FHA 203K Renovation Loan Program Q and A

Q- How much money can I finance for renovations through the FHA 203K?

A- There are two options available through the 203K program. Option one is the Limited 203K where there is no minimum and a maximum of $35,000 in renovations, repairs and FEES. I emphasize the term “fees” because this will ultimately take away from the total you can use for renovation costs. On average you will spend about $800 in fees for the Limited 203K  version. Option two is the Standard 203K where there is a minimum of $5000, and the maximum is set by your local County. Some counties limits are over $600,000 in finance totals. A Mortgage that is to be insured by FHA cannot exceed the Nationwide Mortgage Limits, the nationwide area mortgage limit, or the maximum Loan-to-Value (LTV) ratio.

Q- Do I need to hire a 203K Consultant in NH and Maine?

A- HUD guidelines require that a Certified 203K Consultant must be used for all Standard 203K loans. A Consultant is not required if you are using a Limited 203K, however we recommend using a Consultant for every Renovation loan as well as taking advantage of a “Feasibility Analysis” first to see if the home in question is even going to fit in your budget. Don’t waste time and money getting all your ducks in a row on a property just to find out that you cant afford the renovations. Another reason you need or should want a 203K Consultant is that one of the Consultants duties is to submit a Specification of Repair, or some call it Scope of Renovations or (SOR), and Cost Estimate to your lender as part of the Work Write Up. These will be used ultimately for picking a contractor and figuring out the final cost of renovations.  Since a Consultant is not performing the renovations and will not make any profits from the project, he/she will have the clearest view of what those renovation costs should be. They are being paid to do so and 203K Consultants are required to use specific cost estimation numbers based on industry standards in your area. Its no secret that some Contractors can be excessively expensive, and some can undercut themselves too much to get the job which can put the entire project at risk when the Contractor runs out of money. The SOR and Cost Estimate submitted by the 203K Consultant will help keep both extremes from happening.

 

Q- Can I put an addition on a home in NH or Maine using the FHA 203K?

A- Yes! So long as the property in question meets  HUD’s MPR (Minimum Property Requirements), it fits within your budget, and all other health and safety issues are fixed first that may have been found during the Consultants initial inspection.

Q- Can I repair or add a swimming pool using a 203K loan?

A- Yes you can repair an existing in ground style pool. There is no limit to the renovation costs for this given that the costs are warranted. You can NOT repair an above ground style pool as it is not considered a permanent structure. You will NOT be able to install a new pool, above ground or in ground, as it is considered a luxury item and luxury items are not permitted in the 203K renovations.  However a Fannie Mae”Homestyle” renovation loan will allow for this if you are interested in that.

Q- Can I purchase and renovate a fire damaged house?

A- Yes, so long as there is no fire damage done to the foundation of the home and the property to be purchased meets all other HUD guidelines then you can build an entire new home on top of the old foundation. You can even add to that foundation to update the footprint of the home to fit your needs. Sooooo many options so long as you have the budget for it!

Top 3 Reasons Why You Need a Home Inspection When Buying a Home

Learn the “True Value” of the Home.

The value of a home on the market is always a BIG question. Many parts make up listing the value of a home such as the home’s location, size, market comparisons, luxury items, and of course deficiencies. What do we mean by deficiencies? Basically, any negatively impacting issue with the home.  A new roof, rotted siding, or a malfunctioning water heater are deficiencies. These defects and other valuable information are found during a home inspection. What you as the buyer gets to decide (unless you waived your right to a home inspection #badidea) is whether that listed value of the home is still right for you after the inspection. This is your True Value. The value of the home as you see it.

Here is an example: A home is listed for $200,000. You put in your offer and a few days later you have your home inspection done. You learn that the seller did not disclose that the home needed a new roof and the boiler was installed in 1952. They didn’t disclose this information because they didn’t know it needed a new roof and didn’t realize the boiler was a dinosaur and should be updated. You now get to decide whether that asking price is right for you, or maybe you want to ask for a reduction! (Here is where having a great real estate agent comes in to play also!). Buying a home is most likely the largest purchase you will make in your life. Make sure you have the right people on your side!

Gain the ear of a Qualified Inspector.

During and after the home inspection, you get the opportunity to ask the inspector as many questions as you can about the home. A great inspector will want you to walk around the property with them as they conduct the inspection. This your chance to talk his or her ear off and pick their brain about questions like, Can I rip down that wall to join these rooms?, what kind of maintenance should be done on that oil burning boiler?, or why is there green stuff growing on the roof? Most home inspectors have a background in the building trades, and some of the great ones will even give you some rough ideas on the cost of upgrades and repairs, but you need to ask! Just like the saying goes, the only dumb question is the one that you didn’t ask. Take advantage of the ear of the inspector while you can. You also need to do your homework before you hire an inspector. You need to have the confidence in the person that is giving you these answers, or there may be a chance you are getting the wrong answers. Not all inspectors are the same.

 

Feel confident in your investment.

Your home purchase is not only the largest purchase you will make in your lifetime but also the largest INVESTMENT. Buying an overpriced home that has tons of deficiencies is a nightmare that will keep you up for years to come. Buying a home can already be stressful and expensive so watching someone buying a home without getting a home inspection is like watching someone stick their hand in an alligator’s open mouth. You are just waiting for the worst to happen. Instead, put your mind at ease. Have an inspector on your side when making the purchase of a lifetime. Learn as much as possible about the home before you sign. Hire a great real estate agent as well as a great home inspector and you will feel a lot more confident and at ease throughout the whole process. Knowledge is power, and power builds confidence.  Feel confident about the future of your home purchase!

Will Dinsmore, Licensed Inspector and Owner of NH Home Inspector LLC