# 203K loan for renovation?



## Badfish740 (Feb 21, 2015)

Since there seem to be a lot of hearth.com'ers with old homes, I wonder if anyone has ever used a 203K loan to renovate?  203K loans are often used to buy fixer uppers-the idea is you borrow enough to buy the home plus renovate it.  The amount you can borrow is based on what the home will be worth based on neighborhood comps, etc...when it's done.  You can also use the 203K to borrow money to renovate your home and then refinance the finished product into a new 30 year fixed rate loan.  We bought our house in 2008 near the top of the market, so at this point, we don't have a lot of equity, but we're outgrowing the house and would like to add on.  We're planning on adding a 3rd bedroom and a 2nd bathroom, making the house a 3 bed/2 bath, which, given the direction of real estate values in our area, should pay off in the end.  We feel it's a good solution for us because we don't want to move, but we need more room.  Anyone else have experience with these?


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## drz1050 (Feb 21, 2015)

Be careful about going underwater, and weigh the rate they offer against what your $ is currently making in mutual funds and whatnot. 

They can definitely be a good way to go if your market can support it.


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## Ashful (Feb 21, 2015)

I looked into 203k's at one time, when we were trying to buy a 1740's abandoned grist mill.  Can't say I'm an expert on them, just learned the basics, as you already have.

Where are you located?  I have a friend who's a mortgage broker in PA, and may be able to offer advice.  On a loosely related note, he just refinanced me at 2.75% fixed rate!


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## Badfish740 (Feb 22, 2015)

drz1050 said:


> Be careful about going underwater, and weigh the rate they offer against what your $ is currently making in mutual funds and whatnot.  They can definitely be a good way to go if your market can support it.



No desire to go underwater-been there done that during the housing crisis   Currently our mortgage balance is about $220K and the house is worth about $240K in today's market.  I'm looking to spend as little as possible to add the third bedroom and second bathroom along with some updates to the existing kitchen and bathroom.  Our neighborhood actually benefited in a way from the mortgage meltdown in that there were at least three foreclosures that were quickly snapped up, completely remodeled, and flipped at a decent price within a year, so there are some good comps to go on.



Joful said:


> I looked into 203k's at one time, when we were trying to buy a 1740's abandoned grist mill.  Can't say I'm an expert on them, just learned the basics, as you already have.
> 
> Where are you located?  I have a friend who's a mortgage broker in PA, and may be able to offer advice.  On a loosely related note, he just refinanced me at 2.75% fixed rate!



I'm just over the river in Hunterdon County-care to PM me his contact info?


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## BIGDADDY (Feb 22, 2015)

I would suggest talking to a lender or two or three and get their advice on what may be your best avenue to accomplish your desires. I think so much changes in the financial arena, its probably difficult for them to keep up. Who knows, there may be something better available  then what you are thinking of doing.
Best of luck in getting that 3rd bedroom and second bath!!


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## Swedishchef (Feb 22, 2015)

In Canada we don't have a 203K plan per say. Our similar plan would be a HELOC - Home Equity Line of Credit. Most banks will lend you up to 80% of your equity as a LOC. SO if your house is appraised at $100 000, you have $0 mortgage, they'll give you an $80 000 LOC at the interest of a mortgage. You pay interest on the outstanding balance and can lock it in as a mortgage at any point.

Good luck with the renovations Badfish! Sounds like a fun plan!

Andrew


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## Ashful (Feb 22, 2015)

Swedishchef said:


> In Canada we don't have a 203K plan per say. Our similar plan would be a HELOC - Home Equity Line of Credit. Most banks will lend you up to 80% of your equity as a LOC. SO if your house is appraised at $100 000, you have $0 mortgage, they'll give you an $80 000 LOC at the interest of a mortgage. You pay interest on the outstanding balance and can lock it in as a mortgage at any point.


We have HELOC's here, too.  The difference is that a HELOC is based on the equity you have in your home today, which might be a problem in badfish's situation with low equity.  The 203k is a loan based on the forecast value of your home AFTER improvements, and so it offers more room for one with limited equity in their property.


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## Swedishchef (Feb 22, 2015)

Joful said:


> We have HELOC's here, too.  The difference is that a HELOC is based on the equity you have in your home today, which might be a problem in badfish's situation with low equity.  The 203k is a loan based on the forecast value of your home AFTER improvements, and so it offers more room for one with limited equity in their property.


