Saturday, January 31, 2015

Financing For Mixed Use Properties - 203k

Mike Young talks about how a 203k mortgage is a great way to find financing for a mixed use property. See more at

Wednesday, January 28, 2015

There's Another 203k

"There's another 203k" was a common statement from my wife for over twenty years as we were riding around the country. It didn't make any difference what state we were in if there was an obvious fixer she would be sure to point it out.  Why then is it so hard for Realtors, people in the business to see them?

I find that odd but understandable if you have never done a 203k project before. You likely have heard old war stories that weren't too flattering. More than likely you heard them from some other Realtor who hasn't ever had any direct experience but heard stories from around the coffiee machine of some problem someone had thirty years ago.

If it ever had a residential use with a certificate of occupancy issused at least one year prior to the renovation it is a 203k prospect.

What can you do to ensure you don't have any issues with your project? Easy to answer... use a "Team" approach. I just heard of a project from a client where the lender was doing their first 203k, they hired a new 203k consultant, and the contractor had never done one and got cold feet at the closing and pulled out so we had to find another contractor at the last minute... delay, after delay, after delay.

Using a "Team" approach you need to find a knoweledgeable lender. A team might look like this in NorCal...

Tom Huntley Team with Prospect Mortgage

The Mike Young Team

CCAR - California Construction and Renovation

Sunday, January 25, 2015

Creating a Property-Specific Home Renovation Plan

Once you've found the perfect older home to invest in, you'll need to create a renovation plan that's property-specific. This is where a good real estate agent can use his experience as a Realtor and community connector. He'll be right by your side every step of the way during your home renovation by personally interviewing the contractors while bringing his longstanding people and references to you.

He'll help you find the right contractors who have strong experience in remodeling older homes and if you don't have a big budget, he'll find you a contractor who is resourceful and who has handled similar projects. A great contractor is someone who nourishes relationships, considers clients' needs, keeps them informed along the whole project and sticks to your budget. And when the contractor is strong, the contractor's subcontractors are as well. If something goes wrong, it's taken care of, and many times an experienced contractor knows how to head off problems before they happen.

If you have a Streamline FHA 203K loan then you won't need a HUD consultant and you can have up to three contractors.

You're eligible for the repair/replacement of:
  • gutters/drainspouts
  • decks/patios/porches
  • window and door replacements and exterior wall re-siding
  • septic and/or well
  • appliances including free-standing ranges, refrigerators, washer/dryers, dishwashers and microwaves
  • existing HVAC system
  • existing floors
  • remodeling for persons with disabilities
  • basement refinishing/remodeling
  • minor remodeling, such as in the kitchen that doesn't include major repairs
  • exterior/interior painting, including lead-based paint stabilization
  • weatherization, including storm windows and doors

For a Consultant FHA 203K loan you'll need a HUD consultant who oversees the renovation project from start to finish. It's the responsibility of your borrower to choose the consultant. During the inspection, the consultant determines what repairs are needed and then the borrower and consultant discuss what money to draw out to the contractors based on the amount of work completed. This loan is typically used for homes with repairs of over $35,000 or that require structural repairs for the foundation, well or swimming pool. There should only be one general contractor (GC), but there can be up to three contractors. Contractors get no money up front, and their fee is based on work completed.

With a Consultant FHA 203K loan you're eligible for:
  • structural alternations/additions
  • a new garage that's attached/detached
  • a kitchen/bathroom remodel
  • installation of appliances
  • swimming pool repair
  • plumbing/electrical modernization
  • install or repair well/septic systems
  • install flooring/tile/carpet
  • major landscaping/decks/fencing
  • handicap accessibility
  • interior/exterior painting
  • any improvements that are a permanent part of the property

There's a whole world of opportunity out there with home renovation loans. With a little research and education, your renovation can be easy and rewarding.
A good real estate agent doesn't abandon you after closing. He'll help you in every stage of the process.

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Thursday, January 22, 2015

FHA 203K Loan Makes Financing a Home in Need of Repairs Simple

The FHA 203K loan is a type of financing that is insured by the Federal Housing Administration. It is a unique type of financing that allows homeowners to obtain both a purchase loan and rehabilitation financing in the same transaction. Before this transcendent loan program, a homeowner had to obtain an initial, temporary loan to purchase the home and a separate rehabilitation home loan to make any necessary repairs. Only after the repairs were complete could the homeowner gain permanent financing for their newly improved home.

FHA 203K: How does it work?

