203 what?

When S started talking me into buying a house and planting the seed that maybe rehabbing houses could become a main source of income, I thought, like my friend Carrie did this weekend, that he was asking me to buy a house for $203,000.  203k on our first house!?  We can't afford that!  Other than our real estate agent and our lender, no one I've talked to has heard of a 203k so I thought I would share.

This is a fantastic FHA loan program, at least I think it is right now.  Since we haven't actually gone through the whole process, I can't say for sure but so far, so good.  Some things to be prepared for with a 203k:

- it is a long process because of the hoops you have to jump through and the kinds of properties you're working with
- major renovations are an inherent part of this program so if you hate that idea, then steer clear
- there are only a few lenders who offer 203k mortgages
- not all houses are 203k eligible and some sellers aren't willing to wait for the longer closing process

Here's where it would be a great option:  Say you find an awesome deal in a great neighborhood.  Maybe it's a foreclosure or a short sale or a HUD home or just a house someone is trying to get off their hands quickly.  An awesome deal would be a house that is priced SIGNIFICANTLY less than the comparables, like 40-50% less.  Why is it so cheap?  Well it probably needs a hella lotta work which would scare away anyone other than investors.  It might need a complete remodel, new floors, foundation work, a whole new kitchen; it might smell bad or be missing a wall; it's generally a rather scary place on the inside.  But it's a great location and a great size and if we only had $30,000 lying around to put into it, then we could get it, make the improvements, and build a TON of equity.  But we do not have $30,000 so, bummer man.

BUT WAIT!  Have I got a deal for you!  If you and the property qualify for a 203k loan, then you are in luck!  You can finance the house, just like you would with any other property, AND finance the renovations and repairs, all within the same mortgage.  So if you got a house for $50,000 and put in $25,000, you would have a mortgage for about $75,000.  Ideally, you've made smart improvements and your home is really worth between $100,000 and $120,000.  You've basically done a flip but you are going to live in it for a while before you sell it and collect your equity.  The 203k is an owner/occupant loan so you have to live in the house for one year before you can sell.

You also have to have all of the work done by a general contractor and since we are getting a HUD home, all the work we do must be approved by a HUD consultant so that mean two groups of people have to approve the works that's done.  Some people might be turned off by all the oversight, but I love that so many people are going to make sure that the project is done right since it's our first major reno.  The downside is that it means no DIY projects until after all the major work gets approved.  So, I would love to take down all the wallpaper myself to save some money but we know that the walls will need some repair work after the foundation is fixed which means the wallpaper needs to be removed BEFORE the end of the reno work so, thank you contractor for removing the wallpaper.  On the upside, I don't have to remove wallpaper! :-)

We are still waiting to be officially under contract on the house.  Veteran's day slowed that process down a bit.  Hopefully this week we'll get our structural inspection, the make or break inspection.  The amount of the foundation repair will determine whether or not we move forward or walk away.  Keep your fingers crossed!

In the meantime, I shared "the good" of our hopeful home with the hardwood and built-ins, now here's some ugly.  Shabby chic perhaps?