home fucking improvement loans

[sonatine]

so yeah things are moving along nicely with my whole 'buy a house and stop living like a nomadic white n-word' scheme. ive decided to settle on something that needs work done, long story short. that way i get a plot with huge potential, and the ability to determine my homes aesthetic fate without tearing out other peoples work.

the problem that im encountering is that refinancing for home improvement loans is a savage ass fuck of a hassle right now.

case in point, the 203k home improvement loan. just like the FHA loan, its been "revised" recently in the interests of making it less risky and more profitable to this nations fiscal overlords.

so what we have at this point is nothing but a hugely expensive rat king of unbelievably specific and arcane rules, most of which the average contractor simply refuses to entertain, that takes up to 6 months to get funding delegated and cant be paid off in advance because its rolled into the fucking home loan, along with its insurance, along with the fucking bump from the increase in property tax. more or less.

so what im wondering is; what the fuck are the remaining options, beyond just paying cash for various small projects?

[Rollo Tomasi]

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[tony bagadonuts]

At last report you were exploring options in WA, have you entered into a contract or still fact finding?

The 203k loan is flat out one the best programs in the history of mortgage lending, but there is so much mystery, misinformation and ignorance surrounding it that there is almost a knee-jerk negative reaction when discussed.

Knowing a bit about your situation and geographical flexibility, it could be perfect for you. The key is getting connected with a 203k expert lender who works with a great FHA Inspector/facilitator. The possibilities with this program are too numerous to mention, but if done correctly you can leverage this program into a tidy profit or real wealth depending upon what your goals are.

Where are you in the homebuying process, and what specific concerns or questions do you have about the 203k program or rehab loans in general?

[sonatine]

At last report you were exploring options in WA, have you entered into a contract or still fact finding?

The 203k loan is flat out one the best programs in the history of mortgage lending, but there is so much mystery, misinformation and ignorance surrounding it that there is almost a knee-jerk negative reaction when discussed.

Knowing a bit about your situation and geographical flexibility, it could be perfect for you. The key is getting connected with a 203k expert lender who works with a great FHA Inspector/facilitator. The possibilities with this program are too numerous to mention, but if done correctly you can leverage this program into a tidy profit or real wealth depending upon what your goals are.

Where are you in the homebuying process, and what specific concerns or questions do you have about the 203k program or rehab loans in general?

<3

Im pre-approved but Im not planning on dropping the hammer on anything until spring. So basically Im not committed in any one direction.

Serious question; are you saying the 203k is the tits while aware of the recent changes to it? Chances are, Im the one who doesnt know what hes talking about here, but it always pays to find out since the laws on this shit change constantly...


Specific concerns, relayed to me by my mortgage broker who is not an expert in 203k but has done some...

- They can take at least 90 days and up to half a year to get the funds released and the work started, which sounds fucking horrible because there is a good chance the houses wont even be move-in ready until the repairs are done. So Im possibly on the hook for almost 10k in costs on a house I cant live in, just waiting for the paperwork to clear on the 203k?

- The loan gets rolled into the fucking mortgage, so I cant pay it off, Im stuck with interest for the duration of the loan. Great if Im flipping but goddamned, I want to pay it the fuck down and get it off my back. A 60k loan is going to turn into almost what, 150k over the duration of the mortgage. Whats more its going to also jack up the property tax fees. I get that thats the cost of doing business but throw on top of that the 203k insurance and fees and I just fucking go limp.

- Higher closing costs. Self evident.

Im being told they are great for flipping but for live-in homes where youre going to be carrying the mortgage until its paid down, its a potential catastrophe... So what Im I missing here?

[tony bagadonuts]

Serious question; are you saying the 203k is the tits while aware of the recent changes to it? – I don’t mean to be repetitive, but what changes are you referring to? Guidelines? Fees? Hard to answer the question without a baseline.


