Profile picture for kk1987

What disqualifies a house from being approved for a 203k?

I gross about 26K a year.  Even though I worked all throughout college, because they were internships, my work history looks unstable.  I thought I should go with an FHA loan because of that, and the benefits of rolling closing costs into the loan, but an agent told me that a house within a reasonable price range for me would likely not qualify as so many have lost on their housing investment and just want to get rid of it without putting in any more money to fix the problems that would pass an FHA inspection.  I live in Peoria, IL, a low cost of living city, and was looking for houses that I could just start out in, so under 60K.  Even if the house needed a little work, I'd be willing to do it, but I don't know if I could come up with closing and a 5% down payment.  I graduated college about a year ago, but I have had several lines of credit since I was 18, including 4 active credit cards and a car loan that has been paid off for a year and a half.  The only monthly debts I have are an approximate credit card payment of 60 a month and student loan payment of 107.  My credit score is 720. I have about 5K for closing and down payment. I guess I would like to know if I would qualify for either an FHA loan of about 80K or if I would even be able to qualify for a conventional loan, given that I have the minimum 5% down, even if it was at a slightly higher rate.  I'm  going to talk to a lender tomorrow to get pre-approved, but there are some houses that I would really like to move on as quickly as possible and I am looking for some guidance. 
  • February 07 2011 - Peoria
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Answers (12)

USDA does not allow you to Roll in the cost of repairs to renovate the property.
  • February 08 2011
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Profile picture for jstersacct
You might also look at a USDA loan since you're in a less urban area.  They can be 0% down, and depending on how much it appraises for, you can also roll closing costs and some repairs into it as well. 

BTW, I'm not a lender, just a fellow purchaser who was planning on doing USDA until the property we found wasn't qualified because it has a detached guesthouse.  Good luck!
  • February 07 2011
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Tara,

The program allows for decks and pools to be repaired.  Too many folks get scared away from this program because realtors and loan officers that have a little knowledge about it, make them seem much scarier than they are.
  • February 07 2011
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The 203K is a great program.  The question is how much renovation must be done?  There are two programs the Standard and the Streamline.

The Standard may take a little longer.  This one is used when there is additions to be made or structural problems.  There is ususally an FHA consultant that is brought in on the front end to make reccomendations for improvements necessary.  Although FHA allows the borrower to do some of the work themselves, many people who do the standard program must hire specialists to do the work.  There is a need for a contractor to pour slab and frame up for an addition, foundation repair company for structural issues, or a plumber to add a bathroom. 
 
The streamline can be used for cosmetic issues such as flooring and new appliances and general re-modeling. It is easier to get a contractor to do repairs under either program,  because of the documentation due when the loan goes from construction mode to permanent mode.  The borrower has to prove that all of the monies allocated were used for repairs.  This is much easier with one contractor.

They do not allow for luxury items like a deck, swimming pool or outdoor kitchen.  




  
  • February 07 2011
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More misconcenptions about the program.  My average application to close on 203K loans in 2010 was less than 45 days.  I don't think that is too time consuming and as for the challenging part..The challenge is finding an experienced 203K lender. 

They are a little more expensive but if you find the right property you will more than make up the difference in equity.  I closed 32 last year and generated some $520,000 of equity for the clients that opted for Renovation.  I have been able to refinance 3-4 of those clients out of FHA loans and into Conventional financing without MI.  It is a great program and Realtors need to learn more about the program. 
  • February 07 2011
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most realtors dont want you to get FHA 203k cuz it is time consuming and it is a little challenging. also, there are some costs involved in the bid process that are higher.

any house can technically qualify for fha 203k.. provided there aren't association bylaws etc that forbid a FHA loan.

you can buy a house for 1$ and get a FHA loan on it.. the affordability comes from your individual ratios.

you buy a home for 50k, spend 30k fixing it. 80k total price. 3.5% of that is all you need really.

to get a FHA loan, make sure you have a knowledgeable and patient realtor and a lender.. the loan is not for everybody.. but it is a great product and one that should be used much more frequently to offset repair costs etc... specially when its all rolled into your mortgage.
  • February 07 2011
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The broker is a fool.  The FHA 203K program is ideal for that property.  It eliminates concerns about the properties condition and allows the buyer to finance in any required FHA repairs. 
  • February 07 2011
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Profile picture for kk1987
Well, there really are quite a few properties under 60K in Peoria, many of them decent homes but older.  That's not a problem with me, but the last house I was kind of interested in was originally listed for 74,900 (and the owners paid that in 2003) about 10 months ago and is now listed for 49,900.  The realtor told me that there is some paint chipping and windows needed to be replaced.  She said she would talk to the owners to see if they wanted to work with an FHA buyer, but didn't really think so.  She said likely I'd have to do conventional and have minimum of 5% down.  Ok, so the house is old and paint is chipping.  Lead paint abatement can be really expensive...I decided to just pass on that one. 

Right now, I live with my parents, so I really am able to save the majority of my paychecks and have been doing so.  Rent around here runs 550-600 and up for a 2 bedroom 1 bath apartment, and since I am not going anywhere as far as my job for at least 4 or 5 years, it seems the cheaper option would be to buy.  I would be comfortable paying about 75K, but I would really like to start out in something cheaper as it IS Peoria.  I currently live in the most expensive and rapidly growing suburb of Peoria, and the taxes and housing costs are just out of my price range. 

Like someone mentioned, I'm not in any big rush and my parents are not pushing me out.  However, I am ready to get on with it and rates are low now. 

  • February 07 2011
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You have really asked a lot questions here. 

Job time is a tricky one but with school many times something can be worked out but your application will need to be looked at as a whole.

I usually like to start with what are you comfortable paying?  What are you paying in rent now and how much are you saving on top of that?  Over the years people have come in wanting a $200k house and they are paying $800 in rent and not saving a penny.  No wonder so many people are having troubles?

I do think you will probably be able to find a house in your price range in Peoria but take a look at your budget and if you trust the mortgage person you are working with the questions you have will all get answered.  If not come back here with the unanswered questions.

  • February 07 2011
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"I do not think you can afford it"

A 203K Loan is not cost prohibitive. 

A 60Khome that needs even 10K in Renovations will be P&I of $384 + Tax + insurance.  Monthly tax bill $125, homeowners insurance $50 Monthly MI $51.  That is a total payment of $610 per month or 28% of annual income of $26,000. 

From the banls perspective that is affordable to the borrower.  The question that needs to be answered are can you find a property in that price range?
  • February 07 2011
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First you need to speak with a few lenders to find your options, but while you may qualify for an FHA loan I do not think you will find any properties in your price range that qualify for FHA. The property must be in decent condition to qualify for a normal FHA loan. IF it needs work you need to get a 203K Fha loan and those are rather complicated and I do not think you can afford it.
Do not be in a big rush. There are plenty of properties on the market and no need to jump in and potentially over pay. Take it slow.
  • February 07 2011
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Profile picture for gslow1
Please look at the below link it will give you all the details.
http://www.fhainfo.com/fha203k.htm
  • February 07 2011
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