need of repair both inside and out. In the interest of full disclosure – I’m not the realtor here – I’m the Mom – And I live on the east coast and my son and his wife live on the west coast – Southern CA. SO I’m the referring realtor and watching the process very closely and learning every step of the way.  

The buying “process” on this house requires a construction loan – a 203k construction loan – For those of you familiar with this loan product, it is NOT the streamlined version as the buyers need $80,000 in repairs (A streamlined 203k requires that the max is less than $35,000 – It’s less complicated and does not require a consultant to oversee the project.)

So if you’ve been following this blog ( and to read from the start feel free to check out the 203k loan diary ) last installment we were wondering if we could beat the foreclosure process (Yes a short sale too!) – Well they did – Last week, they managed to complete all the requirements to secure the 203k Loan and were able to close on the property.  Of course it’s not “live-able” but they own it – So now the real fun starts as they start the re-hab.

So some points about this process - Home to be rehabbed thru a 203k Loan

1) The FHA 203k Rehab Loan is a fully disbursed loan which allows the buyers to finance the cost of rehabilitation with one loan.  

2) It is fully disbursed at closing.  The mortgage amount is based on the appraisal “after value” of the property – so they base the value on what the house will look like AFTER all repairs are done – Funds for the renovation, of course, are held in escrow until work is complete and signed off by consultant and owners.

3) In order to determine “after value” appraisal – a contractor has to be hired to help quantify  what rehab will be done (This loan product is not only for repairs – you could use a 203k to do a remodel even if the house is in good condition).  AND if you exceed $35k in upgrades, you will need to hire a consultant to help with the process complete the repair specs for the appraiser  - You will also need to find contractors to actually complete the work. 

4) DO HIRE A CONTRACTOR THAT UNDERSTANDS AND IS WILLING TO WORK WITH THE 203k PROCESS !!  (not easy to find) 

5) Be ready for a lot of work to complete this process – but know when you’re done – you will be rewarded – (we hope!)

So my son and his wife are now in the construction phase – I’m hoping to have some before and after pics next time I post.  Please know that if you’d like to know more about the process, feel free to call or email. 

Part 5 – 203k Loan Diary

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This is part 5, keeping you abreast of the trials of my son and his wife (They married half way thru this process) as they try to buy a home in complete disrepair in Southern California and secure a rehab loan (203k). This process is so different from a normal mortgage process, I thought it would help to document the process from the eyes and ears of the buyers and hopefully learn more about the 203k Loan Process in general. I work on the East Coast as a realtor and have talked to buyers about this option but this is the first time I too am going thru the detail of the 203k process! Since it’s a National Offering (HUD), what we learn here is invaluable to a realtor, I think.

This is a brief update to say things are eerily quiet right now - Consultant and contractor went back and forth but everything seems to have been documented and appraisal has been ordered. Consultant had to complete a “write-up” on what would be completed on the home so the appraiser could come in and determine “FUTURE VALUE”. We are hoping the future value will be 10-20% above the costs incurred. That of course, will be determined by the appraiser. We are still waiting the results as of today.
They have until Dec 30th to take ownership of the home. If they don’t meet that deadline, there will be costs that the buyers (my son and his wife) will incur on a daily basis. SO another update on New Years Day!  Hopefully I’ll have good news about the purchase and I’ll tell you about some of the great professionals that have reached out to us to help us along the way – Don’t miss that installment!!

Keep your fingers crossed!

If you’d like to catch up on our 203k Construction Loan Diary, the links are below -

Part 1 – 203k Loan Diary 

Part 2 – 203k Loan Diary

Part 3 – 203k Loan Diary

Part 4 – 203k Loan Diary         

Part 4 – 203k Loan Diary

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For those of you just reading this as the first installment, this is actually chapter 4 of a multi part blog about an actual 203k loan process as it happens!  My son is in the process of buying a home (short sale ) in the LA area.(At least we HOPE he gets to Close)   The home needs somewhere between $60k and 100k of work before it will be live-able.   A 203k construction loan is the way he’s going about this purchase.  To experience the first steps in this process , see the links below.  As a realtor who happens to work on the East Coast and has never done a 203k Loan with clients, this is all a learning experience for me as well.  Hopefully I bring some value to the process but I’m gaining much more in experience.  