Specific concerns, relayed to me by my mortgage broker who is not an expert in 203k but has done some... – I’m not saying this is the case, but much of the misinformation regarding 203k loans comes from mortgage lenders who either don’t have the product, know their sources are terrible at it, or just aren’t comfortable with the loan and would much rather you buy a standard home. Also, are you working with a true mortgage broker, mortgage banker or mortgage lender? For simplicities sake, I’ll describe a broker as a company who acts simply as a conduit between you and the lender and doesn’t have access to his own money. A mortgage banker would be mortgage company who has access to their own money and funds the loans in their name, but isn’t a true bank. A mortgage banker would be a loan officer or home loan division of a traditional bank, either national, regional or community. These can be important differences, especially with this loan product.

- They can take at least 90 days and up to half a year to get the funds released and the work started, which sounds fucking horrible because there is a good chance the houses wont even be move-in ready until the repairs are done. So Im possibly on the hook for almost 10k in costs on a house I cant live in, just waiting for the paperwork to clear on the 203k? – LOL wat? I don’t even know where to start with this one. Each and every 203k is different depending on the scope of the work required/desired, but the entire premise of this is incorrect. Each phase of the job has to be complete before funds are released to the contractor.

- The loan gets rolled into the fucking mortgage, so I cant pay it off, Im stuck with interest for the duration of the loan. Great if Im flipping but goddamned, I want to pay it the fuck down and get it off my back. A 60k loan is going to turn into almost what, 150k over the duration of the mortgage. Whats more its going to also jack up the property tax fees. I get that thats the cost of doing business but throw on top of that the 203k insurance and fees and I just fucking go limp. – The loan is the mortgage, so I may not be understanding what you mean. If you have cash you can pay down the loan at any time. If you're referring to the FHA mortgage insurance then it does pay to have a strategy up front on how to get out of it in the quasi near future.

- Higher closing costs. Self evident. – In theory maybe, but like any mortgage you can mitigate the closing fees by taking a slightly higher interest rate. In general, the rate on 203k is a bit higher than a standard FHA loan, and it does carry a few extra costs not typically associated with a standard purchase, but in the grand scheme of things it’s a pittance compared to the instant equity you should have when the work is completed.

Im being told they are great for flipping but for live-in homes where youre going to be carrying the mortgage until its paid down, its a potential catastrophe... So what Im I missing here? – The average hold time on any mortgage is south of 7 years. The simple fact is that almost everyone sells or refis well before the full amortization time on a 30 year loan. One thing to consider is that FHA mortgage insurance now runs for the course of the loan as opposed to being removed after 5 years or you reach 22% equity. This is a legit concern, but well worth it considering you can purchase a property for very little money down with this program, finance the repairs, build instant equity, and then refi out of it when you reach 20% equity, which may not take long at all if you’ve bought the right house.

Again, it comes down to the specifics of each transaction, but at the very least I’m concerned that the advice you’ve been given is sub par.

[sonatine]

You know what, I wrote out these huge responses and realized Im just totally rambling and need sleep. Im going to respond to everything you said tomorrow because I absolutely refuse to waste your time or your advice by trying to discuss finance while in slobbering idiot mode.

Regarding your concerns re: advice, Im inclined to think the issue lies mostly in me not educating myself properly and misinterpreting what Im being told, as opposed to being given bad info.

My sincere thanks, of course, to be continued.

[tony bagadonuts]

You know what, I wrote out these huge responses and realized Im just totally rambling and need sleep. Im going to respond to everything you said tomorrow because I absolutely refuse to waste your time or your advice by trying to discuss finance while in slobbering idiot mode.

Regarding your concerns re: advice, Im inclined to think the issue lies mostly in me not educating myself properly and misinterpreting what Im being told, as opposed to being given bad info.

My sincere thanks, of course, to be continued.

All good. For the first time ever I've subscribed to a thread, and tomorrow is an aloha Friday in my office. I'll respond in a timely fashion if possible.

I do want to see your huge responses though...

