I have written several articles on the FHA 203K loan and continue to believe it is the most under used, misunderstood, and absolutely the most creative finance product available in todays’ real estate market.
SERIOUSLY, what other product will allow a consumer to finance up to 110% of the FUTURE value of their owner occupied property for either a purchase or refinance?????
Misunderstood is probably not the right word. Maligned would be more appropriate. Many listing agents are loathe to suggest buyers accept an offer for a 203K; sellers have rarely heard of them and, therefore, seldom question their listing agent’s sage advice; buyer’s agents are focused on finding the exact (perfect) home for the buyers; buyers don’t understand the product, the process and often just cannot envision the home as the “new and improved version”
Really, I get that agents, sellers and buyers don’t understand the program. After all, it is my job and that of other MLO’s to educate and counsel everyone in the real estate process on ALL options in the mortgage financing world.
What I do not “get” is that many lenders and Mortgage Loan Originators malign the program more than real estate agents or consumers. Well, that is not exactly correct: I do get it. But the reasons are usually masqueraded as dire warnings of nightmare processes and failed closings.
Take off the mask and FHA’s 203K Renovation loan is not scary at all!!!
The reality of why a lender or MLO does not offer the FHA 203K program is usually one of just a few reasons:
1). The lender does not offer the product; therefore the MLO HAS to sell against the product so the consumer will want something “SAFE” (in other words, something that MLO has access to). The alternative, of course, would be to lose the client to someone who can (and does) do FHA 203K loans. Bear in mind, probably less than 5% of lenders offer the FHA 203K loan.
2). The lender does offer the product, but has no process and procedure in place to be effective. The savvy and experienced MLO will run as far and fast away as possible from ANY product or process that will jeopardize their relationship with either real estate agents or consumer. (BTW, no fault can be assessed to the MLO in this circumstance. In fact, in my “mortgage past” I have worked for lenders who offered any number of products that I would not originate for my clients. Every lender does some things well and others not so well (based upon their investor relationships). As a MLO, you need to know what to hold them and when to fold them).
3). The most likely reason a MLO will (does) malign the 203K renovation loan is that they (he or she) does not understand the product and does not know how to educate the agent or the consumer. All to often it is easier to convince the agent or the consumer that a mortgage product is “BAD” rather than educate oneself to provide access to a full range of financing options.
If you are interested in learning more about FHA’s 203K Renovation Loan check out some of my previous posts:
Understanding the FHA 203K Loan: Part One
Understanding the FHA 203K Loan: Part Two
Understanding the FHA 203K Loan: Part Three
Interested in buying or remodeling your “Custom Home”? Need to renovate for life changes such as disability, parents or children moving home or need first floor access to bedrooms? The opportunities are almost limitless. Contact me for a no obligation consultation to thoroughly understand your options.
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Deborah "Dee Dee" Garvin
NMLS #279125
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I am continuing to build my team of mortgage professionals. Please contact me to discuss how New American Mortgage and I can help you thrive in the mortgage industry. NMLS license and/or the ability to obtain one is necessary.
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Good Post...MS Garvin..keep up the good work on the FHA 203k program as your concerns and points stated have validity as lenders and some realtors will continue to give this program as bad name until it goes mainstream.
Bo, Would love to talk with you further. The irony is this program has been around since I got into finance over 20 years ago. And there are still only a select few who "get" it. Love the program and love its' possibilities! Thank you for your comment.
Deborah: I've had the same problems with my posts, so understand the "wall of words". Quite frustrating.
I've been slow to embrace these loans. I'm going to have to read and consider your info and thoughts about them. I hope I can contact you should I have questions?? I respect your input ..
Gene
Gene, Thanks for understanding the frustration! I do really try to exercise a "Mary Poppins" point of view..."a spoonful of sugar helps the medicine go down". Do not like tormenting readers at all.
My friend, let me encourage you to embrace this loan. There are so many opportunities to help people. Underwater? Improve to meet guides so you can sell. No value? Improve to make the sale? Older, keeping house but no equity for a HECM? Remodel to put the bedroom and bath downstairs. Mom/Dad moving in? Add an in-law suite to accomodate them...and you!
