By Kevin Stirret Jones
As a senior mortgage officer at Bank of America, I’d been in the mortgage business since 2002 and the time had finally came to buy my first home.
My family and I have actually lived in the same house since 2001. We’ve been fortunate to rent my wife’s grandmother’s house from her family for the last several years and when the opportunity presented itself to buy this house and keep it in the family we leapt at it! Now, if you don’t know me, I have a wife and two wonderful kids. Our house is a little on the small side at 1000 square feet with three bedrooms and one bath. Since we’re buying this house and we’ve been here for several years, love our neighborhood and our neighbors we decided to buy the house and renovate it using the FHA 203k program.
FHA loans are mortgages that are guaranteed by the Federal Housing Administration and in essence, the FHA 203k is the FHA equivalent to a construction or a rehab loan. You can buy or remodel a house and use the funds from the 203k to update, expand or remodel your home and have all the benefits of an FHA loan namely only putting 3.5% down on a purchase or being able to refinance your existing house up to 95% of the value. And the best thing is… the value that is used is the value of the house AFTER your improvements! Way better than a regular construction loan!
Now, I do a lot of FHA loans at Bank of America. In fact, I was the top producing loan officer for government loans in the Northwest for 2008 but… Bank of America doesn’t do 203k loans at the moment. We can do purchases and refinances but not the rehab. That said I had to go with another lender…
The biggest thing that I learned from attempting a 203k loan is to have your plans and contractor lined up before starting the process! The biggest delays for me were caused by waiting for my plans to be finished and picking a contractor that could actually do my project for the price that we could afford. Other than that the process was fairly smooth.
Qualifying for the 203k loan is pretty much the same as qualifying for any other FHA loan. We had to qualify for the total amount of our project which was the purchase price of the house plus the total renovation costs. The renovation process is what took longer because you have to employ the services of an FHA consultant that works with you and your contractor to write a report on how feasible your project is regarding costs, etc. We had delays because of our contractor problems but other than that, it went smoothly. Our consultant was great to work with.
All this said, the process is not quick and we eventually decided just to buy our house as is and do the renovations later. I’m waiting for Bank of America to introduce this loan in a couple of months so that I can handle these myself and bring my FHA background to them. There’s so few lenders that do these loans right now because of the risk and added processing that they seem to take a lot of time.
Hopefully with the market the way it is this loan will gain in popularity and more lenders will jump on the bandwagon so that it will become a more feasible option for homebuyers that are closing under a deadline.
