The FHA 203k loan is one of the most popular renovation home loans in the market. FHA was created as part of the National Housing Act of 1934.  Your parents, and even your grandparents probably bought their first home with an FHA loan.
 
Found a house in need of a little repair? This loan allow you to both buy the home, and get the money to repair the home, all in one simple loan, with one small down payment.

The first step, is to apply for a basic FHA Home Loan. Once Pre-Approved, begin your search for the perfect home. If the home you find needs a little tender-loving care, or some updates, like a new roof, contact your Mortgages Unlimited Loan Officer to discuss the property condition, and what items may need repair. 

There are likely some items that the FHA program will require to be repaired to buy the home, and of course some items that you would love to upgrade or improve.  We refer to these as needs and wants.  Once you are sure the home will fit the basic FHA 203k loan requirements, the smart next move is to get a bid for the repair work from a licensed contractor.  

You are NOT allowed to do any of the repairs yourself under the 203k loan program. 

Processing a 203k Loan Once you have an accepted offer, the basic loan underwriting process is fairly standard compared to other mortgage loans, with a few additional items needed: 

1) Copy of the bid(s)

2) Signed contractor agreements between you and the contractor

3) Copy of contractors license, insurance, references, and a signed W9

4) Write up from 203k consultant if repairs over $35,000 Due to the additional contractor requirements, it is strongly advisable to make sure you have at least 60-days between your offer to purchase the home and any anticipated closing date. Once finally approved, the loan closing like normal. The seller and the real estate agent get paid right away.  The contractor gets 1/2 of the repair money right away, and the second 1/2 of the repair money upon proof of completion of the repair work. 

As the lender, we do not pick your contractor, and there is no list of approved contractors. The contractor is your choice. As part of the process, you do verify the contractor is real, and has a license and insurance. We don't check their BBB rating, but you should.

• Provide written work plan and cost estimates
• Must include nature and type of repair and the cost of completion
• Must be licensed and bonded for each specialized repair
• Must agree in writing to complete the work for the amount of the cost estimate and within the allowed time
• Must provide their documents, (license, proof of insurance W9, references)

Now knowing your offer price for the house, and the repair bid in hand, decide if buying this particular house makes sense.  If it does, go ahead and make your offer. 

Once we have your signed application, a copy of the purchase agreement, a copy of the bids, and all of the contractor documents, we can order the appraisal. 

The appraisal must say two important things. First, that the house is worth what you are buying it for today, and second, what the appraisal believes the house will be worth after repairs are completed. The after repair value must be within 110% of the cost to buy the house plus the cost of repairs in order to qualify.

A contingency fund is required for any cost over runs. The required contingency will range from 10% – 20% of the amount of the repair bid. These funds are collected along with the amount listed on the bid from your general contractor, and kept in escrow should something unexpected happen along the way. Should your general contractor needs the funds he/she will file a change order, and upon review, we will release the funds. If nothing unexpected occurs, the unused contingency money will be credited back to you as principal reduction on the amount of your loan.