What will a 203k rehab loan not cover?
We're looking at buying a cabin that only has a living room and a kitchen. We want to convert it from a hunting cabin to an updated home. Would the 203k cover building rooms, bathrooms, a septic, and remodeling the kitchen? If not what kind of loan should I be looking for? We're in southern Virginia and we're also interested in solar energy. Any advice? Also just to give you a picture the cabin is well built and 16 years old. It also needs its own well and electric meter.
- Anonymous7 years agoFavorite Answer
We purchased a foreclosure home that needed foundation work because we loved the neighborhood and the bank that owned the property required us to get a 203K loan so we have good experience to share on this.
It has to cover any work that is required to get a CO (certificate of occupancy) on the home. That means any work that is required to make is a safe living environment and to keep it from deteriorating so they will not lose their investment (you could walk away from the loan if the house falls in the ground).
We were very much against a 203K loan and argued that we had the funds to do the repair without it because we didn't want to pay the extra 1/4 percent interest rate that comes with a 203K loan over a traditional but they wouldn't allow it because they couldn't guarantee we would do it or that we would use a licensed, qualified and insured contractor.
A 203K load will cover more than I thought. I looked it up after submitting my response the first time and found that it will cover the following plus more:
Add a second story to a ranch style home
Waterproof a basement
Solve lead-based paint issues
Re-paint a house (inside and exterior)
Furnace and A/C replacement
Electrical system repair
Plumbing system repair/replacement
New floors - carpet, tile, laminate flooring, linoleum
Grading issues in your yard to solve basement flooding problems
Well & septic repair or replacement
Also, for your information, it can be a little bit of a hassle to do the paperwork. You have to get a quote in writing for the total cost of the work listed on the inspection report upfront and they will add a contingency to that.
They gave us a 5% contingency but the work went 10% over so we paid the rest out of pocket. If you are not able to do that, I would suggest requesting a 10% contingency and what ever is not used, just stays with them and does not go on your loan.
You also have to get the bank information on the contractor so they can approve them. You cannot self perform any of the work unless you can prove that you are in the business of construction or a related field and that is not easy.
My husband is an Engineer and has managed over $500 million in construction and had to fight with them to allow him to patch drywall on the ceiling himself instead of paying a contractor - he wasn't even trying to use the 203K money and just didn't want to pay the very high quotes he got on such a small job.
The other thing is they have payment terms so be sure your contractor understands how and when they will be paid ($x upfront, $x at 50% and the remainder at completion for example). You then have to submit invoices to the bank to "Draw" money out which will come in a check made out to you and the contractor jointly (so you can't keep it I guess).
As far as the solar power goes, you should look up providers online. There are many state, government and even programs offered by electricity providers. If you can't get grant money on your own, look into a company that only installs solar. They will find you what programs are available and many offer financing that will not cost you anything as long as you stay with them for a certain amount of years.
The program that got a lot of people to use solar was selling SRECs (Solar Renewable Energy Certificates) but the price you get for them now is VERY low compared to a few years back.
Good Luck and I hope your experience turns out as well as ours did!
- Anonymous7 years ago
The 203k can be used on properties that will be occupied as the borrower's primary residence.
The 203k does permit Solar Energy Equipment to be included in the loan and the maximum FHA Loan limit for the 203k can be increased by 20% if and only if you need the additional money for solar energy.
Additions and kitchens are also permitted to be included on the 203k. However, any structural modifications require you to use the Standard/Full 203k, not the Streamline 203k.
Septic/Well can be installed and/or repaired with either version for the 203k.
Contact the 203k Contractor Program for more informationSource(s): http://203kContractors.com
- 6 years ago
A 203k loan allows you to borrow enough finance for home improvement and home renovation rehab.
It not covers anything other than the primary structure of the home on a FHA 203k loan. More ideas you can get from the loan provider company.
- wybleLv 43 years ago
The section 203(k) application is the division's important program for the rehabilitation and repair of single loved ones homes. As such, it's an essential device for neighborhood and nearby revitalization and for increasing homeownership opportunities.
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- 7 years ago
Yes a 203k can do all thatSource(s): HUD handbook