Call me, email me. whatever you need!!! This product is good for 1). consumers; 2). agents; and 3). MLO's. I honestlty do not see a lose in the use of this product. And, it is assumable? What is not to love? I wish I could figure out how to do nationwide seminars on this product and make a viable living. No doubt about it, I embrace it 1000%!!!
FHA 203K perfect for the right buyer with the right agent and a house that will easily lend itself to improvements than can be easily quantified by an FHA appraiser/counselor who will agree.
Phew...run on sentence! But you get my point. Most agent simply do not have the experience to start the process and too many buyers don't want to do the work.
I agree completely.
It's a great loan product for many properties. Sadly, I have been unable to get agents to recommend the product.
I've done a half dozen of them and they are fabulous.
Deborah...
These loans require quite a bit of additional work, and can be quite frustrating at times. But they are out there and should be considered when appropriate.
I love 203k's, they are an absolutely essential product in today's market place. Think of all the distressed property that needs rehab, in markets where buyers want to buy but can't always get a traditional loan to make it fly. Long live the 203k.
Sure, there is some extra work that needs to be done, but it is worth it in the end for your clients.
The FHA 203K is a great loan program. The reasons for opposing them are pretty much what you mentioned.
I think the reason many agents want to run from them is based on a prior experience if they have ever doneone before and it didn't go well. Most of the time, they did them with LO's or companies who did not have experience actually closingthem. Of course, sometimes, they or their buyers just had unrealistic expectations from the beginning.
Check out the HUD list of 203K volume sometime. It lists the closed volume of every lender and there are a number of them with less than 5-10 203K's closed for the entire company is a 12 month period. Its even scarier how many only closed one or two in a 12 month period. You cant possibly expect them to know what they are doing.
Getting agents to set realistic closing dates upfront is my biggest issue. Some expect you to close one in 30 days with no issues and that usually not the norm. This is especially the case if the buyer drags their feet with the contractor portion.
Deborah more of us need to be promoting the FHA 203k. It is way underused.
Dee Dee in the right situation, the FHA 203K loan is a great choice. Like anything else both the lender and the agent require knowledge of the process.
One of the first things I find some buyers thinking is that they can use a 203K to get their hands on the rehab cash. I.e. that there is a way to abuse this to do a cash-out purchase because they (or their uncle/brother/neighbor/beer buddy) have a contractor's license.
Fortunately not all buyers have these inclinations. Those marketing 203K products need to dispel any notions of these fairly early-on in the process however.
What would help is having it explained to 3rd grade level. Even cartoon characters might help here...lol
Leslie, Ironically, the right buyer and agent may be more important than the right house! LOL! I recall that I mentioned this in one of my first articles. The fact is some people just cannot envision anything other than as it is....the very reason staging has become a viable business (not picking on stagers here! But, seriously, putting dishes on a dining table so one can "see" themselves eating dinner in the house????? Person would be way to myopic for my tastes!!!). The KEY is setting correct expectations at the onset....but that may be a post in it's own right!
Lenn, Thanks for your support and understanding of the 203K! Sadly, the very agents you cannot get to work with the program cost themselves, their sellers and their buyers a lot of time and money. Why spend six months looking for the "perfect" property when a custom home can be created in half the time? Why list a property as a "investor special" or "cash only" sale when the property would likely fit 203K guides. Improvements as little as 15K up to a complete rebuild of the house....the options are incredible!
Richard, Ironically, there are really only two additional steps in closing the loan: The inspection by the FHA consultant and the homeowners search and selection of the contractor. The two areas of nightmare possible are: The consultant and contractor are at logger heads (gee, have not used that word for a long time!...) and/or the contractor chosen is less than stellar. The fact is that I can close these loans in approximately the same time as any FHA...it is the "after closing" that can get dicey. Again, there may be a blog here.....
Cheryl, Spread the word, spread the word!! You are an asset to your community! Glad to hear your support of the program.