What some people here do is talk to the appraiser..and some can get the appraiser to appraise what your house is worth AFTER renovations, therefore, you get a larger mortgage/HELOC


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## ironpony (Feb 23, 2015)

Just thinking out loud here, and don't want to be negative Nellie but maybe it is time to sell and move on?? not much equity there and if you spend XX and add that to the mortgage and raise the value XX, I do not see much gain. Might actually loose some equity. Sometimes we have to cut our losses and make a change. Will the area support the higher value? Also in your favor , will a 3 bed 2 bath be much more desirable? Again just thinking out loud, I know it is a sensitive subject.


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## Badfish740 (Feb 23, 2015)

ironpony said:


> Just thinking out loud here, and don't want to be negative Nellie but maybe it is time to sell and move on?? not much equity there and if you spend XX and add that to the mortgage and raise the value XX, I do not see much gain. Might actually loose some equity. Sometimes we have to cut our losses and make a change. Will the area support the higher value? Also in your favor , will a 3 bed 2 bath be much more desirable? Again just thinking out loud, I know it is a sensitive subject.



Those are all valid considerations, but here is how I arrived at this:

Our house is fairly atypical for the neighborhood.  Most of the homes are at least 3 bedrooms and 2 bathrooms (there are also a fair amount of 4 bedrooms with 2 to 2-1/2 baths) whereas we are 2 bedroom/1 bathroom.  It's a subdivision that was built in the mid to late 1960s and I would guess that most of the homes started out like mine.  We bought the house from an older woman who had lived there for 30 years and never had any children, so she never had any reason to add on.  It was the cheapest option at the time we were in the market-the stereotypical "Worst house on the nicest block."  Right now, the value of our house is about $240K-the three and four bedroom houses are selling/have sold for anywhere from $300-320K.  The comps are there, otherwise the lender wouldn't have any incentive to write the loan.  

Also, we like the neighborhood, our kids have friends here, schools are good, we started our life as a family here (my wife I bought when we were first married) and it's a relatively convenient location in terms of proximity to family, jobs, etc...so there is really is no compelling reason to pick up and move somewhere else. Sure I'd love more land, but in NJ that costs serious $$$ so I'd be perfectly happy with my 1/4 acre if it just had one more bedroom and bathroom.  We're just in a tough spot because we want to expand our home but don't have the cash nor the equity to tap into to do it.


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## Ashful (Feb 23, 2015)

I suspect ironpony might chit a brick if he became aware of the property tax situation in NJ.  I know many paying $20k/year type numbers for their typical suburban lots.  The difference in property taxes between PA and NJ is just astounding.


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## Badfish740 (Feb 23, 2015)

Joful said:


> I suspect ironpony might chit a brick if he became aware of the property tax situation in NJ.  I know many paying $20k/year type numbers for their typical suburban lots.  The difference in property taxes between PA and NJ is just astounding.



  We are bad but not that bad.  Right now they're soaking me for $7500 a year-I'm guessing that will go to about $8500 a year with the improvements.  What's nice is that even though the mortgage balance will substantially increase, going from a 6.125% interest rate (which really wasn't bad for 2008) to 3.5-4.0% will keep the payment almost exactly the same.


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## Ashful (Feb 23, 2015)

Badfish740 said:


> We are bad but not that bad.  Right now they're soaking me for $7500 a year-I'm guessing that will go to about $8500 a year with the improvements.  What's nice is that even though the mortgage balance will substantially increase, going from a 6.125% interest rate (which really wasn't bad for 2008) to 3.5-4.0% will keep the payment almost exactly the same.


Your taxes are much better than some parts of NJ, but you're still paying more than me, and I'm in 8160 sq.ft. on 4 acres 30 mi. north of Philly.

Talk to Craig about the mortgage.  He has twice gotten me rates 0.25% lower than the best I could find anywhere else.  As I mentioned before, we just refinanced with him two weeks ago at 2.75% fixed rate, 15 years.


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## Badfish740 (Feb 23, 2015)

Our town made some controversial decisions in the late '80s/early '90s and took on a lot of debt.  We had a lot of open space and people were flocking to this part of Hunterdon County.  The administration at the time decided to issue bonds to buy up the land before it could be sold off to developers, the theory being that if it were developed we would need to build roads, sewers, water (we have a municipal water utility), and possible a second elementary school as well as add on to the middle school.  The debate still rages today whether or not the expanded tax base would have made up for the cost, but all in all, it's nice to live in a small rural town.  I'd rather pay $8500 a year here than $8500 a year in some of the more crowded/urbanized areas 30 miles east of here.


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## Swedishchef (Feb 23, 2015)

Badfish740 said:


> Our town made some controversial decisions in the late '80s/early '90s and took on a lot of debt.  We had a lot of open space and people were flocking to this part of Hunterdon County.  The administration at the time decided to issue bonds to buy up the land before it could be sold off to developers, the theory being that if it were developed we would need to build roads, sewers, water (we have a municipal water utility), and possible a second elementary school as well as add on to the middle school.  The debate still rages today whether or not the expanded tax base would have made up for the cost, but all in all, it's nice to live in a small rural town.  I'd rather pay $8500 a year here than $8500 a year in some of the more crowded/urbanized areas 30 miles east of here.