The FHA 203K loan was designed to streamline the process of buying a home in need of repairs. In order to provide funds for the repairs, the loan amount is based on an expected future appraised value that takes into consideration how much value the completed repairs will add to the current value. Up to $35,000 over the purchase price of the home can be financed into the loan to cover the cost of repairs.

The contractors chosen by the borrower to do the repairs will receive the money for their work in two draws. One draw is for 50% of the work and is disbursed at the beginning of the repairs while the remaining 50% will be disbursed after the work is completed. The repairs must begin within thirty days of the closing of the loan and must be completed within six months. The amount paid to the contractor(s) must be determined before the loan closes by obtaining written bids on material and labor costs. The homeowner can do the work himself provided that he is a licensed and bonded contractor.

What types of repairs will the FHA 203K cover?

Some of the repairs eligible to be completed with the funds from an FHA 203k loan include: roof replacement, electrical or plumbing work, kitchen remodeling, accessibility renovations, appliance purchases, and painting. Although many cosmetic renovations are allowed, luxury items and upgrades are not permitted. Also, any funds needed to repair to any detached structures, like sheds, swimming pools, and gazebos, may not be included in this loan amount.

FHA 203K: Qualifications

The FHA 203K program has the same types of eligibility requirements that exist on any FHA home loan. A homeowner must qualify on the basis of both credit and income to be eligible and the property must be FHA approved. As a general rule, the monthly mortgage payment cannot exceed 41% of the borrower's monthly income and most lenders require at least a 620 credit score. Homes that qualify include: FHA-approved condos, 1-4 unit homes, and planned urban development homes (PUDs). The construction of the home must have been completed at least one year prior to financing in order for the home to qualify.

The FHA 203K program can be a great tool for any homeowner looking to renovate or repair his or her home. In a housing market that has seen foreclosures reach record highs, the FHA 203k loan can not only provide potential home owners with more opportunities to purchase a home, but can also help rebuild the housing market by facilitating the rehabilitation of foreclosed properties.

As a former psychology major, finding solutions to resolve people's problems has always been a subject of interest to me. I hope that my writing will give people the knowledge and confidence to make important decisions about FHA loans. In addition to writing, I love to read, knit, spend time with friends and family, and watch the Missouri Tigers and Green Bay Packers play football!
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Friday, January 16, 2015

FHA 203k in the Snow?


Many areas of the country get a bit of snow and the homes located in those areas need the FHA 203k too.

I must have driven by this one house 200 times on my way to other projects over a period of a few years and watched this home in need of repair every time I went by. It stood out like a sore thumb. My wife would always point it out as we drove by saying "there is a 203k" then one day she asked "why doesn't anyone fix it up?"
FHA 203k in the snow

There are many people that dont' understand renovation loans and if they do there is another group of Realtors that say irresponsible things like "stay away from the 203k as they take forever to close the loan". These types comments are irresponsible and mostly come from someone who doesn't really know, they may have heard someone in their office say that so they just jump on that bandwagon.

Don't be caught in that trap. The fastest way to close an FHA 203k loan is through one of our teams. When I say one of our teams I mean one of the many 203k consultant's teams out there not just MY teams. We can tell you who can actually close these loans fast and who just is a bunch of talk.

Back to the snow. Finally one day I get a call to do an inspection and low-and-behold it turns out to be this home. Now under 6-9" of snow. Describe the driveway and it's condition, the roof type and condition, and so on. There was a well, and a septic system, luckily we have someone else test those items. It was a challenge but luckily my wife had me stop just a few months before and get a photo of the home in it's present condition so I was able to look that up and include it in the report.

Inside? Thought you would never ask. Inside there was no snow thank goodness but one of the bedrooms was taped off with "caution tape" and looking into the room from the door the floor had dropped about two feet. There was a 48" crawl space under this home and the rim joists had given up as well as the sill plate on two sides of the room's exterior walls. It was the front left corner of the home.

203k in the snow - Mike Young Team

Tuesday, January 13, 2015

Saturday, January 10, 2015

Stopped in to see a Realtor today...


This Realtor had recently had a 203k fall apart due to the loan not going high enough for the construction which was about $40,000.

Wow, he had called around to a slew of lenders and none of them could do the loan... 
NO ONE told him they were only approved for the "streamlined k" , soon to be renamed the "limited 203k" and not the full or Standard 203k. 

These lenders ARE NOT TEAM PLAYERS... the buyer was not served by them, they should have been up front and confessed that there is another product or two out there that would meet the client's needs. Yikes!!! 