Roger, Thanks for the support! I just had to review your profile and saw you are relatively new to AR. Welcome! Hope you enjoy our little community and hope to see you often!
Rodney, Wow, we could be fellow cheerleaders! Your comments are right on! In fact, I will go so far as to say that the company's experience is managing and servicing the loan, post closing, is more important than whether the MLO knows the product up from down. Bold statement, but really true! Like the idea of checking HUD! And, the contractor????? That is a whole other story! The little bro with a new contractors license and a brand new hammer is not the ticket here. Another post entirely!
Shay, Absolutely! And, participating is the creation of a brand new custom home is exciting!
Michael, I appreciate your comment. Interestlngly, the MLO who doesn't know the product will probably not offer it for the reasons mentioned in this article (or, if they fall into the above and they do...an agent shoulod run far and fast!), so I find the right agent is probably the ticket. This is not a situation for a "Chicken Little" agent (you kow, the sky is falling, the sky is falling ensuing panic whenever there is a speed bump in the road!!).
GOLD Team, Like all situations of fraud, it is best addressed and stopped at the onset. Ironically, I have found most people who fit into your scenario are more ignorant than fraudulent. Maybe it is the company I keep! LOL! In any case, takes only a few minutes to separate the wheat from the shaft! Thanks for your comments!
Richie.... And I could use popsiscle sticks to demonstate the construction process!!! LOL!!!
Glad I found your post - perfect timing - a client asked me about financing for properties requiring rehab just yesterday. I look forward to reading through your three part tutorial Dee Dee.
I am laughing DD...but never forget what smokey the bear did for campfires...ONLY YOU CAN PREVENT FOREST FIRES...
I've recommended them to my clients. The first part is that some of the properites we see require quite a bit of work . . . and they are priced too high to begin with. Have to negotiate the price down is the first step. The buyers don't always want to wait to have the repairs made, and are leary of the "what ifs" (the repairs are actually more). We have to deal with contractors, and bids, and it's not for every buyer. A savvy buyer in today's market will want to use the 203K approach. Finding a suitable property, for a price which would allow the repairs to be incorporated into the loan, and in an area which would sustain the repairs . . . it can be done and might be a very, very good deal in the long term!!
I just completed a 15 hour brokers Course on this very subject and it is my beleif that the two largest hurdles of a 203K is that it is not offered by many of the financial institutions that we deal with daily and that many of our fellow agents are just unaware of the tool and know knothing about it. In reality it is not as burdensome as many may think. The success of the program is really having the right lender to work with. As agents, take a little time to do your homework as to who offers it and who knows the process of the loan.
Deborah: Thanks for the post. I think the 203-k loan is a great way to go and actually much easier to implement than the Fannie Mae Homepath Renovation loan. The issue these days is with our comp. plans. In my mind, any construction loan is a 2 pointer. But an LO can't make this much anymore on most comp. plans. The LO who chooses their own comp. plan may be able to but I expect DFI to weigh in on those since the idea of Dodd-Frank was to limit fees charged to the borrower.
Randy, Hope the articles help you and your clients! Let me know if I can assist!
Richie, Really, we should do a seminar together sometime! We would have a blast. I don't know that anyone else would ever get "it", but we would have some fun. And, at the very least, the public could laugh at, if not with, us!
Carla, Might be able to help you with the "what if" concern. Every lender will require a 10 to 20% cushion over all of the proposed construction work to ensure any cost over runs are covered. If not used, the funds can be used to reduce the loan balance or do additional improvements (this caveat would be specific to lender as to how they implement the reserves). Also, remember, up to six months of payments can be rolled into the loan so borrowers are not double paying housing. Feel free to contact me if you have any questions. Sooner or later, my company will get licensed in OR...but in the meantime you know I will help you any way I can!
Bill, Wow, 15 hours! You probably know more than most MLO's on the subject at this point. You are 1000% correct..the lender is the key. Yes, the lender, not the MLO! Slanderous words I know. But, so much of the program is done after the funding of the loan that the slope can get very slippery if process and procedure are not in place. Remember, there are up to five draws on the construction funds...multiple inspections, forms, etc.
