Why Are 203k Loans So Terrible?

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4 FHA 203k Myths Busted

"Wait, the government?! Oh no! They take forever to do things! It's like time's standing still"Paperwork. Time. Bids. Big loan. These are all things we hear that are keeping people from taking advantage of the FHA 203k loan for home improvements, renovations and repairs. They also keep real estate agents from suggesting this option to clients. From structural to desired improvements like carpet and paint, this government backed program can roll the cost of work into the life of the mortgage.

Well, it’s true. Sometimes it takes our government takes awhile to get through the red tape. And yes, some 203k loans we’ve heard of have taken "forever." But here’s the secret: We’re closing loans in 30-45 days (just like any other loan). Let’s put 4 myths of the 203k to rest right now.

1. Paperwork. Yes, there is a little more work involved in a 203k loan. The good news is that we’re experts on the loan, and we know the steps it takes, so we’re efficient at getting whatever paperwork is necessary together all at once. This way you’re not waiting around for your application process to unfold. Our team has completed comprehensive training so everyone understands what HUD wants from the borrower. We can walk you through it.
2. Time. We’ve heard the horror stories of 203k loans taking forever to close. Time frames including 60 days, 90 days or more have been tossed around. (Read: Don't Wait 90 Days for Your Mortgage Loan to Close) There could be several reasons for this to happen. The bank handling the loan may not understand the difference between a full 203k and a streamline 203k mortgage (the basic difference is that a full takes care of structural stuff, the streamline is more for smaller repairs and upgrades). A lot of loans get hung up in the bid process. When looking for a lender, look for one with a network of qualified contractors who have done this work before. In short, the loan should not take significantly longer than any other loan to close.
3. Bids. Some people are natural negotiators. I’m not one of them. So dealing with getting bids and finding the most appropriate one for the work doesn’t sound like a good time. Lots of people are the same way. We’re working with REbuildUSA and Lowe’s to help make the bid process user-friendly. Our relationship with Lowe’s means we’re already hooked up with certified contractors ready to give you reasonable bids. They want to get the work done so they can stay in the system.
4. Big Loan. "Buying a house and borrowing more money for repairs goes against the advice of financial planners. I don’t want to pay for the carpet for 30 years." Here’s the great part about the 203k: you can borrow money based on the future value of that home when the repairs are done. So you’re amortizing the cost of the repairs and upgrades into the investment. This means you’re getting instant equity. If you buy a home for $60,000 that’s in the neighborhood of $100,000 homes, and put $20,000 worth of work into it, you’re now the owner of a more valuable home that you paid $80,000 to buy. You have $20,000 instant equity.

Whether it’s finding a great deal on a foreclosure, or working to improve your own home with a refinance, rolling the cost of the repairs and upgrades into the life of the home mortgage loan can really help add value to the house.

The takeaway:

Make sure you find a 203k specialist to help with this process. You want someone who's done these loans, who knows the government requirements and who knows certified contractors to get the work done.

(photo: ..stiina..)