FHA 203K 

Third Generation Homes is not a mortgage company or a bank.  We base our knowledge on past experiences. There may be other qualifications you may have to consider when applying for this loan.


Q. What is an FHA 203K?

A. FHA stands for Federal Housing Administration.  The 203K is a government backed home renovation loan that can be used to purchase or refinance a home.


Q. How does it work?

A. For example you want to buy a house and you found a property that may not qualify for a traditional mortgage.  The house needs work, maybe it has a leaky roof, broken water pipes, out dated electricity, mold, etc..  The 203K may be the solution to your lending problem.  Let's say you're purchasing the home for $100,000, in a neighborhood where the average price is $250,000 and the cost of the repairs is $75,000.  If you combined the purchase price of the home plus the cost of renovations and rolled them into one easy loan, that would be the FHA 203K.   


Q. How does the appraisal work?

A. The appraisal is based on the after improved value not the current condition of the home. 


Q.  What is the difference between a streamlined 203K and a full 203K?

A. The streamlined 203K is for projects under $35,000 that will have no structural changes made.  Whereas the full K is for projects $35,000 and greater, and allows for structural changes.  A 203K approved consultant will be brought in by the bank to review the work as well.


Q. Do you need a professional contractor or can you do the work yourself?

A. You may do the work yourself on a streamline, not a full K, but only if you can prove that you are a professional in the trade or that you have the experience to do the work, and you will only be compensated for the materials not the labor.  Of course we will recommend Third Generation Homes and most banks and mortgage brokers do recommend a professional Contractor. 


Q. What is the minimum amount that can be borrowed?

A. The minimum is $5,000.  The maximum is based on loan to value, recent home sales and what your loan officer can qualify you for.


Q. Why does Third Generation Homes like the FHA 203K?

A. For many reasons including: we feel that this is the only type of loan that can give you equity in a property immediately after purchase.  Going back to the original example used above, if the appraised value was $250,000 and the mortgage was $175,000 then there would be $75,000 in equity.  Another advantage is that you can get an older home remodeled exactly the way you want it for your living needs.  We also like the fact that this bundles for mortgage and the cost of construction all into one loan and that there is no need for large amounts of cash out of pocket. 


Q. What amount of cash on hand will I need to do this loan?

A. Currently the FHA requires a minimum 3.5% down payment (that is based on the total loan including the renovation costs).  You may want to have additional funds available to you if you decide to go over budget during your 203K. Although the bank does set up a contingency budget of 10-15% (up to 15% depending if utilities are on prior to closing) in which they hold unless requested by you the homeowner, a letter of usage by the contractor, and approval by the 203K consultant.


Q. How long will my renovation take?

A. Every renovation is different and can vary based on the scope of work.  A typical "to the studs" renovation for Third Generation Homes will take 30-45 days.  It truly comes down to proper planning.  For example, if you know the permit will take 2 weeks to get then apply for it before the closing so you can start when you close on the loan.  Have a good working plan in place and have sub-contractors scheduled accordingly.  Plan as much as you can, including details like paint colors, furniture layout (for outlets, cable, phone etc) and lifestyle needs.


If you have any question about this loan please contact me.

If you would like to know if you can qualify for this loan you can contact:

Sal Mangiameli Senior Loan Officer from Prospect Lending at 845-544-1248 or email smangiameli@optonline.net 



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