Paul, Hey, with Frank Dodd I am pretty convinced I would take a pay increase with a job at Starbucks. I used to charge two points for the program and FHA has now ruled you can charge more, but I don't see my company allowing it. Fact is, I like the program and will do them at whatever price point just to help agents and borrowers. Frank Dodd....what a mess!
If it's suitable, why not? Sage investors utilize this option regularly, so it depends on the transaction, doesn't it?
The one time I have had a buyer use an FHA 203k loan in Santa Cruz it turned out great! They got the home for a undermarket price and money to fix up the home = great deal.
Deborah, great post on a way too under used product. The 203K is actually the "solution" to lots of sellers' and buyers' problems but they just don't know it!
I guess I'm fortunate. The lenders I work with most offer the 203(k) and are comfortable talking about it. My clients haven't used it yet, but we've talked about it, and the ones for whom it made sense wanted to do the work themselves, not use a contractor. But I'm definitely comfortable talking about it when it works for the client and am glad I work with lenders who offer it.
Great post...we teach the 203k in our market center at least once per month...I have a great lender with Prospect Mtg and have the agents teach the 203k back to us to make sure they get it
I suspect sellers are turned off by the complexity of them and they time they take. The more complex a lone the more things to go wrong. However, you will probably sell for more than you will by waiting on a cash buyer.
Kimo, Bear in mind, this product is only for owner occupied propeties. But, indeed, why not???
Jessica, I love to hear from agents who embrace the product! There are many people who could benefit just like your clients if people would open up to the opportunity.
Kent, And, exactly why I keep writing posts about them!! LOL!
Cathy, FHA used to allow homeowners to do some of the work themselves but it was a nightmare waiting to happen. Now, IF the homeowner is in the "trades" they can simply hire a general contractor and "work" for the contractor. Something to think about.
Cory, I am pleased to hear you teach your agents about the program. I find that less than 10% (5%???) have the slightest clue. I am aware Prospect Mortgage does the program as well...let me know if you ever need a backup!
Gene, Yeah, sittin and wishin for a cash borrower...Now, that's a marketing strategy! LOL!
Thanks for the post and other article links on the 203k program !!!!!!!!!
Hi Dee Dee - thanks for the great information! My buyer just funded yesterday on a 203K. I can certainly say that there are misconceptions with sellers and listing agents about how they work- Most listing agents hesitate to take a 203K offer. I can also say that even those involved in the lending biz don't know how to work them.. This loan took several re-draws on docs, HUD changes etc- but finally got done. YAHOO!. These loans are a definite benefit to buyers and a well educated buyer agent can help their buyer get into a home with less competition because other FHA buyers don't think they can touch a fixer.
Maybe you should do some web seminars on this subject - and let people pay to attend!
I just had another closing using a 203K. From reading some of these comments, seems like many agents just aren't familiar with them or how they work. In some cases, it's the only way and best way to buy and sell. Neither buyers, sellers, or agents should be afraid of them. They are no extra work for the seller, and buyer shouldn't mind getting a few estimates if they want to have the home fixed up after settlement. Many large lenders offer them ( Sun Trust, Wells Fargo, Bank of America, etc), so I think it would pay for every agent to find a lender that offers them.
Deborah, you are absolutely right, it is a fabulous program. I try to educate my referral partners and buyers as often as possible, but the the 203k does have a stigma attached to it. Once the agent and the buyer understand the mechanics of the program it's a piece of cake.
Michael, You are very welcome! I know an excellent source in PA if you ever need a referral!!
Debbie, Sounds like internal process and procedure issues...and/or could be a simple as the title/escrow company was not familiar with the closing procedures (draws/reserves/remaining funds, etc). Glad to hear the experience did not scar your perception of the loan product! Next time call me!
Marte, I have been considering doing just that...though I was not planning on charging a few. Maybe I could become a star??? LOL!
Jeff, Personally, I think smaller mortgage bankers (like me, LOL) do the loans FAR SUPERIOR to the big box banks. It is all about control of process and procedure. I agree every agent should have a 203K specialist. In California, call me!! LOL!
