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FHA 203K Benefits
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FHA 203K Benefits


Overview of FHA 203K Lending for Buyers, Home Owners & real estate agents

Overview of FHA 203K Lending for Buyers, Home Owners & real estate agents

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  • It is not a construction loan or a rehab loan
  • #1 – Sell more homes in a particular neighborhood or location #2 – Buyer doesn’t like something about a house? Change it! Make it theirs. #3 – Realtor doesn’t have to worry about the renovation to be complete prior to closing the loan. #4 – If a house isn’t moving because of a particular feature or features are undesirable, the buyer can change it with a renovation loan! #5 – the buyer can move into the house THEY want to live in.
  • #3 – rates are less than a home equity loan #4 – Home value increases #5 – Again, they get to move into the home THEY want.
  • #2 - Kitchens include appliances
  • Effective 12/15, the minimum credit score is 580
  • Consultant Fees Cost of Repair Fee <$7500 $400 <$15,001 $500 <$30,001 $600 <$50,001 $700 <$75,001 $800 <$100,001 $900 >$100,000 $1,000
  • #4 - A good general contractor will not need upfront money for materials, etc. There is a piece in the Contractor folder on the web that is Information for Contractors that the borrower/Broker/AE/LO could use to explain the handling of funds to the contractor. Borrower must sign: Rehab Loan Agreement outlines terms and states escrow amount and completion time frame. This is a required document but not recorded Rehab Rider refers to the Rehab Loan agreement and is recorded with the mortgage/deed of trust.


  • 1. Renovation 203(k) Lending Lee Robinson ASM Freedom Mortgage
  • 2. Renovation Defined
    • What is a Renovation Loan?
    • A Renovation Loan is a fully disbursed mortgage that adds the costs of repairs or improvements to the mortgage.
    • Renovations Loans are available on:
    • Purchases and Rate/Term Refinances.
    • 15, 20, 25 or 30yr Fixed Rate Mortgage.
    • 1-4 Family Owner Occupied Properties.
    • Homes that are at least one year old & complete.
    • * An Appraisal based on the future value or “as completed” value of the property is required on all 203(k) loans.
    • * On HUD Repo’s, the “as is” appraisal (the original appraisal from HUD that comes with the contract) will also need to be provided.
  • 3. Why Renovation Lending?
    • Understanding renovation loans and taking advantage of this product provides otherwise unknown opportunities for:
    • Real Estate Agents
    • Consumers
  • 4. Realtor Benefits
    • Sell neighborhood/location.
    • Overcome objections by providing an option.
    • Loan closes before the work begins.
    • Move slow listings faster.
    • Attract more buyers and listings.
  • 5. Borrower Benefits
    • Remain in or move in to a desired location and have the home they want.
    • More affordable; one closing with one set of closing costs.
    • Create equity with the transaction by adding value to the home.
    • Get the job done now: renovations, upgrades and repairs done in weeks or months versus years.
  • 6. Time for you to do a Renovation loan?
    • Is this the only time to do a Renovation loan?
    • NO
    • ANY existing home can benefit by some improvements.
    • Homeowners spend nearly $300,000,000,000 (300 billion dollars) on home improvement costs each year!
  • 7. Renovations to Consider
    • Additions, improvements and structural changes to a home
      • add a second level, a screened porch, or finish a basement!
    • Remodel kitchens and bathrooms
      • Kitchen appliances can be included!
    • New carpet, tile, hardwood floors, paint
    • Repair or replace plumbing, heating, air conditioning or electrical systems
    • Replace siding, windows and doors
    • Replace roofing, gutters and downspouts
    • Many more possibilities!
  • 8. Traditional 203K
    • One General Contractor
    • FHA approved assigned Consultant is required
    • Detailed work write-up
    • Minimum amount of repair work is $5,000
    • No maximum amount of repairs
    • 4-5 draw requests depending on repair amount and contractor
    • Streamline 203K coming soon!!! No consultant required or minimum amount of repairs. Limited to $25,000 and no structural repairs
  • 9. 203(k) is an FHA Loan
    • Minimum FICO 640
    • Purchase or Rate/Term Refinance
      • no cash-out
    • 15, 20, 25 or 30yr Fixed Rate Loan
    • 1-4 Family Owner Occupied Property
      • Investment properties are not allowed
    • Property must be at least one year old and complete
      • c/o issued one year
  • 10.
    • Due to the multi-faceted nature of 203(k) loans, these files cannot be rushed! Set realistic expectations. Please allow an additional week or two for closing maybe more depending on the nature and degree of renovations.
  • 11. Costs to Consider
    • Consultant fees; ranging from $400 to $1,000 based on the work being done.
    • * traditional 203K only
    • Architect/Engineer Fees.
    • Permit Fees
    • Inspection Fees
    • Title Updates to ensure our 1 st lien position.
  • 12. Consultant Fees
    • Cost of Repairs Fee
    • <$7,500 $400
    • <$15,001 $500
    • <$30,001 $600
    • <$50,001 $700
    • <$75,001 $800
    • <$100,001 $900
    • >$100,000 $1,000
    • Note: An additional $100 can be charged for a feasibility study.
  • 13. Consultant Role
      • Meets with borrowers at the subject property.
      • Conducts thorough walk through of home and performs extensive inspection.
      • Prepares on-site “Work Write-Up” and cost estimate.
      • Obtains contractor bid (if available).
      • Reconciles contractor bid with “Work Write-Up” and reconciles for all parties.
      • Coordinates final contractor agreement amongst all parties.
      • Coordinates draw process.
  • 14. Closing Consideration
    • At closing, the investor creates the renovation escrow account.
    • There is N0 cash out to borrower.
    • There are NO draws at closing for materials, labor, deposits etc.
    • The consultant must be notified that the loan has closed in order to begin the renovation process.
  • 15. Draw Management
    • ALL permits must be obtained as first step of the renovation process.
    • Draw requests are made for the work completed and inspected.
    • Disbursements are made by check payable to the borrower and the contractor.
    • Unused escrow is applied to the principal balance or can be used for additional improvements
    • Minimal interest is earned on the escrow account.