My son's weddingOne thing is extremely clear.  This is a stressful process for buyers on so many levels.  As with most professionals in very demanding positions, it’s hard to take the time needed to get all the 203k details addressed.  One could liken the 203k process to running a Marathon which requires speed, preparation, discipline, commitment, and dedication.  So it may not surprise you to know that the buyers married on December 4th – just 9 days ago – as they ran in the Las Vegas Marathon  - good training for the 203k race! Amazing to me that they could hold stressful position, manage to work through a short sale process, complicate that with a major 203k renovation – while training for a marathon – and a wedding! 

 

So as of last week all key 203k players were in place.  The critical player, the 203k consultant, who will be watching over the project, and making sure needed repairs are done is coordinating things.  As I understand it, he reviews the quote(s) from the contractor and requires specific info in a specific format for that information. 

 

Well we no sooner had all players up and running that we got word the contractor was bailing out.  As he explained to my son, this would have been his first 203k and he worked hard to keep the costs down.  With the added paperwork for the consultant and the limited profit he would be making, he felt it was not worth his efforts.   As my son had 5 or 6 quotes, there was someone on the sidelines who has done many 203k projects in the past and has actually worked with my son’s consultant before so this new contractor jumped in.  Only thing – Actually TWO things 1) His scope of work was different than the other contractor and had to be brought in line with the needs of the consultant and new home owners – which of course, takes time.  And 2) THERE IS NO TIME –

As you know this is a short sale – and the bank is requiring a close before end of year.  For every day after the 30th there will be a daily late charge to the buyers.   And consultant needs paperwork YESTERDAY.  

 

There is one more issue no one appears to be concerned about but I saw an Auction notice on the door of the home for Dec 18th – Thanks to a great recent online course offered by our own AR’s Melissa Zavala who is an AWESOME Short Sale Expediter ……. (read her blogs, you’ll love ‘em) I learned that there is a foreclosure moratorium from Dec 19th until the new year to avoid putting home owners out on the street during the holidays but this is ONE DAY BEFORE.  I’m told by the realtors working on this project that this has been pushed out – I’ll breathe more easily on Dec 19th!   Remember buyers have paid out of pocket for contractor estimates, inspections and consultant’s fees – Add into that MANY days off from work to meet contractors – They have easily spent in the thousands up until this pont.  

So we wait – Wait for tne new contractor’s paperwork – Wait to hear from the consultant that everything looks good – Wait to hear from the appraiser that it will appraise once all the work is completed – Wait to make it past Dec 18th and a foreclosure doesn’t happen before the Short Sale Process can close.  We wait. 

Keep your fingers crossed for Part 5 – which will happen after Dec 18th! 

Part 3 of the 203k Loan Saga

Part 2 of the 203k Loan Saga 

Part 1 of the 203k Loan Saga

Part 3 of our 203 K loan Process

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If you’ve read part 1 and part 2, you know that I’m following this 203k Loan Saga  with my son, who is buying a short sale in the LA area which needs quite a bit of rehab so he decided to take out a 203k construction loan. If you’re a realtor and have not done a full blown 203k loan before you probably will learn from our stumbing steps.   

 

This is NOT a streamline loan (under $35k).  Once you exceed $35,000 in repairs, the process gets more complex and you (buyer) have   to hire a consultant to oversee the project.  In fact, he(buyer) originally wanted to keep all repairs and updates under  60k -  If you read part 2 of this journey, you’ll see that was not necessarily possible.  

 

So although I work as a realtor on the East Coast and he’s buying on the West Coast, I did have an opportunity to go out last week and see this home.  I found myself quickly falling into the pattern of a typical parent who has not seen all the comps in the area but THINKS they know value (or in this case – lack thereof).  I had to bite my tongue in order not to say those things we hear parents say all the time when they’re underwhelmed by the home their son or daughter is buying and wonder if it truly is worth what they’re paying.  The fact is that both my son and his fiance with the help of their buyer’s agent went thru an enormous effort in finding this house and verifying value.  And I finally decided I was not in a position to second guess their analysis.

 

After a challenging negotiation with the bank on the price of the home when they found another major flaw to the sewerage system and finding out the bank would not help them on it, they had to decide whether to proceed with the purchase of the home or not. All players (realtor – mortgage person – contractor ) agree once repairs are done, the home will be worth hopefully 10% or so  more than the costs that went into purchase and rehab so they decided to proceed.  With the sewer issue, they’re clearly taking on more of a risk, but they feel it’s worth it.  This process is NOT without risks! If you’re risk averse, the process is NOT for you!