[Pooh]

bump

[sonatine]

we took this conversation to the VIP forum.

[tony bagadonuts]

A couple of highlights and notes of the 203k program:

With a 203k loan, you can go as far as to completely raze the place as long as you keep the original foundation footprint. You can add more foundation, but you can't reduce it if that makes sense.

For example, a decrepit shit shack that is uninhabitable but is located on a river, above the flood plane of course, can be in play if the numbers work. Even if the existing house is a 25x25 shanty, you can take that original square foundation, reinforce it if necessary, and build around it (The original foundation becomes your great room for example).

There are borrower protections inherent to the 203k program. The FHA consultant is going to inspect the property and assign an allowable price to each required and requested improvement. This doesn't stop you from negotiating with the contractors(s), but it does put in a framework for what the allowable cost is. This is why it is critical to work with an experienced 203k lender who works with an experienced FHA consultant. I can't stress how important this is.

Please keep in mind that for all loan programs you have the agency guidelines plus in some cases you have what are called investor overlays. An investor overlay is any condition or documentation requirement that is not part of the underlying program guidelines. These overlays can be very minor, or they can be so significant that it essentially prohibits the lender in question from offering a competitive program.

The 203k loan is no different, and is probably subject to more lender specific overlays than most common lending products. This is why specific guidelines can vary among loan originators, and why I typically recommend a lender over a broker. You want your loan officer to have a relationship with the decision maker that extends beyond that of a broker/wholesaler.

These are guidelines not absolutes. Experienced brokers can do a phenomenal job and an inexperienced lender can fuck it up royally.

[sonatine]

dead serious, thats probably one of the most useful posts ever made here.

[JimmyG_415]

dead serious, thats probably one of the most useful posts ever made here.

It was very educational.

I think this broker is "steering" you away, because it is a pain in his ass.
In my area we just don't get a lot of these, but I've done a few, and they are a lot more work for the loan officer, than if you just got a normal FHA loan, let alone a regular purchase loan, period.

[tony bagadonuts]

dead serious, thats probably one of the most useful posts ever made here.

I think this broker is "steering" you away, because it is a pain in his ass.
In my area we just don't get a lot of these, but I've done a few, and they are a lot more work for the loan officer, than if you just got a normal FHA loan, let alone a regular purchase loan, period.

I agree, and frankly I've done the same thing at times in my career if I either didn't have the product, or didn't have the back office to support the program correctly.

The 203k loan is a program driven by loan officers. If you're proficient at the program and have the infrastructure to support it, it can be a goldmine. Also it can provide financing alternatives for sellers where there may not have been any, and if provides a benefit to the community by fixing and repairing homes instead of having them sit there bringing down the values of the neighborhood.

If your company does them well, (and I think they do if you are where I think you are) get trained and market the hell out of it.

[gauchojake]

Since I'm pretty sure this program is for owner occupied properties, how long do you need to live in the home before you sell it?

[NaturalBornHustler]

Since I'm pretty sure this program is for owner occupied properties, how long do you need to live in the home before you sell it?

Pretty sure it is 12 months, have to live there majority of year.

[tony bagadonuts]

Since I'm pretty sure this program is for owner occupied properties, how long do you need to live in the home before you sell it?

You used to be able to do an investment loan 203k up to 85% loan to value, I'd be all over that if it ever came back.

There is no set time that you have to let a new purchase season until you sell, and as long as you occupy the property per the program's guidelines (typically 30-60 days after closing) then you've met your obligation.

The key is being able to do the program over and over again, in which case my answer would be 1 year. Buy a place, fix it up, live there 1 year, rent it out or sell and get on to the next one. Unless the guidelines change, you can do this indefinitely.

Although there are exceptions for relocations and family-size increases, you can only have 1 FHA insured loan outstanding at a time.

[gauchojake]

File this under "Shit I wish I knew 7 years ago before dumping 150k of my own money into a fixer upper"

Thanks for the info. Most profitable thread at PFA.