Kimberly Wingfield: Philly Real Estate Agent
Kimberly Wingfield

Great House – Needs Work? Check Out 203k Rehab Mortgages!

Home inspectors and insurance companies can be notoriously picky about what they consider “habitable” – and therefore mortgage-worthy. For instance, a little bit of chipped paint and a few missing tiles can be enough to disqualify a house from traditional FHA financing – which is why many sellers with fixer-uppers insist on either cash or rehab loans. These repairs can often be more than a seller can afford to spend at the moment, and unless these problems are fixed before closing, traditional mortgages usually can’t be funded.

However, there are a ton of great properties on the market that have promise – but need some help in both major and minor categories. If you don’t have the cash available for the purchase price AND repairs up front, the FHA 203k rehab loan (available to owner-occupants) may well be your best bet! Rehab loans make it easier for more people to purchase cheaper properties and make them wonderful again – and it should be mentioned you don’t need to be a DIY guru to go forward. Aside from minor things like interior painting, 203k rehab loans require that licensed and insured contractors handle all of the work; the cost of labor is factored into the repair estimates before the mortgage is funded.

Zillow has a good in-depth overview of the 203k mortgage here, but to break it down further, these loans basically consist of borrowing the money for any repairs/upgrades against the projected after-repair value (ARV) of the property once everything is done. If the purchase price + rehab costs come to less than the ARV of the home, the lender will likely see this as a good investment.

For example, if you see a property that’s on the market for $50,000 that needs $15,000-$20,000 in repairs/upgrades in order to be worth $100,000+ when everything’s complete, you can borrow against the $100,000 ARV. Your mortgage would then be $65-$70,000 for the property + repair price, and you’d have instant equity. (These numbers can be adjusted for cheaper properties, of course.) As long as your income/credit qualifies you for a mortgage at or greater than the amount of the purchase price + repairs, you should be all set!

In short, when getting a rehab loan the bank makes a list of things they require for repairs (related to basic habitability/safety,) and then you can make a parallel “wish list” of any other upgrades/repairs you’d like to have. (For instance, if you want to get rid of dated carpeting, wallpaper, and faux paneling for purely cosmetic reasons, you can do that.) You then get bids from licensed/insured general contractors to handle the work you have in mind, and they get the job done for you.
However, while it can be tempting to add granite countertops, a bathroom in the latest style, and mahogany trim to your wish list, please keep in mind that these can kill a rehab budget rather quickly – and you can always upgrade from the basics little by little in the years to come. It pays to look for easy ways to improve the appearance of a room without sinking a ton of money into labor and material costs – like refinishing tiles, tubs, and sinks instead of replacing them. Also, ask your general contractor to buy used materials from your local Habitat for Humanity ReStore – where you can find things like full cabinet sets for (often far less than) half of what they cost at the big box stores; you might be surprised at what a change of paint and hardware can do!

One Response to “Great House – Needs Work? Check Out 203k Rehab Mortgages!”

  1. October 11, 2015 at 8:40 pm, What Should My Home Improvement Projects Cost? And How Do I Hire A Trustworthy Contractor? | Kimberly Wingfield: Philly Real Estate Agent said:

    […] big fan of rehabbing homes to give them a new lease on life – either on a DIY basis or with a 203k mortgage to roll all home-improvement related costs into the overall price of your […]


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About Kimberly Wingfield

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Kimberly Wingfield

Real Estate Agent

267-530-5641267-530-5641 main

Virtual Realty Group

1418 Robinson Rd, Havertown, PA 19083


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