If I had to pay $8500 a year for town taxes, I'd have a stroke.

I guess there's no magic solution eh? I pay $2000 in property tax but $20 000 in income tax.

Andrew


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## Ashful (Feb 23, 2015)

This year I paid $8400 in property taxes, and well over $150,000 in income taxes.  Unfortunately, this is a contest where the winners are losers... and vice versa.


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## firefighterjake (Feb 23, 2015)

All I can say is Yikes . . . and Yowsers . . . on the property tax rates . . . income tax rates . . . and the mortgages. 

Just paid off our mortgage . . . a little under $600 per month . . . $69,000 home. Last time we were giving some thought to selling and building we were told it was worth about $180,000. I think I am getting old -- homes and cars all seem expensive to me now.


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## Swedishchef (Feb 23, 2015)

Joful said:


> This year I paid $8400 in property taxes, and well over $150,000 in income taxes.  Unfortunately, this is a contest where the winners are losers... and vice versa.


Right. But considering your tax bracket, I presume you have a good paying job. On the other hand, my marginal tax bracket is MUCH higher than yours will ever be. 

Jake: congrats on getting the house paid off! That's a great goal!

On another note, cars are not expensive. A Mazda protege 15 years ago was the same price then as a Mazda 3 is today (or damn close). But yeah, houses are a lot more now than 15 years ago.

Andrew


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## drz1050 (Feb 23, 2015)

$2370 in taxes in Upstate NY.. it certainly helps that Saratoga County has way lower taxes than Albany.. they also give me a nice break for being a combat veteran.  

School taxes are over 3x what city taxes are.


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## Swedishchef (Feb 24, 2015)

School taxes?! I need to start another thread with the topic of taxes...

Andrew


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## Badfish740 (Feb 24, 2015)

Swedishchef said:


> School taxes?! I need to start another thread with the topic of taxes...



Yes, before we open a whole can 'o worms   I had a good conversation with a 203K consultant yesterday who walked me through the process of getting the funds into escrow, inspecting the work, initiating a draw to the contractor, etc...  I'm starting to get excited about the other things I'll finally be able to do like replace the cobbled together, leaky, uninsulated ductwork with a well sealed and insulated efficient system that's designed to work with the wood furnace, and air seal the exterior of the house, insulate with foam board, etc...  The goal being to make a cord of wood last twice as long and to run the AC half as much!


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## jharkin (Feb 24, 2015)

Badfish740 said:


> Right now they're soaking me for $7500 a year-I'm guessing that will go to about $8500 a year with the improvements.



Wow! I thought my taxes where bad... I pay $6400  on about 325k of assessed value.




Joful said:


> This year I paid $8400 in property taxes, and well over $150,000 in income taxes.  Unfortunately, this is a contest where the winners are losers... and vice versa.




Man I am in the wrong business! I thought you where an EE, not a stockbroker......


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## ironpony (Feb 24, 2015)

Joful said:


> I suspect ironpony might chit a brick if he became aware of the property tax situation in NJ.  I know many paying $20k/year type numbers for their typical suburban lots.  The difference in property taxes between PA and NJ is just astounding.







Born and raised in NY, got the hell out ASAP. 29 yrs to many.


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## ironpony (Feb 24, 2015)

Joful said:


> Your taxes are much better than some parts of NJ, but you're still paying more than me, and I'm in 8160 sq.ft. on 4 acres 30 mi. north of Philly.
> 
> Talk to Craig about the mortgage.  He has twice gotten me rates 0.25% lower than the best I could find anywhere else.  As I mentioned before, we just refinanced with him two weeks ago at 2.75% fixed rate, 15 years.







Joful said:


> Your taxes are much better than some parts of NJ, but you're still paying more than me, and I'm in 8160 sq.ft. on 4 acres 30 mi. north of Philly.
> 
> Talk to Craig about the mortgage.  He has twice gotten me rates 0.25% lower than the best I could find anywhere else.  As I mentioned before, we just refinanced with him two weeks ago at 2.75% fixed rate, 15 years.





Joful said:


> Your taxes are much better than some parts of NJ, but you're still paying more than me, and I'm in 8160 sq.ft. on 4 acres 30 mi. north of Philly.
> 
> Talk to Craig about the mortgage.  He has twice gotten me rates 0.25% lower than the best I could find anywhere else.  As I mentioned before, we just refinanced with him two weeks ago at 2.75% fixed rate, 15 years.








