Structuring An Offer With A 203k Loan

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OK, I’ve heard many reasons why a Realtor or REO lender won’t accept a 203k loan contract offer.  How do we combat this?  We have a qualified homebuyer but their choice of financing is an issue.  The main roadblocks are that the loan takes too long to fund, and that Realtors have heard nightmares about past attempted 203k loan fundings.

These are both valid issues.  As far as taking too long, if put together correctly from the start, an additional 7 business days should not be enough to kill a deal.  Heresay from another fellow Realtor should not keep you from accepting a 203k contract offer either.  Have we heard nightmares about BofA, Wells Fargo, Chase and Citi and how they are on their normal conventional loans?  Absolutely.  The 203k loan is no different.  Draw upon your own experiences on this loan on whether or not it’s a viable loan.  Give it a chance.

Making an offer to buy a home using a 203k loan, whether it’s the 203k Streamline loan, or the 203k Standard loan, needs to be done differently than an offer to purchase using a conventional loan.

Here’s a few tips on how to present an offer using the 203k Standard loan.  1.  Submit a copy of an inspection report or a feasibility report prepared by a certified HUD 203k  Consultant.  2.  Include a detailed scope of work and repair estimate prepared by your 203k loan HUD Consultant.  3.  Get an Automated Underwriting Approval for an FHA 203k loan.   4.  Submit an offer with comps to support your offer.

Submit the above four items listed above along with your purchase contract, which should also specify you are using an FHA 203k loan for financing.  This should demonstrate that you have done your homework and due diligence, and that there is no guessing on your part on how this loan works.

In regards to item one above, submitting an inspection report/feasibility report, in my opinion is key.  Getting this done up front takes away the guess work when buying an as-is property.  Could you submit your offer with an inspection contingency and not pay for the inspection upfront?  Sure.  But if it’s evident that the property needs work, usually your main competition is going to be investors buying cash.  Your offer should be better than a low ball cash offer, so spending the extra upfront money on the upfront inspection/feasibility report via the HUD Consultant would be worthwhile.

It’s also possible that if you lose out on your offer, the HUD Consultant may not charge you for your next home inspection if you lost out on your previous offer.  There may be room for negotiation there, and the  HUD Consultant for their intial home inspection/ feasibility report, charges about the same for their fee as a normal home inspector and they are highly qualified and understand the 203k loan nuances and know if the property will fit the 203k loan specifications which in general are pretty broad.  A normal home inspector can not do this, they look for different things than the HUD Consultant even though their jobs are similar.

Using people familiar with the 203k loan process is vital and that goes for contractors as well, but I’ll save that commentary for my next post.  This isn’t the only way to submit a 2o3k loan contract offer, but it’s a start in the right direction to show both the lender and listing Realtor you mean business and understand the process and hopefully they do some research on their own to understand this is a viable loan option that is only growing in popularity and needs to be accepted by all involved in the real estate process.

Call Fred Sweezer Sr.