Question regarding 203k loan

**jswartsel** · 05-23-2009, 11:03 AM

Hi everyone, I'm new here, so nice to meet you.

My wife and I are looking for a house to buy, and recently came across an REO in good structural condition, but would need some work (some wood rot on a patio overhang, needs appliances, some slight completion of flooring, etc). We were thinking that a 203k Streamline loan might be good for, as we don't think a regular FHA loan would get approved for this property.

The way I understand it, 203k loans are granted at the after repair value of the home which seems like it could defeat the purpose of buying a house at a low price. If we were able to buy an REO discounted down to 200,000 in order to move it, and it actually appraises for 275 now, 350 after repairs... does that mean we would actually owe $350,000? I supposed i'm just a bit confused is all. Any help would be appreciated.

Thanks!

Justin

**Greg** · 05-25-2009, 06:38 AM

Originally Posted by jswartsel

Hi everyone, I'm new here, so nice to meet you.

My wife and I are looking for a house to buy, and recently came across an REO in good structural condition, but would need some work (some wood rot on a patio overhang, needs appliances, some slight completion of flooring, etc). We were thinking that a 203k Streamline loan might be good for, as we don't think a regular FHA loan would get approved for this property.

The way I understand it, 203k loans are granted at the after repair value of the home which seems like it could defeat the purpose of buying a house at a low price. If we were able to buy an REO discounted down to 200,000 in order to move it, and it actually appraises for 275 now, 350 after repairs... does that mean we would actually owe $350,000? I supposed i'm just a bit confused is all. Any help would be appreciated.

Thanks!

Justin

You buy it for $200k, the 203k loan gives you another $20,000 to fix it up, and you end up owing $220,000.

You will only owe what you borrow.

**garysmith** · 05-25-2009, 07:00 AM

Originally Posted by Greg

You buy it for $200k, the 203k loan gives you another $20,000 to fix it up, and you end up owing $220,000.

You will only owe what you borrow.

And before you spend the $20,000, if it's a full 203(K) I will come to your project and verify that you've spent the money on the home and didn't run off for a vacation. As consultants we also monitor the project and are the eyes in the field for FHA. Meaning we try not allow the contractor to get ahead of the process by getting paid a greater % than he/she has finished.

Gary Smith
203K Consultant
Mississippi

**Mike203k** · 05-25-2009, 12:40 PM

The amount you can borrow is based on the "after improved value" of your home not the maximum loan limit. It it the "upper" loan limit based on the appraised value. You can still purchase a deal and rehab it and your loan amount will be much less than the "maximum loan amount".

if you find a deal at $50,000 and can fix it up for $50,000 but the 'after improved value' appraisal comes in at $250,000 the loan will be based on the purchase and rehab amount plus some other fees to help you along less your manditory down payment. If you are a 'first time home buyer' that may be zero.