Ray, What is that stigma thing about anyway???? Remember when agents were lamblasting FHA/VA? I have had agent who NEVER worked with either program tell me how horrible they were! Oh, that's right, I remember loan officers doing the same thing!! heheheh! Harkens back to my post: The tendency is to put down anything one does not know about. All the better for me!
Deborah... you mentioned some good reasons why realtors and or loan officer talk about this program in a negative tone.I think the biggest reason is because it's an FHA loan and many realtors, especially older ones, don't like them because of bad experiences. A closing is only as good as it's loan officer & processing/closing team. Hell, I remember from 2002 to 2005, when sub prime loans were used more than they should have been, because the loan officer placed the borrower in these programs rather than a regular FHA either because the loan officer wasn't up-to-date on FHA loans or because it was easier for the loan officer to do a sub prime, than a FHA, even though the FHA was cheaper... Same reason why I had many loan officers tell me that conventional loans were better... or because after doing some research, they couldn't offer an FHA loan. It all comes down to education.. and educating the proper people, hence why people like you and I need to keep writing about this. Good post..
I have buyers who want to buy a house with a 203(k) but the investors/contractors/flippers keep beating us out with their seemingly endless supply of cash.
Deb,
I love this post! If only everyone cared to really understand the 203k loan. That's what sold my buyers on a particular house..with very little to choose from but it helped that we had a superb loan officer who was on top of everything! I have emailed this to a few fellow agents. Thank you! You are def a good person to know :) Im glad I stumbled across your page!
Jeff, A big AMEN!! Remember, I was in wholesale during the early 2000's...over a hundred approved brokers in the SF Bay area and I am willing to wager less than 10 were proficient with FHA. Analzye a tax return?????? Not one in a hundred LO's knew what income was real on the deal! Apprciate your comments!
Cynthia, I feel your pain...but all of the investors, contractors and flippers buying up the properties for cash should really be read as a harbinger of where CA real estate is going. Hope you are able to find a property for your buyers soon!
Karina, Glad you stopped by! Hope you will subscribe and stay in touch!
I recommend these loans for my historic home properties, but they are rarely used, and I know a loan officer who specializes in them. There are so many homes on the market now that people would rather do "plain vanilla" loans on a house that does not need work than a FHA 203K on a lovely home that needs fixing up.
Deborah - I've done a few of these in my mortgage career and would by no means consider myself an expert with them but I would love to do more of them. While they were all challenging, I wouldn't call any of my 203k transactions nightmares. I've had far worse traditional transactions than any of my 203k transactions.
Unfortunately, 203k's are just not very popular here, which is sad because we have such a perfect market here for them - a lot of run-down, dilapidated, dumps that are perfect candidates for a 203k loan. Here in Los Angeles county, I recently found out (wiith the help of Rodney Mason) that the percentage of 203k loans being closed here in comparison with our total sales is so small and minute (approx 3%). The reason for that is simple because of our increasing number of all cash sales as well as listing agents (specifically short sale and REO listing agents) abhorrence to even considering 203k offers.
Anyway, great post and I hope you and your borrowers are having much better luck with getting 203k offers accepted than up here in Los Angeles & Ventura counties.
Carolyn, I love historic homes! I would have so much fun in your market...not many historic homes in CA...further it is my humble opinion that most borrowers or agents are harmed, more than helped, by a finance consultant who only does the vanilla deals. The fact is that American has an aging housing inventory and we have only so many options. Bulldozing historic homes is, I hope, not one of them!
Deb we use this loan all the time here. I love it! It helps us close on many rehab houses ....
Erica, Sending a hug across the country!!1 It is good for you, it is good for the seller and it is good for the buyer. Love it!!!!
This is such a good post. Not a single lender in my town offers the 203K and we have a Lowe's in town who is supposed to be able to work with buyers on this loan. We definitely need education about it.
Barbara, Wow, do you have any idea how much I wish we were in the same market???? Knowing you, as an agent, need representation on the product and cannot find it is so frustrating! I would be happy to see if I can find someone in your area. Love that you are open to the product.
