Has anyone sold to a buyer using a 203k rehab loan?

[Deleted]

My mom, as the executrix of my deceased uncle's estate, is selling his home. The home does not have a Certificate of Occupancy and sustained some damage after Hurricane Irene. There is nothing structurally wrong, but the basement flooded and it now needs some HVAC work, a new hot water heater, some gutters, and other repairs in the range of $20k. At this point, my mom isn't willing to have the repairs done and instead is selling as-is at a lower price.
An offer came in today, $33k under asking once you include seller-paid closing costs, but the potential buyer wants to use a 203k loan. Because everything having to deal with my uncle's estate has been a huge hassle (and a seriously long story), she wants to accept following a review by the estate's attorney, etc. The only problem is that today is the first she has ever heard of such a loan (and all I know is a few things from here and BAH on TN)

My mom wanted to know what other things she may have to do with regard to accepting the offer, inspections, and so on. 

TIA!

[magdala]

In this instance 203k refers to the Section of the National Housing Act where HUD funds a mortgage with certain repairs included in the mortgage. Here is the basic program as identified by HUD.

portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/203kabou

These programs are usually operated through a state housing finance agency and I believe it has to be the state in which the property is located. You could check that state's housing finance agency for more information.

[sjh722]

Tell her to ask her agent if he/she has ever done one.

I have, and it was a nightmare. It took over 90 days to close, and they kept asking for more and more bids and documentation. (It was my buyers, so the sellers were not inconvenienced by the paperwork, but they were waiting and waiting and waiting and almost wouldn't give us an extension to close.)

If it's her best option to get a buyer, it is a legit program, but she might need to be patient. We had a loan officer talk about them at an office meeting and she said, "No one likes each other by the time a 203K is done", LOL - none of her colleagues like to do them either, apparently!

Someone else in my office closed one shortly after that that was much easier, but the scope of repair was much more minimal.

[Deleted]

May 6, 2013 19:28:46 GMT -5 magdala said:

In this instance 203k refers to the Section of the National Housing Act where HUD funds a mortgage with certain repairs included in the mortgage. Here is the basic program as identified by HUD.

portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/203kabou

These programs are usually operated through a state housing finance agency and I believe it has to be the state in which the property is located. You could check that state's housing finance agency for more information.

Yes, she knows that, as do I. I was looking more for experience like sjh's.

[Deleted]

May 6, 2013 19:36:55 GMT -5 sjh722 said:

Tell her to ask her agent if he/she has ever done one.

I have, and it was a nightmare. It took over 90 days to close, and they kept asking for more and more bids and documentation. (It was my buyers, so the sellers were not inconvenienced by the paperwork, but they were waiting and waiting and waiting and almost wouldn't give us an extension to close.)

If it's her best option to get a buyer, it is a legit program, but she might need to be patient. We had a loan officer talk about them at an office meeting and she said, "No one likes each other by the time a 203K is done", LOL - none of her colleagues like to do them either, apparently!

Someone else in my office closed one shortly after that that was much easier, but the scope of repair was much more minimal.

What about extra inspections and such? Do you know?

ETA: The reason I ask is due to the nature of the repairs. Like I mentioned in my OP, series of contractors came in between $20-$25k but my parents don't want to lay out that sort of cash (they have laid out a lot of their personal money already in upkeep of this and one other property). However, a REA said if the repairs were done, she would list the house in the $340k range.

Also, the buyers have pre-approval for this sort of loan, and the loan amount.

FWIW, this is the listing (I will remove)
www.weichert.com/47108683/

Thoughts?

[Deleted]

@callmefia, my parents spent a lot of time on the basement. Plus the house is 100+ years old so there is normal wear and tear that shows up in the pictures. They were very lucky with this house; the house next door had a portion of its foundation collapse. As it was, someone broke in and stole the copper pipes and undid a lot of the work my dad had completed to that point. Then they said enough was enough and decided to sell as-is.

I will tell my mom to consider a counter. Thanks!

[sjh722]

That repair range is what the one I did was. There aren't really extra inspections, but the appraisal is a little different (I think they have to appraise w and w/o repairs). Then the buyer will have to get detailed bids from the contractor, and the lender will probably want that to be re-worded or tweaked, and also request documentation from the contractor re insurance, licensing, etc.

It also doesn't hurt to have your agent call and grill the lender as to if they are familiar with these, how often do they do them, etc. I had another one years ago fall through because the lender had no idea what he was doing.

If you think it's likely to find someone who can do a conventional loan and pay cash for repairs, or someone who can do a regular construction loan, that's much easier. Those buyers can be hard to find too, though.
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[goaskalice]

I successfully closed one for some buyers 6 months ago. Here are my observations.

1) It sounds like the repairs may fall under a streamlined 203k. They are WAY easier to deal with because there are slightly fewer hoops to jump through. Ask the agent if that is the case if it's not specified in the offer.

2) Expect at least 90 days to close. The appraisal is done with the finished repairs in mind. That means the buyer has to find multiple bids for each repair and have them approved in regards to reasonable cost before the appraiser ever sets foot on the property. This is where all that extra paperwork comes into play.

3) Since this is an FHA loan the lender may ask for repairs beyond what the buyers intend to fix. For example, for my buyers loan even though they were OK with fixing the chimney at a later date the lender required the repair to be added to the loan.

At the end of the day it's a great way to get a buyer without waiting for a cash offer. If you have any other questions don't hesitate to ask!

[mera]

I'm usually a lurker, but I wanted to share my recent experience with this process. We used a 203k Streamline loan and were able to close in about 40 days. In our case, there was no additional responsibility for the seller. The additional inspection that is required does not happen until all work is complete. The appraisal on our house was a normal FHA appraisal, but we did need to make sure any safety issues that are required to be corrected for an FHA loan were covered in the work. For us, it was a good option because we purchased "as is" and may not have been able to get the seller's to fix what was required to quality for an FHA loan. In regard to closing time I think there can be a big range because there is an extra party involved. A lot depends on the responsiveness of the seller's and the contractor. If all information is provided promptly upon request and the bank has experience with the process it can move quite quickly. In case it helps we went through Wells Fargo and are located in Illinois.

[niknik]

I am doing a 203K remodel right now in out house. The streamlined one is very simple and is around 35 K I believe. It's a fairly easy straight forward loan. I wish we had done that. We went for the whole big shebang. We did close in less than 60 days but we had to hustle, we got our bid and moved through the process very quickly. We did it through Wells Fargo as well as with a team that was very experienced in closing this type of loan and we didn't really run into an problems getting the appraisals and ultimately the money.

As a buyer though, we ended up in remodel hell and have had nothing but problems with our crappy contractor. This wouldn't be a problem for a seller.