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Myths about the FHA 203k

When it comes to the FHA 203k mortgage, I have heard it all. Some things I have heard are true, while most are false. There are different reasons why these myths exist, like lenders pushing customers towards a mortgage product that best suits the lender to realtors wanting the simplest and quickest transaction to just a complete misunderstanding of the FHA 203k. The following 6 statements below are just a few of the popular myths about the FHA 203k mortgage. All 6 statements are FALSE.

1. The FHA 203k only allows you to do renovations up to $35,000 dollars.

Why this is FALSE:

This myth most likely stems from the misunderstanding between the Standard/Full FHA 203k and the Streamline FHA 203k. The Streamline version of the 203k only allows for renovations up to $35,000.

Many lenders only offer the Streamline version because they do not have the desire or infrastructure to offer the Full 203k. This is detrimental is the buyer as it does not give them all of the options.

My team and I once closed an FHA 203k loan with over $660,000 in renovation/rehab monies!

2. The FHA 203k is an extremely long process.

Why this is FALSE:

When working with inexperienced 203k lenders the FHA 203k can be an extremely long process. With an average closing at about 40 days, the FHA 203k should not take longer than about 45-60 days. In the past, my team has even closed 203k’s in under 30 days.

If you are working with an experienced 203k team, you start in timely fashion, and both the homebuyer and realtor do what is required, then the FHA 203k will run smoothly.

3. Renovation work needs to be done prior to closing.

Why this is FALSE:

Many home-sellers and realtors believe that they will not be paid until the renovation project is complete. This is not the case. All work for a 203k project is done after closing, after both the seller and realtor are paid.

4. The FHA 203k renovation project requires a HUD certified 203k contractor.

Why this is FALSE:

Any contractor can do an FHA 203k project. There are processes and procedures that the contractor should be educated on beforehand that will help them decide if a 203k project is right for them.

203kcontractors.com offers its own certification program for contractors looking to become educated on the process. While it is not required, I highly recommend contractors to check out 203kcontractors.com and consider going through their program.

5. The FHA 203k places many limits you on types of work you can do.

Why this is FALSE:

There are not many renovation limits to the FHA 203k. A house can be torn all the way down to the foundation and built back up. Rooms and stories can be added to a property. The most popular items NOT allowed in a 203k project are the installation of pools, basketball/tennis courts, and bowling alleys.

6. The FHA 203k is only for first time homebuyers.

Why this is FALSE:

The FHA 203k is not limited to just first time homebuyers. 203k loans are available to previous homeowners and also for refinances. This is one of the biggest myths out there! While first time homebuyers are a large portion of our clients, the FHA 203k is available to all!

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