1960ranch's Blog

Closing and 203K Loans
October 16, 2009, 3:03 am
Filed under: Uncategorized
Removing the For Sale sign!

Removing the For Sale sign!

Sometime in February 2009 we discovered that we won the bidding on our foreclosed house.  We started out with a mortgage lender who had “some experience” with the 203k loan process but it turned out he had never done one himself before. Our lack of research into the lender turned out to be a huge mistake, and a few weeks into our 45 day closing period we had to switch lenders.  The main problem was the estimated closing costs.  The first estimate was around $11,000 (foreclosed homes are notorious for having higher closing costs, mainly because you must pay both sides of the transfer tax).  Then the lender came back with a second estimate that included things “he didn’t know about” and the closing costs jumped to 18,000!  We were not prepared to pay that much out of pocket.  We decided to take some money out of my husbands Roth IRA account (which is penalty free for a first time home purchase).  By cutting out our 3.5% down payment, our broker brought our closing costs to a more manageable number, however we were still uncomfortable with the constant changing.  When we finaly realized this lender had no clue about the rest of the paperwork involved, we switched to M&T bank, who in our area was known to “specialize” in these loans.  That broker had a much more realistic estimate of closing costs, but the paperwork was still a pain.  It seemed like every time we thought we were ready to close, another inspection had to be done or another form had to be filled out.

For the 203K process, we brought in 3 separate contractors: a carpenter for the kitchen and windows, a plumber/electrician/HVAC specialists, and a painter/hardwood floor refinisher.  The General contractor management was done by me – which saved money but not time or stress.  Everything is a trade-off as we discovered.

Once all estimates were in the total cost of renovations was approx $30,000.  This included: new HVAC (previously oil heat and no CA) new windows and doors, kitchen cabinet alterations to account for different appliance layout, new cabinet hardware, new kitchen and bathroom floor, paint house exterior, paint interior including kitchen cabinets, new light fixtures, new appliances, new bathroom shower and toilet, all new plumbing and some electrical work.. seems like alot for 30K!

Celebrating with Champagne!

Celebrating with Champagne!

With the 203k program its important to stay under 35k in renovations so you can do the streamline program which is much quicker and less paperwork.  You can include extra mortgage payments in your renovation costs if you arent going to be able to move in right away, but our goal was to only take one month in renovations. There are a million other tiny 203k details that i can’t explain here, so if you are looking for tips, send me a message!

The 203k process wasn’t the only time consuming part of the process.  The bank was very slow about getting us the information we needed to close.  We ended up getting 2 free 15 day extensions from the bank, which meant we ended up closing June 15th. Renovations started June 16th…and we moved in July 31st!


19 Comments so far
Leave a comment

Thank for sharing your story. We are just starting the process. The bank excepted our offer on a short sale and working with a lender that deals with 203k loans. I was told that we could not be our own general contractors. Tell me how you did that. Give me some good advice with all this. Sounds like you did a lot research.
Your house looks great. We are dealing with a 1963 tri-level split house that hasn’t been changed since. I not as daring as you. However, I would like to keep some of the charm. This website is such a great reference.
Thanks, Jennifer

Comment by Jennifer

Hi Jennifer, thanks for your comment. By “general contractor” what i really meant was that i managed the actual contractors. Basicly, i coordinated their schedules, monitored their work (very important to avoid miscommunication!) and arranged payment schedules. We did not do any work ourselves, we had 3 separate contractors who did the work, rather than hiring 1 general contractor who would hire individuals to do each part. Unless you can prove that you are qualified to do some of the work, a contractor must do it. If your repairs are under $35,000, you can choose the streamline 203K process, which limits you to 3 contractors. I don’t know if there is a limit on the regular 203K process. The biggest difference is the amount of inspections needed. With streamline, you just need one done at the completion of the work (when you make your final draw of the 203k funds). There are more requirements with the regular 203k. Let me know if you have any other questions!

Comment by 1960ranch

I own a 1956 ranch and have only recently come to appreciate its charm. When we bought it EVERYTHING was painted what I call old-man green, even the ceiling, it had an avocado green stove circa 1970. We pulled up the carpets to reveal pristine hardwoods! You inspire me! Thank you for your blog, friend.