One of the things that is confusing to me is how you insure the property will appraise after the improvements are done. How do you look at comps before/after?
Thank you for the information! Buyers could sure use this product here. Iwill check out your series to learn more.
Great information! I too encounter this on a regular basis.
Here's what a Realtor told me.
"I don't suggest the 203k because its too expensive" (meaning my consultants fee which I get in advance).
"It takes too long", which is bologna!
"I can get my clients a better deal with otrher loans", really? What other loan allows repair funds in the mortgage?
And so on.........................
Joan, The appraisal is completed essentially twice: "As is" and "Future Value". The appraiser is given the FHA consultant report and the contract with the contractor and he/she can put together numbers with comps that will better match the new improvements.
Christina, Thank you! Be sure to subscribe because I will be adding several chapters to this subject. Eventually I intend to create an Ebook for download,
Kathy, Here's hoping that the more information shared, the more agents and consumers will see the benefits!
Paul, The first objection is rather interesting to me. If I were an agent recommending a contractor I would appreciate having the FHA consultant and the lender working to ensure the consumer is going to be adequately represented throughout the construction. It ensures that there would never be an issue with referring a contractor.
Time? We have closed them in less than 30 days many times. NEXT objection?????????????
That comment is just crazy!! LOL! We both know there is no better loan for custom construction.
Appreciate your comments and support!
I think there's a disconnect with real estate agents because they think it's gonna be soooo much more work! Meeting with contractors, multiple bids, etc., that they don't see the true value of it. If it'll fix up nicer than a home down the street, all things being equal, the client would be happier. Isn't that what makes our business go 'round?
Eric, The reality is that the agent does not NEED to be involved in any of the meetings with contractors, etc. Of course, they COULD be....but it would be totally up to the agent. In fact, they may be better off not being involved...I would certainly recommend an agent did not recommend a specific contractor...better off giving the consumer some basc guidelines and leave it at that.
The FHA 203k program often winds up being the last resort for often a challenging property. Yes, it is better than a homepath loan, but that's a left handed compliment. While I think its a great product in a more traditional urban and surburban area, it can be difficult in really rural areas like mine. Once one gets over the streamlined amount( $35k), then the Buyer has to pay upfront for a HUD Inspector who has to review all the contractor bids. By the time this happens, the Buyer can be out of pocket $1500-2000 which is exclusive of the 3.5% down. Also, contractors know going in that if they get into the project and find more work, they have to be responsible for the excess work. So, the bids are higher, when ultimately the buyer is absorbing those costs ( the loan). This is not free money, they are responsible for this debt.
In my area, it is not unusual to find $20,000 plus in pest repairs, the county is pushing for engineered septic system to a tune of $30k plus. As in all FHA loans, there are additional costs for the Buyer. Often this is not explained well either.
What I DO like about FHA products, is the ability to have a co-borrower who is a non-occupant help qualify for a less qualified occupant borrower. Also, FHA is not as stringent re homes under 600sf. Right now, I'm in escrow on a 480sf home and I have my fingers crossed!
If a home is presentable, I like the 100% financing through the USDA. Since most of my business is in rural areas, this is a better value, if the home can appraise.
Hi Dee Dee,
I think it's a great program as well. I think many buyers shy away from it because it has a higher interest rate. It really opens up the possibilites with buyers though. Thanks for sharing.
Jean Marie, I appreciate your comments. Of course, there is no "one size fits all" mortgage product. The USDA loan is a fantastic product and in the rural areas there is almost nothing that beats it; however, in the metro areas of Southern California there are not many times I can recommend it... :-)!
I would like to clarify a couple things about the program:
1). The maximum fee for the FHA consultant allowed by FHA is $1000. And, can be as low as $350 as it is based upon loan amount.
2). Choosing the right contractor to do the project is as important as choosing the right lender. I would have serious issue with a contractor who was padding the bid on a project, for any purpose. I will concede that, because the full 203K loan can include up to five "draws" during the construction period, this is not a product suitable for a thread bare contractor who does not have reserves and/or credit lines to work with his/her suppliers and subs.
