203K Loans

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With 203K loans, the loan amount is based on the home's projected value after renovations have been completed. To get this loan, the borrower works with a HUD-approved lender to create a detailed renovation plan and budget. Funds are released in stages as the work is completed. Some considerations:

• A 203K loan can only be used on a personal residence. It cannot be used for investment properties or second homes.
• You are required to use licensed contractors. Generally, the cost of licensed contractors is about three times that of a handyman.
• Finding a licensed contractor who was willing to do all the paperwork and hassle for a relatively small renovation job is difficult.
• Closing a 203k loan typically takes 60 days or more, while a typical FHA loan takes about 30 days. There is more paperwork involved with a 203k loan, and a significant back-and-forth process with the contractor to get the final bids. This puts you at a disadvantage as you will be competing with other buyers who can close faster.

The concept of 203K loans is outstanding. The reality is somewhat lacking.