**Steph+J**

MaggieandJake

YGPM

cheeseandrice

Hey. I can't reply to PMs for some reason, so I'll summarize here. (For anyone else reading, she asked about my FHA 203(k)/rehab mortgage.)

Long story short, have a lot of patience and make sure you have a REA and loan officer who have experience with 203(k) loans.  It's a bunch of extra paperwork and steps.  The seller will have to be willing to do a longer-term closure too (we asked for 45 days to allow for estimates and stuff), AND they'll have to be willing to let you in the house a few extra times for the contractors, etc. 

In the end, I'm still glad we did it, because we got a STEAL on our house, and we were able to upgrade stuff as we wanted.  We ended up doing about $10k worth of work- all new appliances (fridge, dishwasher, stove/range, washer, dryer), 4 new windows and a patio door.  In hindsight, I wish we would've just done all the windows. It seemed like a huge expense at the time, but it would've been like an extra $25/mo on our mortgage. (There are 6 other windows that need replacing; the seller had done a few recently.)  

So I guess that's another recommendation- make sure you consider EVERYTHING you want to do to the house and get bids on it all. You can always choose not to do something if it's too pricey. Be up front with the sellers that you're planning on doing this stuff (after the inspection, I would say. It helped us negotiate a little more off the selling price) so they know you'll be entering the house more before closing.  Thankfully, our seller wasn't really living here anymore, so he didn't care at all. He just wanted to get rid of the house

Other than that, if you have any questions, let me know!  I'd recommend our mortgage guy, because he was awesome (and saved our asses a few times, because our REA was worthless), but he just switched businesses. He owns a rehab company now or something.  Stay away from Keller-Williams though That's who our REA was through, and they all sucked. 

MaggieandJake

Thanks Steph! That's great advice. Did you get a full 203(k), or a streamlined?

I found a company/program online that specializes in 203(k) loans in Des Moines, but haven't been able to get in contact with them yet.  The house we're looking at is a short sale where the current owners started doing major updates and then stopped due to financial reasons, so there are a bunch of things that are 2/3 or 3/4 of the way done.  At least all of the major items are finished.  However, we'd have to buy all new appliances (since they are taking theirs with them), finish up the rest of the basement, do a couple other odd jobs on the main floor, and possibly get new siding.  I got the disclosure notice from our realtor yesterday, and there aren't any issues with it structurally so that's good.  (except possibly the siding, but the roof was recently repaired, and there's nothing wrong with the foundation).  

I want to make sure that I understand this correctly too: let's say we purchase the house for $150K and get $25K in rehab improvements done to the home, that means our mortgage would be $175K right?  Also do you have to front any of the money to do the repairs?  I know that they put it in an escrow account and then do 90% drafts for each project once that specific project is done until all of them are complete and then they release the remaining 10%.  Does the program just pay the contractors directly, and the contractors who are 203(k) approved understand that this is the deal?

The house is on a 1/2 lot and all of the completed renovations the owner did are great, so if we can snaggle it for the right price, we'd be getting a great deal! Luckily, we're also not in a hurry because our current lease isn't up until August, so we have a few months to get things going. 

Thanks again for your help!

cheeseandrice

I'd for sure make sure you have enough time... especially with a short sale AND rehab work. Get recommendations from your bank for contractors, too. We went through Wells Fargo, and they had a few that were preapproved for the process, which sped things along too. Yup on the mortgage. Your down payment will be calculated off the total amount borrowed, not just the selling price (something our REA effed up when he gave us a final amount to bring to closing.) We didn't have to put any cash up front for the repairs. If I remember, they approve you for 110% of the estimated costs, and the contractor and bank deal with all the payments. I think Home Depot got either 1/3 or 1/2 up front. Then we had to sign off (with a city inspection, round 3) before the remaining funds could be released to them. When it was all said and done, about 15% of the set aside funds were credited back to our mortgage principle, which was expected.

MaggieandJake

Ok, everything you mentioned sounds right to me-and I remember reading about the 110%.  Can you close though and THEN do the rehab work while you're occupying the home?  I think that's what we read online because I saw that you could also get 6Months of your mortgage pushed back while they're working on your house if it's unlivable during the rehab period.  I do know most lenders require that all work is done in 6 months.  

Of course this all may be a moot point.  I got an email from my realtor this afternoon letting me know that someone put in an offer on the house today.  

cheeseandrice

oh, boo on another offer!

Yes, we lived in our house while they were doing the work, sadly. Wait, they were able to schedule the carpet quickly because it was in stock, so that got done before we moved in, I think. But the appliances and windows were about a month after we moved in, and the patio door was a drama and a half. They ordered the wrong color and tried to tell us "it's close enough." Normally I wouldn't have cared, but they had screwed up other stuff at that point, so I made them reorder it (they had to eat the cost of the door too... all $2700 worth. ha.)  So the patio door wasn't done until like 3 months after we moved in.

None of our stuff was necessary though, you know? It was all cosmetic, technically. So I'm not sure what would be different if your house was technically unliveable. 

MaggieandJake

We're looking at a couple other houses in the same price range that have the same amount of of livable square footage and just less of yard, so we'll see.  If we can find a house that will require less paper-work, that's probably where we'll go with it.  Although, I really was kind gung-ho about making the short sale house work just because I know how beautiful it'd be when we're all done.  

Everything that we'd want done to the house wouldn't prevent it from being livable while construction is going on (for us it I think it would technically be cosmetic), so I don't think that'll be an issue.  I found out today that siding is in decent condition, it just needs to be stripped and repainted, and not completely replaced. Who knows, maybe their offer will fall through and we can swoop in and steal it

Good for you on putting your foot down about your sliding door! I say if you're paying for it, you should have what you ordered and want.  

Thanks again for all for the advice!