Wondering if there are good resources for reading up on 203(k) loans

[mauve]

I have found a house that I really want to put an offer in on....again.  (Again as in, I've put in an offer on another house before, not that I again want to put an offer in on this house).  It's in the First Look phase on Freddie Mac.  Unfortunately, the program I was working with doesn't have funding for the location of this particular house - so instead of going with one of the lenders they work with, I'd have to figure out how to borrow enough for the required renovation. 

The house is in a USDA-eligible location, if that helps.  Unfortuately, I haven't started the USDA process because every other house I've looked at is in an ineligible area.

Primary issues:

- water under the hot water heater / furnace.  Does not appear to be a leak from outside, possibly a furnace or hot water heater issue, although it seems the furnace works pretty well

- the kitchen has been demo'd.  needs everything - cabinets, sink, appliances

- has two full baths. needs a sink for each and a toilet for one

- small foundation crack (stone foundation, needs some compound whose name is escaping me applied to the outside)

Other concerns:

- built in 1900 - there is a possibility of lead paint.  Make that a probability

How exactly does a 203(k) work?  I understand that you can borrow up to the expected appraised value post renovation.  Do they require things like that you hire contractors to do the work?  What if you accomplish the renovation for less than the amount they plan for?  Do your payments just drop and they keep the difference?  Is there a requirement that you worry about the lead paint?  Is it possible that I could finance the house, make sure that the one bathroom is complete and the kitchen meets specs and then worry later about upgrading?  (i.e., would both bathrooms have to be functional / what constitutes a kitchen / etc)

[ShanetheMortgageMan]

Both

http://www.hud.gov/offices/hsg/sfh/203k/203kmenu.cfm

http://www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm

Are good starting points to read up on the FHA 203k loan.

If the home won't meet FHA's minimum property requirements then anything called out by the HUD appraiser needs to be included as part of the repair costs (or it can be repaired prior to closing on your own dime).  

FHA Minimum property requirements/standards:

http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4905.1/49051c2HSGH.pdf

http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4150.2/41502c3HSGH.pdf

http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4910.1/49101c6HSGH.pdf

There are two versions of the 203k - streamline & full.  The streamline version only goes up to $35k and is more limiting in what repairs can be done (nothing involving engineering plans or architectural drawings) and the full version can do just about anything including moving load bearing walls, adding a room, etc.  203k's usually have higher rates, the streamline version a little higher and the full version a little higher than the streamline.

You can do the work if you have licensing and experience doing whatever part of the work you are planning on doing, otherwise contractor's are needed.  If not all the funds are used (which happens often), the remaining portion is paid towards the mortgage but your payment remains the same (you'll just pay it off sooner).  Since the home was built before 1978 and there is chipped paint, it will probably be called out as a repair item.

You can just do the items that are required to bring the home to HUD's minimum property requirements, and do the upgrades later, but you can't finance the upgrades in the FHA 203k loan amount if you aren't planning on doing them within 6 months (the time frame to complete the 203k repair items in).  You could refinance into another 203k loan later on however, or just use accumulated savings to pay for the upgrades.

From what you've said, the appraiser will probably call out a professional to inspect the source of the leak.  Leaks are never good, so make sure there aren't any signs of mold or you may need a mold remediation team to come out as well (lenders discretion).  Kitchen just requires a 'space to prepare food', but a lot of lenders have overlay guidelines that require appliances, cabinets, etc.  I'm sure you'd want a fully functional kitchen anyway, and you can put all of those in the 203k including appliances.  Bathrooms will need the toilet & sinks.  Is the foundation crack a settlement crack, or is there actual separation?  If it's more than just a settlement crack, and has signs of recent movement, the appraiser may call out for a professional to check it out, and professional engineer's aren't cheap.

[mauve]

Thanks!  I'm putting an offer in today - here's hoping they choose mine!  I've been a rollercoastery nervous wreck since yesterday. 

[203kContractors]

http://HUD.gov contains most of the information you are looking for.

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[mauve]

Thanks for the links - looks like I'll definitely be becoming *really* familiar with this info since my offer was just accepted. 

[ShanetheMortgageMan]

Congrats on the acceptance.

[mauve]

Thanks!  Now I just have to get through a million inspections, appraisals, etc, coordinate two different programs, devise a renovation plan that doesn't add an unmanageable amount of money to my loan, and keep my loan officer happy.  By March 28th.