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The AmeriFirst Home Buyer Learning Center

Why Are 203k Loans So Terrible?

Posted by Dan Moyle on Thu, Feb 10, 2011

Brand new information! See What Has Changed with the FHA 203k Renovation Loan  as of late 2015

broken clock by stiina resized 6004 FHA 203k Myths Busted

Paperwork. Time.  Bids.  Big Loan.

Our customers tell us that these are obstacles that are keeping them from taking advantage of the FHA 203k loan for home improvements, renovations and repairs. Real estate agents often don't suggest this loan option to clients for the same reasons.

Understanding the top 4 myths of the 203k can help you determine if this loan is right for you. And if you are trying to fix up a home, you shouldn't overlook the benefits of the FHA203k, such as the ability to roll the cost of needed structural repairs and/or desired improvements like carpet and paint into the life of the mortgage of this government backed program.

Download our FHA 203k Survival Guide here and learn more.

Let's examine the top 4 myths of the 203k Loan:


Yes, there is a little more work involved in a 203k loan. The good news is that we’re loan experts and we’re efficient at getting the necessary paperwork together. Our team has completed comprehensive training on HUD requirements and we can walk you through each step of the application  process.


We’ve heard the horror stories of 203k loans taking forever to close. Time frames including 60 days, 90 days or more have been tossed around. (Read: Don't Wait 90 Days for Your Mortgage Loan to Close) There could be several reasons for this to happen. The bank handling the loan may not understand the difference between a full 203k and a streamline 203k mortgage (the basic difference is that a full 203k takes care of structural stuff; the streamline is more for smaller repairs and upgrades). Also, sometimes loans get hung up in the bid process. When looking for a lender, look for one with a network of qualified contractors who have done this work before. In short, the loan should not take significantly longer than any other loan to close.  At AmeriFirst, we're closing this loan in 30-45 days, similiar to our other loan programs.


Some people are natural negotiators.  For others, dealing with bids and finding the most appropriate contractor for the work doesn’t sound like a good time. We make sure we do our homework when it comes to contractors, so you're not running around getting bids from several sources. AmeriFirst now has a Renovation Lending Department to help take care of the behind-the-scenes work that goes into this part of the process.

Big Loan. 

Buying a house and borrowing more money for repairs goes against the advice of financial planners.  For example, we hear many people say they  don’t want to pay for the carpet for 30 years.  A big benefit of the 203k is that you can borrow money based on the future value of that home when the repairs are done. So you’re amortizing the cost of the repairs and upgrades into the investment. This means you’re getting instant equity. If you buy a home for $60,000 that’s in the neighborhood of $100,000 homes, and put $20,000 worth of work into it, you’re now the owner of a more valuable home that you paid $80,000 to buy. You have $20,000 instant equity.

Whether it’s finding a great deal on a foreclosure, or working to improve your own home with a refinance, rolling the cost of the repairs and upgrades into the life of the home mortgage loan can really help add value to the house.

The takeaway:

Make sure you find a 203k specialist to help with this process. You want someone who's done these loans, who knows the government requirements and who knows certified contractors to get the work done.

Related:  Helping More Home Buyers Realize Their Dream: Becoming a Top FHA 203k Lender

Get the Free FHA 203k Guide


Check out the short video below for a look at why 203k loans get a bad image, that you can watch on your smartphone or tablet.

(photo: ..stiina..)

Topics: Mortgage Questions, FHA 203k

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AmeriFirst Home Mortgage is a division of AmeriFirst Financial Corporation. 950 Trade Centre Way Suite 400 Kalamazoo, MI 269.324.4240 Equal housing lender

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