7000 sq ft on 4 acres 4000 yr ohio 490,000 value    4000 sq ft st Croix 1 acre 800 yr. 600,000 value


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## ironpony (Feb 24, 2015)

Badfish740 said:


> Those are all valid considerations, but here is how I arrived at this:
> 
> Our house is fairly atypical for the neighborhood.  Most of the homes are at least 3 bedrooms and 2 bathrooms (there are also a fair amount of 4 bedrooms with 2 to 2-1/2 baths) whereas we are 2 bedroom/1 bathroom.  It's a subdivision that was built in the mid to late 1960s and I would guess that most of the homes started out like mine.  We bought the house from an older woman who had lived there for 30 years and never had any children, so she never had any reason to add on.  It was the cheapest option at the time we were in the market-the stereotypical "Worst house on the nicest block."  Right now, the value of our house is about $240K-the three and four bedroom houses are selling/have sold for anywhere from $300-320K.  The comps are there, otherwise the lender wouldn't have any incentive to write the loan.
> 
> Also, we like the neighborhood, our kids have friends here, schools are good, we started our life as a family here (my wife I bought when we were first married) and it's a relatively convenient location in terms of proximity to family, jobs, etc...so there is really is no compelling reason to pick up and move somewhere else. Sure I'd love more land, but in NJ that costs serious $$$ so I'd be perfectly happy with my 1/4 acre if it just had one more bedroom and bathroom.  We're just in a tough spot because we want to expand our home but don't have the cash nor the equity to tap into to do it.





you have valid reasons and have thought it thru, good luck with your endeavor. the pricing seems to be there, that would be my concern.


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## Warm_in_NH (Feb 24, 2015)

I bought my house on a 203k. It was a foreclosure, no kitchen, no heat, unknown septic and well, no flooring, etc....

I'm a contractor,  all my banking is done through the local bank where I also got my loan. It was incredibly simple, but a lot of that was probably due to the fact that it's a small (2 branch) bank in a small town. They couldn't write a mortgage on a property with no heat, so this was their solution.  I think I took one draw, did the rest out of pocket, the small bank was a breeze to work with on all of it.

I would really suggest making sure you have an establishment that you like. If you have a builder in mind don't be afraid to pick their brain as well. In my case there were no delays, I've been on jobs where we had to leave and come back because the bank inspector wasn't available to look at the job and release a draw, or there was a misunderstanding between the owner and the bank about draw release points, etc... All that just adds up to extra costs for the owner.

The only hang up was the bank required the purchase of points to initiate a loan (2009), there was a misunderstanding about how these points would transfer over to the mortgage when the loan was converted.  Essentially,  the bank had me pay something like $1500 in points to "initiate" the loan, which dropped the rate. I only held this loan for about 4 months. When taking out the mortgage, the points I bought on the 203 were tossed out the window, when they were supposed to be applied to the 30 yr loan!

Long and short, a few phone calls with some attorneys, a thorough review of the initial paperwork and bank policies. The common sense question of why would anyone buy points on a 4 month loan, and they adjusted the 30 yr rate to reflect the points that were required on the 203k.

Still a great bank, not sure if it was an intentionally shady move or due to the fact that the underwriter was / is an idiot, but they made good on it.


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## sportbikerider78 (Feb 24, 2015)

drz1050 said:


> $2370 in taxes in Upstate NY.. it certainly helps that Saratoga County has way lower taxes than Albany.. they also give me a nice break for being a combat veteran.
> 
> School taxes are over 3x what city taxes are.



My parents live one block over and pay $4k+. 

I live in central NY and pay $6k+.   My town taxes that I receive service from are only $1,200.  The rest is school taxes.

The schools have become idols where everyone is force to worship at the threat of imprisonment.  It is criminal.


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## Ashful (Feb 24, 2015)

Don't hate me, but my $8400 was township + school included.  [emoji3] spend wisely!


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## Rut13 (Mar 5, 2015)

I'm a Realtor and have sold quite a few houses with a 203k. It is a great program and allows you to have a high Loan to Value. Downfalls are a contractor HAS to bid the work to be done. There is a way around that buy getting a contractor to 'Bid' the project and just pay you the draw as they come in. The other down fall is with mortgage insurance, new guidelines say that MI will be for the life of the loan (instead of the historical drop at %80 LTV.) The other downfall is because it is a FHA project, the final result has to meet FHA guidelines. 

Usually banks have a 'portfolio' loan that is a conventional product, can't go quite as high as 203k, but could probably get in without mortgage insurance. Little bit more leeway with a conventional than an FHA. 

My advise would be to call all the banks in the area and ask them about there different renovation programs.


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