 

 

I seemed to have come to visit just at the critical point – I met all key players including their CONSULTANT who will be watching over the project and making sure the critical work gets done.  They’re rolling in over $80,000 of repairs and rehab into the mortgage amount.   Once done the home will be for the most part, totally new and I’m sure very lovely.  The consultant fees which sounded high to me, are set by HUD and are based on how much work will be done to the house.  They can be paid (I believe) as part of the loan or paid out of pocket as my son and his -soon to be- wife has decided to do.  They actually believe they can close on this home before end of December and move in probably early in February after all the work is done. 

 

I’m learning about the role the consultant plays and about the paperwork the contractor must prepare for the consultant and mortgage provider. This contractor has never done a 203k loan and he too is learning he needs to get up to speed on the required paperwork and timelines that are very stringent.  I’m learning that 203k loans are now used not only for rehab loans but also when a buyer finds something in a home they don’t like and want to change – even if the house is  currently in good condition.    I’m learning how stressful this can be for buyers and how hard it is to keep to an original plan in terms of work to be completed and dollar amount spent.  

 

My son and his fiancé are getting married this weekend and yet throughout  the past few days, they’ve been  hit with a LOT of deadlines, decisions to make, paperwork to get submitted all around this major project.  The milestones and timelines don’t stop – even if you have a major event like a wedding! This is a  significant challenge to complete.  I continue to remind them of the benefit at the end of it all – to have a home that’s totally new and know you’ve already gained equity in the home.  

 

So at this point, contractor has been picked, repairs to be done have been decided upon, a consultant has been hired and the overall plan is almost in place.  We still have to get thru the appraisal process – Stay tuned for that one! How did I forget to take interior pics when I was there ?   That will follow in in our next Part.  Stay tuned!  

To Read PART one CLICK HERE     To Read Part two Click HERE

Part TWO of our REHAB LOAN Diary -

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Part two of our Rehab Loan Diary – Just to recap, my son is in the midst of trying to buy a home thru a short sale in the LA area. This home needs to be totally renovated. So he’s planning on rolling the cost of renovation into his primary loan (a 203k loan) This is a recap of the process they’re going thru – week by week – real time!  If you’d like to read Part 1, of this story click here.

So week two brings us to more contractors coming in. So far quotes have ranged from $70k to $150k. This is a 3 bedroom / 1 bath home! But we’re told electrical, plumbing, and heating and cooling systems all should be totally replaced. This week we found out that neighborhood is notorious for needing sewerage upgrades – And sure enough this last contractor found a sewerage blockage adding additional cost for sewer repair – to the tune of over $15,000!

What have we learned thus far?       see saw process of a home renovation purchase

1) Home Buyer Initial Estimates of work needed is ALWAYS DRAMATICALLY UNDERSTATED - Many of the items found defective by contractors would not have been picked up even by the most savvy of buyers. Remember he made his offer to the bank based on what he thought it would cost to rehab in round numbers – He’s finding now he was totally wrong on those assumptions

2) Have a detailed plan of needs / wants – and try not to deviate from that - As you meet with contractors, you’re going to hear their ideas for renovations and interior design. If you start adding to your requirements based on the last meeting with a contractor, you will find your quotes will be all over the place. Example: First quote included a very basic rehab, but as my son heard the ideas of contractors he decided to remove a wall which added expense. Later he decided against it – Result? Some contractors went on that assumption, others didn’t – Not a good thing – Keep your requirements consistent.

3) Whatever time you think this will take – Quadruple that number - This is an enormously time consuming process for the buyer. At this point he’s had 5 quotes. Each meeting with a builder can cost money but always costs time. This week they’ve had to take 2 half days off from work to meet with contractors – And hours upon hours of evening hours reading and comparing quotes. Not to mention the hours on the phone finding contractors who will take this on (only a few contractors will consider doing 203k loans – more on why in a separate blog)

4) Get your realtor to determine “future” value after the home is renovated – As your renovation starts to take form, you’ve got to keep talking to your buyer’s agent to be sure the renovation will be cost effective. In a 203k loan scenario, an appraiser will come in and analyze future value, but you don’t want to waste your time (or the time of the MANY players helping you out in this process) if this is not feasible for you.