3). The additonal costs for the FHA 203K over the regular FHA product are the FHA consultant (addressed above), an increase of approximately $150 in appraisal fees (for the "Future Value" analysis) and the building permit fees. The increase in interest rate over a traditional FHA is approximately 1/2 percent.
A traditional construction loan, IF one could find financing, usually involves much higher costs, an adjustable interest rate and the requirement to refinance out of it within a specified amount of time; resulting is closing cost of another loan. In my opinion, comparing a 203K to a regular construction loan is a better analogy than a USDA. Both the property and the consumer are very different from the USDA to the 203K...neither is right or wrong, just different.
DeeDee, Hey, your name is easy to remember! LOL! The interest rates are not that different. And, it there is seller contribution the rates could be the same as a regular FHA. And, considering the consumer is presumeably buying the house for less money, likely building in equity, etc., the nominal increase in monthly payment is pretty much worthwhile over time. However, as much as I tout the 203K I do not think this is a loan product or a project for every borrower.
I took the 203K Specialist course. It is time intensive from a paperwork perspective, but I believe if you work with a lender that understands the program, it wouldn't be that difficult to keep everything on track.
Rates are a bit higher, but you are speculating and in this economy, that wouldn't be a bad thing.
I like the opportunities that the loan offers. I'm going to re-blog you, so I can have a permanent reference to your encouragement. Joy
I keep trying to get someone to do a 203K, but so far, no takers. I think it's a great product, too.
Joy & Jeff, Rates are still under 5%...yes, a little higher. But, really, a custom home at 5%???? Not a bad deal! And now that the Frank Dodd bill is in place it is not as it I (or anyone) can charge more for the extra work. Seems to me that the consumer is the winner! Thanks for the reblog!
Marsha, I think most people (agents and consumers) think it is going to be harder than it is. I would like to see more listing agents offer financing flyers with the option included. I think they could selll their "ugly baby" listing faster if they marketed it as a custom home. Thanks for stopping by and good luck with finding those clients!
Dee Dee: Thanks for the response! Yes, since I live in a rural area USDA is the way to go. You're correct in the initial fee. However, they get paid for gas, meeting with co ntractors. There are a number of extras.
Nice post Dee Dee. I'm going to subscribe.
The reason agents sometimes warn of potential hangups and nightmare closings is because we have experienced them with 203k's. I LOVED the idea when I first heard of it, and promoted often, but as with many things backed by the federal government, things are not always as they appear. While I've had a few successes, I've also had some major failures using 203k's. The lender that I send most of my business to used to promote the fool out of the 203k, and then they had contractors not completing the jobs on time or causing issues, and so now they have an overlay on the product that requires contractors to have a net worth of $500k or more to do any work on 203k houses. Not too many of those around (in fact zero that they have found so far) so they have all but stopped doing them.
Our job is hard enough as it is to get deals to closing, we don't want to introduce loan products that could possibly make it even harder. I would think as a commission saleperson you would be understanding of that...
Matt, First, thanks for your candid response. As I have stated in every post I have ever written about the 203K; there are caveats for success. I do not think this a product that works well from a mortgage broker perspective...there is just too little control. I also think all persons involved in the transaction need to be "vetted"...there are just some projects, borrowers, contractors, agents, etc. who are not good candidates to participate in the process.
Currently, I do not have the overlay of minimum contractor net worth..though we all know over lays are a moving target. As a lender, I think there is a fine line about choosing the contractor for the borrower. I may make some recommendations; but I am certainly not going to steer a consumer to a given contractor. BTW, a lot of companies are not doing the K streamlines because they have had contractors skip town with the 50% deposit. Bad for everyone...lender is hardly responsible when borrower chooses the contractor.
As a commissioned salesperson I am very understanding of the challenges we all face...there is not much "fun" is the lending process these days (I would think you know that); however, I still see a lot of merit to the 203K. No, I am not "steering" anyone to the product...I just believe agents and consumers should be educated in their options.