We are considering purchasing a home using regular FHA financing and then renovating it in 3 or so years by refinancing into a 203K FHA loan. The reason for waiting is because (a) we want to live in the place long enough to know exactly what we want to do with the place and (b) in three years, we will be eligible for a significantly higher loan amount and therefore will be able to get enough funding to do the extensive renovations I would like to do.

Are there any disadvantages to waiting to do the 203K later other than the possibility of higher interest rates? Will we have to pay another down payment of 3.5%?

Thank you

203k Mortgage Lender’s Answer:

Hi Tara,

Your plan to refinance your future property into a 203k loan once you live in it long enough to know exactly what you want to do to it sounds like a reasonable plan. A few things to consider though…

Does the property meet your minimum needs at this time and can you “live with it” in it’s present state? If not, you can certainly use a 203K to purchase the home and do some of the important upgrades now. Later, and
when finances will allow, you can look at doing another 203K for the remainder of the work. You will “Not” have to pay another down payment of 3.5% when you do a 203K refinance. Typically no additional cash is needed
to bring in for closing unless your equity position is very low. The calculations for a refinance differ from that for a purchase and your 203K mortgage lender can help you with those calculations.

Best to you on your 203k whether now or later

We are considering purchasing a home using regular FHA financing and then renovating it in 3 or so years by refinancing into a 203K FHA loan. The reason for waiting is because (a) we want to live in the place long enough to know exactly what we want to do with the place and (b) in three years, we will be eligible for a significantly higher loan amount and therefore will be able to get enough funding to do the extensive renovations I would like to do.

Are there any disadvantages to waiting to do the 203K later other than the possibility of higher interest rates? Will we have to pay another down payment of 3.5%?

Thank you

203k Mortgage Lender’s Answer:
Hi Tatiana,

Whatever projects you decide to pay for yourself and do on your own is fine. Your question is more related to what order the work should get done which really should be directed to the contractor who will be handling the work approved for your 203k portion. For any work though that will be covered by the 203k you should avoid any possible conflicts or delay in getting it done.

Hope that helps have fun taking out walls!

I am a licensed contractor wanting to buy a 203k home to live in. Will I be allowed to be reimbursed for my labor and subcontractors who I am paying out for work? I see that homeowners are not allowed to be paid for labor. Not sure how this applies to subs.

203k Mortgage Lender’s Answer:
Hi Griffin,

Although you are a licensed contractor the answer to your question is “No” you cannot be paid for your own labor for work on your own home with the 203k loan. If the work is done by sub-contractors and you can provide proper evidence (invoice, copy of check, paid receipt, etc), then you can be reimbursed for those expenditures. But typically, those licensed to do work on the property should be part of the original bids that were approved so that they can be paid directly.

For any of you self-helpers (DIY – Do it yourselfers), licensed or unlicensed, when allowed by the lender the bid must itemize materials & labor plus be supported by an “arms-length” (non-related person) bid from another qualified contractor. Then those funds escrowed for the Self-Helpers labor will be applied to the principal loan balance, if not needed for other cash expenditures or used for additional work on the home.

As you move forward, be cautious because many lenders are no longer allowing the home buyer or homeowner to complete their own work, even if they’re qualified to do so.

203k Mortgage Lender’s Answer:
Hi Tim,

Normally, FHA will not permit a borrower to have more than one FHA insured mortgage at a time. Although, there are a few exceptions when you are permitted to have a second FHA loan such as being transferred by your employer or an increase in family size as a couple of examples. There are other instances that can apply as well so ask your 203k Loan Specialist to go over them with you.

If in your case none of the exceptions apply, another potential option you could consider would be to refinance your existing home into a conventional mortgage, then apply for the FHA loan on the new home. Certain guidelines would apply as well to get that accomplished but this might be an option for you.

Good luck on your purchase.

203K Mortgage Lender’s Answer:
Hi Lola,

Fortunately, it sounds like work is progressing and getting an extension should not be a problem. If you’re not receiving a response to your extension request, it may be because FHA allows a total of 6 months to complete the project and some lenders don’t address the deadline until after the full 6 months has elapsed.

You indicated you were about to request your 4th draw which means you’ll have only one draw remaining. That 5th and final draw can only be requested after everything is completed and the home is ready for final inspection. That being said, be sure the work has progressed far enough that the last two draws will cover everything. If you have any concerns, reach out to your HUD Consultant.

Now, if it gets to a point you’re unable to communicate directly with your lender, you can reach out to FHA through their Home Ownership Center.

Best of Luck to you.