Purchasing a home with 203(k) in Greenpoint

I have found this forum to be extremely helpful with my past research and wanted to see if I could get some more information on some questions I’ve had. My husband and I are in the contract stage of purchasing an older townhouse in Greenpoint. This is a two-family home that we intend to gut renovate and transform into our dream one-family home. Big project. We are estimating that the renovation itself will cost $250-300k, and we already have an architect and contractor in mind that we have experience with in a past project. In order to take advantage of the financing opportunities out there, we plan to take out an FHA 203(k) loan. Because of the one-family home limits, we still intend to put down a downpayment well above the minimum 3.5% for this type of loan. My ultimate questions are:
1\. Are closing costs calculated any differently for this type of loan?
2\. Are closing costs based on the cost of the home, or the cost of the home + renovation budget?
3\. Does the Up-Front MIP usually get rolled into the loan, or is that a truly up-front payment?
4\. Any other words of advice or past experience? Thank you in advance!

mc33433

in Financial Services 13 years ago

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callalily | 13 years ago

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We looked into doing a 203K. The lending costs are definitely higher — I think it was 1 percent or so — but I can no longer remember the specifics of how it works. Anyway, with interest rates so low, there could never be a better time to do a 203K. Not sure about the ease of getting a contractor approved, but there are a few architects on this site who seem to do a fair amount of 203K work.

mc33433 | 13 years ago

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Thanks very much, eme. I appreciate the feedback from someone who has been through the process. We have a contractor and architect that we want to work with based on our past experience and they have both already seem the property. I was reading more this morning and it seems like there is just a process to check the credentials and license of the contractor. Should hopefully be straightforward. Did you find the draw process to release the money from escrow to make payments for the work to be tedious or was that pretty straightforward as well?

mc33433 | 13 years ago

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Is it a difficult process to have your contractor approved by FHA? Our Wells Fargo mortgage broker made it sound like it wouldn’t be an issue. I understand their may be some pitfalls, but from my research the pros seem to outweight the cons.

gpoint | 13 years ago

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One factor in qualifying for a 203K, the house must appraise for cost of home + renovation budget.

eme1million | 13 years ago

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I did a 203K several years ago. There are many pitfalls in this program at least when I did it. around the year 2000.  Closing costs are based on the entire amount of the loan – that is the amount you are paying for the property, and the additional capital you are getting for the renovation.  It all becomes one mortage. You should be able to roll the MIP into the loan.  The pitfalls involve having a 3rd party – the government- dictating your renovation. So there may be some things you don’t want to do that you will need to do to compy with the FHA. And there will be things you are not allowed to do.  Your contractor and anyone else getting paid from the funds, must be approved specifically to do 203K, by the FHA.  You cannot directly use the funds.  The funds are held by the FHA and doled out to the approved contractors etc. only after the 203K inspector has approved the work.  Many of these policies are intended to safeguard the homeowner from unscrupulous contractors.  In my case it all amounted to a racket in which everyone knew each other – the broker, the inspector, the contractor, and all of them looked after each other.  And once you start down the road with the inspector and the contractor you are stuck with them come hell or high water as you will not get the funds without them signing off. And if you balk and say fine I won’t do the work, the FHA can rescind the loan and throw you into foreclosure.  If you already have a past working relationship with the architect and contractor – and they are approved already for 203K work, then this could go very smooth. Otherwise- be very careful as you can end up having little control of how that money gets spent.