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Should I go with FHA 203k or Conventional for a Home that Needs Repairs?

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Questions are the fuel to our communications here at AmeriFirst. We love them. It allows to help hopeful home buyers better understand the process. One person's question is very likely the same question for many others. In other words, you're never alone in your questions about the home buying process.


This question came from a reader, so we thought we'd share the answer.

I’ve found an older house (built in 1927 / 2,200 s.f / 6 acres / $75,000 asking price) and am trying to decide whether to get a 203k renovation loan or go with conventional financing.  Most of the repairs necessary are updating mechanical systems (HVAC/plumbing/electrical) along with a new roof. There appears to be no foundation repair work necessary, but that would be determined conclusively by an inspection. Is a general contractor required for all 203k loans?  I’m thinking most of what a general contractor would do is coordinate subs and that is something I can do myself (and have done).  Please advise.

Also, is removal of underground storage tanks, if found, something covered by 203k? 


Here's our answer.

Borrowers could possibly be approved to act as their own general contractor if they provide underwriting with what we call a TIME, TALENT and ASSET letter. The borrower’s level of experience would have to satisfy the underwriter and convince him, or her that the borrower indeed possesses those three attributes.

  • The time to manage the project
  • The talent or experience in overseeing such work
  • The assets or the credit to carry any parts of the project that must be paid for upfront and before any draws are paid

If any of the mechanicals truly need replaced or are missing, and the roof cannot pass a satisfactory roofing certification, then most likely a regular conventional loan may not work. Most lenders are governed by Fannie Mae and Freddie Mac appraisal guidelines. In other words, they will not accept a property that is not readily habitable at the time of closing


If any structural repairs are noted and are suggested or required to be repaired by a structural engineer, then this would require the borrower use the Full 203k for this subject property. But the removal of a storage tank ( i.e. fuel oil ) would have made it necessary to utilize the Full 203k product as well. Remember that the 203k Streamline is for limited and uncomplicated repairs.


The borrower should seek out the advice and professional assessment from a local HUD 203k Consultant to inspect their home just in case their project ends up being a Full 203k to avoid the potential double payment of home inspection fees. One of our certified 203k Specialists can assist them in locating an experienced HUD Consultant.


We usually only allow up to three individual contractors on the job site to be part of a renovation loan. An exception can be made if the fourth or fifth contractor bids are quite low and carry a low risk level.  The question that came in suggests four already; HVAC, Roofer, Plumber, Electrician. That may or may not be an issue.


Also, ANY licensed work must be bid out and performed by a licensed contractor who possesses AmeriFirst’s standards in workers comp, liability insurance and licensing (when and if required by local or a governing authority).


All contractors would be subject to our validation process on either a Streamline or FULL 203k. 


Learn more about the FHA 203k at the button below.

Ultimate Guide to Renovation Loans


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