Looking for owners who have done 203K or Construction-to-Perm

Hi folks,
I’m new to this forum and thinking of buying a fixer upper townhouse that will need a gut renovation. I am curious to hear feedback from others who have gone through the process of obtaining a 203K or Construction-to-Permanent loan for their renovations. What were pain points, what did you learn, what would you do differently? How long did the whole process take? What types of renovations were included and what did you have to omit?

Thanks!

henryshickman

in General Discussion 8 years and 11 months ago

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mpatches1d | 8 years and 10 months ago

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We did a construction loan through TD Bank. As someone mentioned in a previous post, you have to have a contractor with a large cash reserve or you have to do a lot of upfront funding out of your pocket. We found that we were having to pay our contractor for materials and then get reimbursed from the bank. So, at any one time, we could be $100K out of pocket until we were reimbursed by the bank.

We wouldn’t have been able to do as big of a rehab project as we did without the construction loan, so it was a necessary evil for us.

I’ve started a blog documenting our construction project that I am planning on including useful tips that we have learned along the way and answer questions for those that are planning a rehab project. Check it out! www.jcbrownstone.com

resident2 | 8 years and 11 months ago

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In this market it does not work.
1.) You will be lucky if you get a contract accepted contingent upon a 203K there will always be a cleaner offer.
2.) Trying to find a competent contractor willing to go along with your detailed ideas, unless you just want a sheet rock box covering up all the sins, will be difficult as anyone that can use a hammer is getting paid well on all the multi big sites etc…. do you see how much construction is going on right now?
3.) The hard costs, the soft costs, the carrying costs…. you go broke before you have moved in and can’t even collect rent! Let alone hold down you day job!

If you have no experience of managing contractors and a construction site do not do it, if you do not have huge reserve funds… do not do it… Not in NYC

sarahbrooklyn | 8 years and 11 months ago

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We did it in 2010. We got really lucky. It was when banks were not lending money and contractors were out of work. Our former contractor agreed to take on the job.
It was a major pain. The hardest part would be finding a contractor who will do it. They get paid based on an independent surveyor that you will work with you throughout the project. The contractor gets paid through the loan so you don’t have much control in giving them funds when they need it or when you want to pay them. You will have to find a contractor with enough capital to wait to be paid, so they tend to charge you more overall for the hassle..
In the end, it all worked out. You have to be meticulous in all the paperwork and coordinating the
bank surveyor with the contractor.
Best of luck.

workisfun | 8 years and 11 months ago

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The MIP payments were the prohibitive factor for us. Totally ridiculous $1k+/ month payments for 11 years just for loan insurance, regardless of loan-debt. Just part of the loan. Anyway, so glad we didn’t. Would’ve been way too constrictive, time-wise. When you start doing major work to a building, you discover things that weren’t anticipated, and you should want take he necessary time to understand their nature before paying for the first “solution” offered to you. Sometimes you want to wait until a new season cycle to best diagnosis something

camp6ell | 8 years and 11 months ago

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You definitely need a lot of patience and perseverance.
We looked into one and opted against as the conditions were going to be too restrictive. I forget what, exactly, but it might have been as simple as loan to value.
We went deep into an alternative that Wells Fargo alone offers; it’s basically a slimmed down version of the same thing, with less hoops to jump through. HOWEVER, it was still a nightmare! They BURIED us in paperwork… Nothing crazy, but 5 different people from 5 different offices around the country asking us for the same thing at random times. For example, we’d provide form X to Connie in KS today and Nora in NE would ask for the same thing tomorrow. Then Connie would ask for it again in two weeks, even though the data was static. That was hugely frustrating and our local office contact was a sack of potatoes, so absolutely no help. We might have persevered, but ours was an estate sale, and it took 13 months to close… With WF running our cred it report every 3 months, we watched it slide a few points each time until we cut the cord because it just wasn’t worth it on any level.
So, not a direct answer, but hopefully some useful info there for you.