Comment by Anne

I love avocada green, not on the ceilings though, and everything in moderation! Sounds like you have a great place, good luck with it and thanks for reading.

Comment by 1960ranch

Hi you said to drop you a line for more info. If you are so inclined would you send me a message back with some more info? I have done FHA’s but I’m meeting with a broker tommorrow about a house that was an abandoned flip. I’m definitely going to inquire about the 203K loan.

Comment by tom

Hi Tom, 203K is a great way to go if you can purchase the house, plus the cost of repairs, for less money than the house will be worth after the repairs are done. This has to be determined by an appraiser during the 203K process, but if the house is well below market price then there is a good chance you can do the 203k program. My best advice is to go with a lender who has done these loans before. There is lots of extra paperwork that will hold up the process if your lender isn’t familiar with it, as I found out. Another downside, you must hire licensed professionals to do the work unless you are licensed. I didn’t mind because i didn’t want to do the work myself, but if you are trying to save money by doing the work yourself then this might not be for you. A great resource for us was: http://www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm Another note: there is a 203k and a 203k streamline program. Streamline is for repairs that cost less than 35,000, and requires fewer inspections and less paperwork. I would aim for that if possible. If you have any specific questions about the process, feel free to ask!

Comment by 1960ranch

Hi, We are finally closing on a foreclosure this friday after going back and forth with Bank which owns the home since June. Yes 8 months of wondering if we were getting it! We put an offer in May, it took a whole month before they got back to us. We finally heard that they accepted our offer over the July 4th weekend. We then had a home inspection and went back with a counter offer. We then waited 4 months with no word from them at all. They then finally got back to us in Novemebr and reduced the price 25k! We are now going with a 203k Streamline. The paperwork has been nothing but a pain. My question right now is, how long will it take for us to be able to make our first draw for money. We want the contractor to get started as soon as possible but we are un sure of how long it will take to get the 1st 50% up front for his materials? Was it a huge hassle asking for the money? And how long did it take for the rest of the money to go through at the end of the work you did? I enjoyed reading your story and it makes me feel a little bit better knowing folks actually use the 203k streamline!

Comment by FixDaHouse

Wow that is a lot of waiting, but it sounds like it’s been worth it! You have a great question – our contractors started the day after closing, but we probably should have waited to recieve our first draw checks before we had them start. After we closed, our lender had to “process” our loan which meant we couldn’t get any checks until the loan was officially in the system. Once the loan was in there, someone from the bank sent us a form for each contractor called the “first draw form.” You have to fill out one per contractor, and i THINK you and the contractor both have to sign it. I scanned and emailed these forms at 9am one day and the checks were cut the same day, but then we had to wait for them to be overnighted to us. overall, the contractors didnt get the first half of the money until 2 weeks after closing. At the end of the work we had to get a final inspection done in order to get the money, but we were able to schedule the inspector to come out the day after the work was done. Then we filled out “final draw” forms for each contractor (i believe these had to have the contractors signatures as well), and got the money within a week of the work being completed. having a scanner and emailing docs really helped me save time. Faxing can be unreliable, and now i have copies of all the paperwork on my computer.

Comment by 1960ranch

Hi,Thanks for your quick response. So just one form to get the checks? That doesn’t sound bad at all.Our house is in a great town with the best school systems in the state so it was worth the wait. I agree about the faxes, we got a Myfax account for electronic faxes and bought a scanner/copier/printer as well. We hope all goes well on Friday!

Comment by FixDaHouse

Hi! I just stumbled upon your blog. I was looking through your flickr photos and saw you found toothbrushes that fit in the original fixture. Where did you find those? The only ones we found that fit from MIB from an estate sale. Haha.

Also – your bathroom light fixture is great. Where did you find it?

Annnnd, your house looks amazing after all the work. Great job!

Comment by Natalie Pocta

Hi Natalie! Glad you liked our pics! Our toothbrushes are Oral B, we bought them at CVS (a drugstore) and they came in a 2-pack. In the package they still look like the new-fangled kind of brush because they are clear with rubber grippers, but they are actually skinnier in the side profile than the other toothbrushes. The ceiling fan is from lowes: heres the link.

