FHA 203K Mortgage

[Rommey]

Just wondering if anyone has used this type of mortgage before. For those that don't what this type of mortgage is...it's basically used for someone to buy a fixer-upper and the costs of repairs is included in the loan amount.

I'm considering buying a house that is in need of repair and I've just been getting the details of this type of mortgage. I'm wondering if anyone has used this before and could pass on some personal experience with the issues and regulations.

 

[jaksprat]

I used one quite some time ago, back around '93. I can give you info on what it was like back then, but I'm not sure how much has changed. It was a great way to get a higher mortgage than usual, since the estimated repair costs were added into the mortgage for the house. I bought a fixer-upper for about 86k and mortgaged over 25k extra for repairs. I did most of the repairs myself which cost significantly less for me, than the estimates that I obtained, and that was OK with the lender/FHA.

The biggest issue I see is that it involves a lot of planning, paperwork and inspections. That part wasn't a big problem for me cause I was used to it but I could see how it could be a pain for a lot of people. They had to do 2 appraisals, one for as-is and one for what it would be fixed up. The inspections involved the usual ones by the County and also ones by someone who would inspect the place each time you'd finish a phase of the work in order to get a 'draw' of a portion of the repair money.

To sum up, if you don't have a lot of cash to put into a place, and you're good at either doing the work yourself or dealing with contractors, and you're good at planning and paperwork, it might be for you. Otherwise, it could be a pain in the neck.

Do you have a place in mind or are you just thinking about it?

Jack

 

[Rommey]

I used one quite some time ago, back around '93. I can give you info on what it was like back then, but I'm not sure how much has changed. It was a great way to get a higher mortgage than usual, since the estimated repair costs were added into the mortgage for the house. I bought a fixer-upper for about 86k and mortgaged over 25k extra for repairs. I did most of the repairs myself which cost significantly less for me, than the estimates that I obtained, and that was OK with the lender/FHA.

The biggest issue I see is that it involves a lot of planning, paperwork and inspections. That part wasn't a big problem for me cause I was used to it but I could see how it could be a pain for a lot of people. They had to do 2 appraisals, one for as-is and one for what it would be fixed up. The inspections involved the usual ones by the County and also ones by someone who would inspect the place each time you'd finish a phase of the work in order to get a 'draw' of a portion of the repair money.

To sum up, if you don't have a lot of cash to put into a place, and you're good at either doing the work yourself or dealing with contractors, and you're good at planning and paperwork, it might be for you. Otherwise, it could be a pain in the neck.

Do you have a place in mind or are you just thinking about it?

Jack

I found a place in Laurel that will take about $40-50K of repairs/upgrades. I haven't really looked at the place close enough, but from the amount I've seen it has an addition that would probably be cheaper (and better) to just tear down and rebuild it correctly. The place needs the usual roof, siding, windows, etc. and likely needs electrical, plumbing, and heating work. There's no A/C and it could use a driveway and/or garage/carport, but those would not be priority.

I'm a little leery of making sure all the paperwork details are sufficiently taken care of. I'm fairly handy, but I also know my limitations. I don't have friends that are contractors or architects, so I would have to locate some to do the work and hope they do it right.

 

[jaksprat]

So the place is in Laurel. I went to UM in the 70's and spent most of the time since then in or near College Park. I've only been in Southern Md for 2 years [and love it down here!].

Anyway, a couple thoughts. I know Laurel has a historic district and it sounds like you may be buying an old house with all the repairs you list, esp. electrical and plumbing. If the house is in the historic district you will have another layer of hassle to deal with since they'll have to approve the work. Also, based on your repairs it seems to me your estimate of 40k-50k may be on the optimistic side. That's a lot of work and most of it isn't cheap. Even if you do a lot of it yourself, you should at least count your effort as part of the expense for investment purposes. You should always estimate on the high side to help cover unforeseen things IMHO, especially if it's an old house.

You may want to consider having a contractor look at it and give you some estimates before putting a contract on it.

Good luck.

Jack