5) If the numbers don’t work – Go back and present your case to the seller/bank selling the home – Present another Counter - Even if you think you negotiated a great price, once you find out all the blemishes of this house you need to re-assess if this is still a good deal – If the numbers don’t work (If the cost of the house plus the cost of renovations is GREATER than the future value of the home), you should go back and talk to the bank doing the short sale and renegotiate price. Don’t give up until you do that – With all the info you can provide the bank about issues with the home, they may be willing to lower the price to keep this deal together.

4) Be ready to walk away – If you can’t resolve this, you have got to keep the emotions out of it and walk away - If the numbers don’t work (Again, if the price you pay for the home plus the cost of renovations is MORE than the anticipated future value of the home – OR – more than you feel you can afford) – Don’t PROCEED – The lender funding your 203k loan (based on the appraisal of future value) won’t let you proceed anyway but you’re wasting more of your valuable time and the time of all the players on your team if you find out early in the process the numbers just aren’t working.

So where is my son and his fiancé in this process? He is now talking with all the contractors – Reviewing what he thought was a necessity (like taking down that wall) verses what he now knows is a necessity – He’s quantifying those costs and trying to make a decision on 1) Can he proceed and does it make sense to proceed and 2) If he does proceed, with what contractor and what will be done to the house. And 3) he expects he’ll need to talk to the bank holding the current mortgage to lower the price one more time based on what he’s learned.

More next week, folks – Next week I will be in LA and I get to see this house for the first time – We’ll either have Pics to share or we may know by next week that the deal does not make sense to proceed – it’s still teeter tottering -

A 203k Loan Diary – Come Walk with Us as We LIVE the process PART 1

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If you’re a realtor then you’re most probably well aware of 203k loan options for buyers who are considering homes that may not be liveable or may need some repairs before someone can move in.  As a realtor you know, onlly certain lenders do 203k loans and that your client will need to bring in contractors (who are certified to work in this environment) to assess the condition of the home and to help quantify exactly what should be done and what it will cost.   You may even know there appear to be two flavors of 203k loans, one for less than $35,000 worth of work and one that requires repairs in excess of $35,000.   

And IF you’re a realtor like me, you spend a fair amount of time telling your clients about these options – but you may not have ever had a client move forward with a 203k Loan.   That is all changing with me – No, my client has not chosen to go this route, MY SON has! 

I have to admit, I do believe these loans will expand options for buyers.  Yes, it does cost a bit more in terms of the mortgage rate but the buyers can eventually remortgage – and consider the low rates now.  If your rate goes up a 1/4 of a point or even a 1/2 point, it is a way to get into a home that is totally ready for you.  

SO IN THEORY – I’m totally behind this approach –  But I wish I had more experience in the process –  That will all be changing these next few months as I walk thru the process with my son.   

So EACH SUNDAY from now until my son moves in – I will be writing a diary of his 203k challenges – Starting today - 

So Here Goes…

Four months or so ago – my son made an offer on a short sale on a home in the LA region –  The home needed major repair – It’s a small home with 3 bedrooms/1 bath but with a large 2 attached garage.  If you knew my son, you’d know why a garage is quite a bit more important than a 2nd bath.   

He KNEW that if they accepted his offer – he would absolutely need to go 203k to include the repair/remodel project into the primary mortgage amount.  The home was built in the 50′s and hasn’t been substantially updated since.  

Well, 2 weeks or so ago, he got the permission from the owner and the bank to bring contractors in.  With the help of his realtor he found contractors who would come in and bid for the work.  My son hoped that as part of the process, the contractors would identify actually WHAT needs to be done.  And to a certain extent, they did.  His 3 quotes so far range from $70k to $150k – That was a shock! 

In the past week after receiving some of the quotes, the owner and bank ACCEPTED my son’s offer – so now he has to complete the formal inspection process, the termite/pest inspection and finish getting quotes –  along with taking care of the details of getting paperwork to his lender (who by the way he’s so happy with – more on that later) 

Take an arial look at the home – Next week I’ll post some interior pics.   I’ll also tell you more about the process – and some of the challenges in finding contractors who will do a 203k and why. 

REALTORS, LENDERS, BUYERS – ANYONE who has had good or bad experiences with 203k’s I’d love to hear from you -