203K Loan Process


We get a lot of clients asking us about renovation loans and specifically the 203K Loan — we like to joke that it's more complicated than your 401k but it doesn't have to be. 

The 203K loan is a federal loan program for buyers seeking a renovation loan. The 203K loan is essentially an FHA loan. What does that mean? It means that you can buy a property in need of renovation under the same qualification requirements as a FHA loan — 3% down including the renovation costs. Here's how it would work. Let's say you find a house listed at $200,000 and your renovation costs are $100,000 for a total of $300,000. Under the 203K loan program you will need to put down 3% of $300,000 which would be the total loan amount. Why is this great? With the 203K you are financing the costs of the home and renovation under one loan and a low downpayment. Traditional renovation loans usually require a 20% down payment. There is a downside of course, 203K loans like FHA loans have slightly higher rates and PMI (private mortgage insurance).  Of course, just like a traditional loan you will need to budget for closing costs — which typically run about 2-5% of the loan depending on the state. 

203K loans are complicated but they don't have to be, here's our advice on getting the home of your dreams under a 203K loan. 

1. Find a loan officer that is familiar with the program and has closed on numerous 203K loans. This is important, a loan officer that has closed plenty of 203K loan will have you ready and prepared for the challenges and will keep your paperwork moving in the chaos. 

2. Find a contractor that is has done 203K loan renovations. This is key because there is a lot of paperwork for contractors and theyhave to be familiar with the 203K loan draw process. The great thing for the buyer is that the contractor does not get paid until work is completed. This helps shield the buyer from dubious contractors. 

3. Find a 203K loan inspector. The inspector will be your best friend during this project. He or she is in charge of the money. When you close on the loan, you will have a number of "draws". A draw is when a certain amount of work is completed and the contractor can get paid. The inspector will come out to the home for the draws and will confirm that the work has been completed. 

Still have questions? Want to start your 203K loan renovation? Drop us a line: info@kexdesignbuild.com

Kex Admin