What’s the downside of FHA 203k mortgages?

So, I get questions all the time about this, and people always tell me, “Jeff, everything sounds great about FHA 203k mortgages, …sounds like it’s the perfect loan for me…it does everything that I want it to do, BUT there can’t be the perfect loan- there has to be something wrong!”  And you’re right- maybe not so much wrong, but there is a downside to anything, which is what I tell any client, realtor or contractor during our initial conversation.

From A Customer’s Standpoint:

  1. For customers, the interest rate is typically a little bit higher– somewhere usually about a quarter to a half percent higher than you would get on the typical FHA loan.
  2. The second one is that it can be a little more expensive.  From an expense standpoint- there is a HUD certified FHA consultant who is involved.  The FHA 203k Consultant fees can range anywhere from $400 dollars to $1,100 dollars depending on the cost of the rehab. In addition, there are re-inspection fees included for that must be paid when a draw is requested (fees fees are financed into the loan).

The cost of this loan is slightly higher than using a typical FHA 203b mortgage or conventional financing however these other financing types do not give you the flexibility to roll in renovation and rehab into your mortgage so there is a tradeoff.  The pros far outweigh the cons for using a FHA 203k mortgage.

From A Realtor’s Standpoint:

From a realtor’s standpoint, there aren’t any downfalls.  There really is not much that has to be done differently except for giving additional access of the property so that we can get the FHA consultant and contractors into the property.  That’s really the only thing that’s going to change on the realtor standpoint.

From A Contractor’s Standpoint:

From a Contractor’s Standpoint, as we spoke about in other blogs, the contractor doesn’t get paid up front- they are paid on a draw schedule.  The truth is, some contractors are going to work with FHA 203k loans and some aren’t.  The one great thing about working with the FHA 203k loan is the contractor is going to get paid.  He doesn’t need to worry that the money isn’t going to be there.

So, as I said, there are some cons to a FHA 203k mortgage but the pros far outweigh the cons when it comes to renovation financing.  I hope that answers all of your questions.  Please feel free to e-mail me with any additional questions at jonofrio@annie-mac.com.

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