When I walked in he called over another agent in the office and the three of us talked. They had great questions and the next time they get a sale in this area they will call me for the name of a lender who does the Standard 203k. 

Is there a limit on the amount of renovation for a 203k loan? No, other than the maximum loan amount for the county.

Is there a limit on the amount of renovation for a FannieMae HomeStyle loan? Yes, 50% of the purchase price. 

We went on talking to find out there is a casino in the area and I asked if they had many native Indians seeking to purchase real estate... the answer was emphatically "YES, Why?"

I then told them about the FHA 184 program for native Americans... 2.5% down payment, works just like a 203k but there is a unique aspect that this client base can build a new home on virgin land if they want to. 

Wednesday, January 7, 2015

A-door-able Rancher Renovation

Chip and Joanna tackle the renovation of a rancher that's full of doorways.

Sunday, January 4, 2015

FHA's 203K Program Allows Borrower to Purchase Home and Finance Improvements in One Loan

In today's market with so many foreclosures and short sales, many homes do not meet the minimum FHA property guidelines. This means a traditional FHA loan (203B) is not available to borrowers that may be interested in the home. However, there is another FHA program called the 203K program that allows a borrower to finance the purchase of the home along with the costs of the improvements and/or repairs to get the home up to FHA guidelines. It requires only a 3.50% downpayment based on combining the purchase price and the cost of the needed repairs. Few lenders offer this specialized program yet it is a great way for buyers to purchase a home at a great price and finance repairs such as roof replacement, HVAC replacement or repair, kitchen remodel, flooring, etc... into a single loan to keep their payments down.

Here is a real world example:

A first time homebuyer is working with a realtor to find a home. Her realtor was familiar with the FHA 203K program and searched for homes that may provide a better value for her client as she was on a strict budget. She found a listing that had been on the market for over 200 days and was listed as "Cash Only Offers." The listing included this comment because the house needed a new roof, termite damage repairs and it was missing all of the sinks and toilets in the home. It was located in the neighborhood that client wanted to live but the homes were outside her budget. She looked at the home and was able to see the potential of the home and made an offer using FHA 203K financing. The seller accepted the offer and the buyer financed the price of home plus the costs of the repairs to get the home to FHA standards plus added an appliance package and flooring. The total cost of the home plus repairs was still less than the homes in the same market that did not need repairs yet were outside her budget. She closed on the home with her 3.50% down payment and the contractor began work. In a few short weeks, her lump of coal home was turned into her diamond. She was thrilled and loves her new home in a neighborhood she didn't think she could afford. As an added bonus, she knows the roof, sinks, toilets, appliances and flooring are all new.

How does the 203K loan process work?

The initial application is the same as a standard FHA loan and the borrower qualification requirements are the same. The difference is just about the property. When the buyer's home inspection is done, it is reviewed to better determine what repairs are needed to adhere to FHA standards. This gives everyone a good idea of the extent of the needed repairs. If any structural repairs are required, it will require a HUD consultant to do an inspection and write-up of the needed repairs and to monitor the project to its completion. If it is not structural (HVAC, roof, flooring, cabinets, appliances, plumbing, electrical), no HUD consultant is required as long as the repairs do not exceed $35,000.

The buyer gets bids from contractors for the required work and selects a contractor. The contractor then has to submit an application to be approved by the lender. The contractor's accepted bid is given to the FHA appraiser and the property is appraised based on the value of the home after the repairs are complete. Another benefit of the 203K is that the combined cost of the home and repairs can go up to 110% of the appraised value. This is particularly beneficial if some of the repairs are cosmetic and may not add directly to the value but to the marketability of the home. The appraisal, contractor approval and borrower's loan application is submitted to underwriting for approval.

Once the loan is fully approved, it goes to closing. At the time of closing, the seller is paid and the ownership is transferred to the buyer and the remaining funds are put in an escrow account for the repairs. Once the closing is complete, the contractor can begin the work based on the bid. When the work is complete, it is inspected and the contractor is paid from the escrow account.

This is a summarization of the process, but the whole idea is there is a way to purchase homes in the marketplace that are not perfect with a minimum downpayment. This benefits the buyer, seller and neighborhood.

Craig Weeks has been in the mortgage business for over 22 years. He specializes in government loans, including FHA and VA. He works for a major bank that currently has about a 25% national market share of mortgages.
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Thursday, January 1, 2015

Happy New Year!

Out with the old, in with the new, may you be happy the whole year through!

Happy New Year from!