203K FHA Loan as Refi

9 years ago

Hi there! Has anyone out there refinanced their home with a 203k loan? I have owned my current home for a year and a half with an FHA loan. As it was an FHA loan, I only needed to put 3.5% down, and haven't got enough equity in the house in order to take out a loan for the improvements it needs.

I am considering refinancing with a 203k loan to do the roof, siding and replace the deck, all of which are in really rough shape. I'm not sure I can get another couple of years out of them to build up equity so this seems like a logical solution.

I'm curious if there are other users out there who have had the experience of doing the 203k as a refinance, rather than a new purchase? Was the process any more difficult then a typical refinance? (outside of the quotes for work, market analysis, etc) Any tips or pointers you can offer? Your help is much appreciated!

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lyfia

9 years ago

The total loan still has to fall within the FHA mortgage limit in your area so I'm not sure if it would help you any.

If you can't save up the money to do it then I think you either have to hope equity rises quickly or you'll have to have an unsecured loan such as a personal loan, credit card, etc. If the latter is the case I would do the roof and then see what you can do about repairing the siding only where necessary. Maybe explore some DIY skills for the siding. I was in that boat at my old house and learned lots of DIY before the internet was full of advice on how to do it out of necessity as I couldn't afford to pay somebody to do it. I would have professionals do the roof though. The deck I would remove if it becomes dangerous and keep until that point and just keep saving until you can afford to do it without borrowing money.

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Comments (7)

kag426
Original Author
9 years ago
Thank you for your input and suggestions. The FHA limits in my area are well over the amount I would need to borrow. My current mortgage is $229k and the limits in my area are $515k.

I have spoken to a lender who believes this is a good possibility for my situation. (what else would they say, right?) I have a contractor coming to write up an estimate for the work I'm considering and have also arranged for a real estate agent to do the market analysis. I'm still weighing options between the 203k, personal loans, etc but would like to know more about people's personal experiences of going through this process as a refinance.
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I am in a similar boat attempting to remove the MIP from an FHA loan. As a matter of fact, I just dealt with my incompetent mortgage company a few minutes ago and ended up having to write a letter to them because they wouldn't help on the phone. We are 2 months from our 5 years and owe less than 75% of the original loan value. The idiot I just dealt with at the mortgage company told me we were going to have to pay for an appraisal in order to remove the MIP- I'm steamed but pretty sure she didn't know what she was talking about since we owe less than 75% of what was originally mortgaged, current appraisal value shouldn't play into this at all for us. At any rate, I'm pretty sure FHA is stuck on the original principal of the loan rather than the market value and would guess that refinancing may be in your best interest depending on when you will get to that magic 78% of original loan value. If you haven't paid extra principal and it will be 2014 before you reach the 78% point, then refinance; OTOH if you've paid additional principal and will be at 78% soon, it may not be worth the refi effort. Good luck.
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The "FHA" fee is Mortgage Insurance(a.k.a MI) and that is part of your payment that the government charges for giving you the loan. Origination and Brokers Fee are the same thing but show on two different lines. The total of these should be no more than 1%. You want these to show as "Origination" because that is what is tax deductible. As for refinancing into an FHA loan is not something I would recommend unless it is the only loan you qualify for. The reason being is that yeah, you might get a lower rate, but the MI is not tax deductible. Unless that is the only loan you qualify for right now, you need to look at a different program that might have a higher interest rate, but no more than a 1/2 (.50%) and then you can can deduct all the payment. Your MI factor is probably about .58 or .75 which is essentially the same amount of interest rate increase although it is not showing as such because it does not reflect in the APR. Some people just like to have bragging rights so they can state they have the lowest rate and an FHA loan will allow that but you are ultimately paying the same payment with the tax benefits. Lastly, the rates plummeted this past week so you might want to check into that for your situation. I hope this helps.
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I'm in the middle of a 203K project. In a nutshell it's been a horrendous ordeal. The 203K program is a great government program designed to help homeowners fix up existing structures, but all I can say is beware - In my experience our local governments aren't at all on board with the program... and neither are the banks now-a-days. The process involves lots of red tape, if you don't have the stomach for it, don't even cosider a 203K loan. Local Government: It took us 2 1/2 of our 6 months to get our building permit from the county. Needless to say we've had to file a program extension. With that said it would be great if the government provided homeowners with access to liaisons who would work on their behalf to speed the process along. Bank: We're having issues getting our draws from the bank. Our hud inspector is wonderful and has approved all of our draws, once they get submitted to underwriting etc... the bank keeps coming back to us requesting all kinds of additional requrirements and documentation. It seems that in the midst of the world's current financial crisis they're very hesitant about disbursing draw money so they feel that they can change the rules and requirements as they go. We're currenlty battling for our 3rd draw and overall I'd say we've easily spent about 2 months total time waiting for money. Keep in mind we pay for this money each month in our mortgage and have clearly met the requirements outlined in our scope of work. You either have to have REALLY understanding contractors who don't care when they get paid, or REALLY deep pockets to pay contractors/ or for the cost of repairs up front. For us, we've put out A LOT of money upfront and have only recouped about 15% of it. Also, one more thing they don't tell you... or maybe they do and it never sunk in for me. When they disburse draws, they always hold back 10%, just something to keep in mind if you need to pay your contractors.
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I had heard that they have become far more difficut to obtain. However, before you continue to search for a lender, realize that there are many PITA limitations....you have to have the contractor(s) lined up first...the work has to commence within a short period of time post closing (30 days), the project has to be finished at a certain time (not more than 6 months) , and the contractors must be willing to work on the 203K payment schedule, just to name a few of the rules. There are a whole host of other criteria to be met...and certain repairs are not eligible. If you have not done so already, thoroughly familiarize yourself with all of the conditions, and if you feel it is still right for you, contact FHA for the names of participating lenders. Here is a link that might be useful: FHA 203K Information
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pamghatten
9 years ago
You have to have enough equity built up to include the cost of your repairs into the mortgage amount, just like the home equity. Your repairs are just that, repairs ... they will not add value to what your home is worth really (maybe the siding will add some value). The mortgage amount you will be able to get is based on the value of your home when those repairs are completed, as long as it's within the FHA limit for your area. So if you have enough equity, you should be good.
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User
9 years ago
"haven't got enough equity in the house in order to take out a loan for the improvements it needs." If you don't have enough equity in the home, you don't have enough equity in the home for a 203. They will not loan more than the actual value of the home. Especially since the items that you list are not "improvements", but maintenance. Improvements would be an addition that adds square footage, and thus value, to the home.
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kag426
Original Author
9 years ago
l spoke with a 203k contractor yesterday. He gave me some great information and educated me on the process. It is still an option I plan to explore more but would like to hear from someone who has gone through the process to hear about their experiance. (In terms of what was needed to get the loan processed outside of the norm, any surprise issues that came up they were not aware of or prepared for in terms of loan processing or closing, any issues with drawing funds, etc) Have either of you gone through this process? Can you advise on those aspects? Thank you in advance.
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pamghatten
9 years ago
I'm a mortgage banker, so I am very familiar with the 203k loan program, but have never personally gone thru the process. There is a lot of paperwork, you need to make sure you are working with a lender that does a lot of 203k loans, so they have the process down. Lenders that don't do a lot of them will struggle with the process. Make sure you have enough of a contingency reserve account, since there are always problem encountered along the way when you are doing any type of construction.
kag426
Original Author
9 years ago
Thank you Pam. I found out some happy news... my roof has a few more years in it! Yay! So I think I'm going to try to hold off on the 203k idea to see if I can build up some more equity. In the meantime, another coat of paint and patch repairs to the siding will have to do for now.
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