Comment by 1960ranch

🙂 I found your blog researching 203k loan info. Your blog and pictures are inspiring! I really like how the kitchen and bathroom turned out:) We are in the process of purchasing a 4bd 2 1/2ba 1968 qaud-level home that needs many improvements including kitchen, bathrooms and floors. Feb 1st was our original closing date but now we are down to the last minute things keep popping up and our closing is going to need to be extended. Did you have to work with a HUD consultant? If so what was your HUD consultant experience?

Comment by mrsealey

sorry it took so long to reply…I’m not sure we worked with a HUD consultant… we had a representative from a company called Hooks Van Holm, who works as a realtor for HUD homes. As far as I can remember this person did not have much involvement in the process except to be at closing. Also, this person worked directly with our realtor to grant us extensions when our 203k paperwork didn’t get done in time for closing.

Comment by 1960ranch

we setteled 2 weeks ago and had not got any papers yet on the 203k ?

Comment by jimmy

Congratulations. We are in process of a 3 br 2 ba. 1973 ranch on 4 acres in central Mi.
Our first attempt was in january 2010. Hud accepted our bid for 60K on an appraised value of 103K. We went for a 203K with this internet finance guy supposedly in the top 25 of companies for this. We got everything done and almost finalized then he told us he wouldn’t do it because of a $300 bad credit card from 3 yrs ago.(pd.off) We switched to a new person (local) she said he just didn’t want to do the loan. She has us up and running and we are now in underwriting waiting on a closing date. She says there is no reason for our loan not to go thru. We maxed out on the streamline 203k but all in all we are still around 90K for the house. It’s out in the country and there are birds and deer galore. It is so quiet. We are having both baths gutted and completley remod. A new hardwood floor in LR and hall.(Exotic species called Tiger wood,not the golfer.
A 95% efficient furnace installed with all new gas lines in basement. A 50 gal propane water heater. They have to line the chimney for this. Yep it has a fireplace. All new plumbing in basement(prev. owners stold existing) A new triple safe sump pump system in basement w/battery backup.
New kitchen countertops complete with sink.
All new carpet in 3 br. new laminate floor in kitchen. So the inside will be pretty much all new. We will paint and all the usual ourselves of course. When I recieve my tax credit of 6K I will reshingle the roof myself about $2300.
new windows and siding myself about 4k
Pretty much a brand new home. I can’t wait to hear the appraisal estimates on existing condition and remodeled condition. The front half of the home is brick so the siding costs are lower. The home is only about 1200 sq ft and the basement is full and can be finished should we choose. The only thing we had to sacrifice on was the central air. Contractor wanted 3600 bucks to install. My Dad says we can do it ourselves for about 1500. Well he can cuz i don’t do hvac but he does. In florida too so he knows his AC.
You are one of the few who has had a good story on a 203K loan. Thanks for the uplift.

Comment by Jeff

Hi, do you know where to find specifics about about allowable renovations. I’m doing a 203k streamline which includes a kitchen renovation. One of the contractors that I received an estimate from said that I have to have upper cabinets, but I don’t want them. I was wondering if there is some sort of publication that says what I can and can’t do. Thanks

Comment by Terhea

This website is very helpful: http://www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm
However, I have never heard anything about top cabinets being required? Before your loan is approved, an appraiser has to go to the property and review all of your proposed renovations. If the appraiser approves the kitchen remodel, then its fine. Does this contractor have past experience with 203K renovations? If so , that’s great (most of my contractors never heard of it) maybe he knows something that isn’t made clear on the HUD site. My guess is he just wants you to spend more money though 🙂

Comment by 1960ranch

Hello great post, and very inspiring for future home owners like myself. 203k sure isn’t fun =). I was wondering:
How long did it take for the bank to go through the underwriting process?
How long after loan approval did it take for closing?

Comment by Yessi

Hi! Unfortunately, our bank took a long time with the underwriting process….we originally had a 45 day closing period but i believe we had to get 3 more 15 day extensions because of all the extra paperwork the lenders had to do for 203K. The most important thing is to find a lender with a proven track record of 203K loans, but even that won’t necessarily save you. our bank (M&T) was supposedly known for doing these loans, but it took alot longer than expected. Once all of the paperwork was FINALLY ready to go, i believe we closed within 24 hours!

Comment by 1960ranch

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