Here are some of the most frequently asked questions about the FHA 203k loan program.

How many bids are required for a 203k loan?

The FHA guidelines only require one bid for the work to be done, however, lenders may have additional requirements to make themselves comfortable.

Depending upon the lender you could need more than one bid but there are certainly lenders that only require one bid. One such lender can be found by clicking here.

There also seems to be some question about how many contractors you can use in the 203k loan. The answer is that it depends!

The Streamline 203k allows multiple contractors, but the Full 203k requires one general contractor.

Can I buy and fix up an investment property with the FHA 203k?

No. The FHA 203k is for owner-occupants only. So only residential properties meant to be occupied as primary residence are eligible for financing under the FHA 203k renovation loan program. Investment properties and second homes are ineligible.

I just listed a farm with that needs a septic upgrade according to the County. Does this qualify for a 203k?

A septic upgrade is allowed under 203k FHA guidelines, but excess land and the word “farm” could add other problematic elements to doing a loan. First of all, the excess land must be common for the area or you risk having the property valued at only what’s common for the area – or even the property not being accepted. Secondly, if this is a working farm, FHA does not finance “business property”.

Aren’t the underwriting guidelines set by FHA – and if they are, how could the loan be different at one lender vs. another?

While it’s true that all lenders have to follow the FHA guidelines regarding 203k loan approvals, they also has the right to add additional guidelines “on top” of FHA guidelines.

Some common examples lender modifications to FHA 203k guidelines are:

• On a Streamline FHA 203k loan, there is no minimum repair amount. We have seen many lenders have minimum repair amounts of $5,000.
• Some lenders limit the amount of repairs to $15,000 on a streamline renovation loan. FHA’s limit is $35,000.
• FHA allows great credit score flexibility, typically considering under the traditional programs (including 203k) a score down to about 580 with the minimum down payment. Most lenders have their own credit score criteria that require a higher score.
• Many lenders do not allow the borrower to do any of the work themselves but FHA does allow self help under some circumstances

Not such a big deal, you say? Think again!

Let’s say you’re shopping for a home for your family. You tell your local Realtor that you want to take advantage of the tremendous number of foreclosed homes out there – in other words, you want a bargain! You tell your Realtor that you’ve been pre-approved at your local bank. You’re a handy guy or gal and want to do the work yourself to save money and maximize your equity position.

Your Realtor asks you to call your bank to see how they feel about financing a home in poor condition, and you call your bank only to find out they won’t finance distressed property in poor condition. The Realtor then refers you to their “favorite” 203k loan officer at another lender.

In your discussion with the 203k lender they tell you that you cannot do the work yourself. You’re not an expert, so you take their word for it and miss an opportunity to do exactly what you wanted to do – if only you were referred to the right lender.

Get the picture?

The lender will not necessarily tell you that the reason you can’t do “x” is simply due to that lender’s own policy — they’re going to likely represent this as a FHA rule.

I am very confused. I have spoken with several lenders about the FHA 203k program. One said you can only have repairs up to $15,000. Another said I could have repairs up to $35,000, and yet another said repairs were not limited to either of these numbers! What’s the real deal?

The amount of repairs allowed depends on the type of 203k loan. There are basically two different types of 203k programs insured by FHA. They are: 203k Standard and 203k streamline.

With the 203k streamline, the total cost of repairs should not exceed $35,000. With the standard program, repair work can be as high as the local area’s FHA loan limit amount.

No major structural changes are allowed with the 203k streamline program.

Why is it critical to work with an experienced 203k lender?

FHA has had hundreds of loan guideline changes over just the past couple of years. Since an FHA 203k is just one version of the FHA loan, all of these changes also impact the 203k loan.

You really need to make sure that the lender you are using is a lender with a track record of successful 203k loan closings.

Make sure your Realtor isn’t referring you to someone that has no expertise in dealing with renovation loans. Do your homework and check out your lender’s experience level. This is your project, so pick your professional team just as if you were choosing your lawyer or accountant.

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