203 (k) Loan
Hi, I am a long time reader, and first time poster. We would love some input from anyone who has experience with an FHA 203(k) loan. We are buying a mixed use building and our mortgage broker came up with it. We don’t know much about this kind of loan and would like to hear…
Hi,
I am a long time reader, and first time poster. We would love some input from anyone who has experience with an FHA 203(k) loan. We are buying a mixed use building and our mortgage broker came up with it. We don’t know much about this kind of loan and would like to hear some pros and cons, and not from the people who are trying to sell it to us.
Thank you.
Jockdeboeraia, what services does a 203k consultant provide? I have a property in mind that fits all the criteria. Is the loan treated as a residential loan (meaning 20% down, income requirements, etc.)? Thanks. Your contact info would be great.
Thanks, everyone, for the mixed-use clarification.
I have 10 or 15 projects with the 203. Seems like a great loan to me. All of my clients are happy with it and only one had a bit of a snag but we worked it out with the mortgage company. You need the right HUD 203(k) Consultant.
Mopar, you can do a 203k on a mixed use property, though there are rules about the ratio of residential to commercial. Not clear on them, but I specifically remember this.
The FHA 203k loan can be used for residential properties that are 1-4 units, excluding co-ops, timeshares and condotels, but does include duplexes, triplexes and four-plexes and mixed use residential. Property must be owner-occupied in at least 1 of the units and on the mixed-use residential, can be used to purchase entire building but can only renovate the residential side.
“A 203(k) mortgage may be originated on a “mixed use” residential property provided: (1) The property has no greater than 25 percent (for a one story building); 33 percent (for a three story building); and 49 percent (for a two story building) of its floor area used for commercial (storefront) purposes; (2) the commercial use will not affect the health and safety of the occupants of the residential property; and (3) the rehabilitation funds will only be used for the residential functions of the dwelling and areas used to access the residential part of the property.”
The above taken from: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/203kabou
It costs more. You can only use contractors who agree to abide by the 203K rules. I am not aware you can get a 203K for a mixed-use property. AFAIK, it is residential only.
203kcontractors, your points are spot on. In our (aborted) 203k experience we had a lot of problems with the seller’s agent, a well-known one in the Ditmas Park/Flatbush area, who had little familiarity and high skepticism towards the 203k product. This caused us to lose out to a competing–but lower–bid.
We considered a 203k for a fixer-upper before eventually ending up with a different property. It seemed like a great product for a fixer-upper. I believe its 40 basis points more than a regular FHA loan but you avoid some FHA appraisal issues.
As you research it, keep in mind that some well-known local mortgage brokers don’t offer 230ks, but some banks do it directly (I believe Wells Fargo and Continental do). The mortgage brokers that don’t do the 203k will tell you up and down that its a horrible process, with tons of paperwork and they rarely get to closing. The banks that do offer it will claim its all very manageable and they’re closing deals all the time. I don’t know which is true since we didn’t do it, but if you call a broker that doesn’t do 203ks they will trash the idea.