What Is A 203k Loan?

What is a 203k loan?

What is a 203k Loan? Are you looking to buy a bank owned property (REO) or handy man special? Attention All Real Estate Investors Newbies and Pros. Learn if/how you can use a 203k Reno loan for your next flip rehab. I have interviewed Quentin Hardy Renovation Loan Specialist Movement Mortgage. He answers all the question you need to know about these types of loans. Use (OPM) other people’s money (banks) to invest in your next/first property. Get answers to your questions: What is a 203k loan? What is a renovation loan? What is ARV? Are there limits on what I can do repair wise with these types of loans? Do I need HUD Consultant? How long do I need to keep the property for before I can sell it? Why is it important to have a team experienced in the Reno loan process? Ie: lender, attorney, contractor, realtor Quentin Hardy Movement Mortgage: https://movement.com/lo/quentin-hardy/ Cell:(516)697-4200

Transcript:

What is a renovation loan that's a topic of my next video my name is Mark Schreier

I'm a licensed sales associate with Century 21 American Homes in the coming video

I'm gonna share with you what you need to know if you're considering buying a

fixer-upper a bank owned property aka REO and you don't have the cash to pay

all cash special financing is required stay tuned to this video and learn what

you need to know okay everybody I am with Quinton Hardy of movement mortgage

and he's going to answer throughout the course of this video what is a 203k reno loan?

we're gonna get into a lot of details on what it is how you get it is

it a good thing to do so Quentin you can you tell us a little

more about who you are where you're from and your expertise as a mortgage person

sure my name is Quentin Hardy of movement mortgage on the market leader here on Long Island. I am a 17 year in Long Island I am a 17 year industry

veteran and I was the top producer in the nation for renovation loans for a

couple years at the what was at the time the number one direct consumer financial

institution I've moved on since then doing renovation loans other places but

I also have a unique perspective because not only have I done hundreds of these

loans I've also done one on my very own home so I'm not only the hair club

president I'm also a member I've been on both sides of the transaction as the

consumer and boast at both idea of the originator so I have a unique

perspective just for full disclosure I didn't choose Quentin because of the

hair club president I didn't expect you to throw that in there but that's good

okay uh basically when we talk about a rental loan or a 203k loan we talk about

a REO and what is an REO I'll answer that as a Realtor an REO is a bank owned

property a property that the bank's took possession of through the foreclosure

process and usually but not always as if you watch my last video

about the new breed of for a new class of REO's where some of the banks are

actually hiring in investors to refurbish them where you can use a

conventional mortgage but a significant majority of bank owned properties need

special financing so to answer the question what is an REO it stands for

real estate owned by a bank and the special financing I described it in one

of my last videos but I figured why not have a mortgage experts like Quentin

Hardy here to really get into the details and answer some questions that I

wrote down that people have asked me over took the last couple of weeks so

Quentin can you get into some details like what is a 203k loan? Are there

limits is it cost-effective and all that stuff sure I'm gonna give you two

answers because it's a 203k very frequently it gets used as a misnomer so

there's a 203k there's a tool 3b there's a tool 3h that's will proceed it's just

a paragraph and 203b is the normal FHA that you used by a standard property

condition for a regular person but the 203k very frequently it encompasses all

of the renovation loans it's inaccurate but people say oh there's an investor

203k is a VA two of the 203k specifically is the FHA version but

there is a conventional version there's a VA version there's different kinds of

renovation loans so I like to use the term renovation loan because it's

all-encompassing and the FHA 203k is one specific kind of renovation loans now

when it comes to the other answer what is it 203k it's a kind of renovation

loan whether it's a renovation loan is basically a loan that is going to allow

you to purchase a home and use the appraisal the actual value of the

property and condition of the property is going to be an as completed version

so for people who seem to show property brothers that's a great example they go

and they go hey you know what you've been pre-approved for 400 but this house

is only 300 so you've got a hundred thousand for work and we all know who go

to the bank and say I want to borrow four hundred thousand dollars to buy a

three hundred thousand dollar house that's not how it works but that's

exactly how a renovation will work so if you're buying a house and let's say it's

a 3-bedroom ranch you want to convert it to a five-bedroom colonial you send us

the bid and the plans and we know how much it's going to take to buy it how

much is going to take to improve it and we can now give you a loan based on the

ads completed version in the REO world it's very frequently you this because

these homes are in less than perfect condition and if you don't have certain

things in the house you can't close with a regular loan and I know very frequent

use but I have the money I'll fix it later the bank has no assurity no

guarantee that you're actually going to fix it post closing so the only way they

do it is they must include that number the repairs to bring it up to little

condition can you give to interrupts are in turn you give a couple of examples of

what a house needs for conventional mortgage to go through as smoothly as

possible like a sink bathroom there's basically three categories rather than

what it takes become a conventional there's three categories that make it

require a renovation of opportunity one of them is a utilities what electricity

and gas they on and operating if they're not on and operating there are some

cases we can get away with a non renovation loan but typically if they're

off if there's damage and you're going to need a renovation loan because a

house without running water it's not considered livable but without

electricity level so that's number one because utilities number two would be

the completeness of the home are you missing things that would

normally be in a house sinks tubs pictures missing windows boarded up

windows leaky roof etc etc I have one where we couldn't close because we don't

Dorn out to the house is easy to rectify I have one in Rosalyn sometimes all it's

not much work doesn't know how much work we have one here in Rosslyn where

there's a foreclosure and people had taken the toilets everything else was

there but no toilet you can buy housing on toilets believe it or not

didn't know there was a market for pre-owned toilets but that's number two

is a incompleteness or completeness of the home and last is health and safety

if there are any health or safety issues broken windows were someone you get cut

expose electrical wiring Tribute fall hazards black mold in the

basement and sometimes people so it's just a little bit of this so it's very

small it's not much it's not the quantity it's

are you missing utilities is the whole and complete or do you have a health and

safety issue those have to be resolved either prior to closing with you're

going to do the right along or the renovation law you're going to resolve

them after closing by giving us a bit explaining the path to resolution

okay there's a lot to go there and I will say from being a realtor that shows

a lot of re OHS I've seen some where they're in really disarray way the

potential buyer has to sign what we call the hold harmless agreement which means

is a significant liability which is what Quentin is talking about and the banks

don't want to be responsible for that so those would definitely be properties

where they're not going to pass for traditional financing so re o--'s are

not for everybody at least the old-school oreos is there a cap on the

amount of money the repairs some of these areas are really significant

insignificant in need of money maybe up to 100k of repairs so what's the cap on

these type of loans there when the FHA there a lot of people think there's a

$35,000 cap that's a $35,000 FHA which is called easily called a stream line

that's now called limited but a full cool 3k doesn't have a cap with the

conventional renovation loan your repairs cannot exceed 75 percent of the

as completed value so in reality the cap is almost a logical one if you're buying

a house and a $500,000 neighborhood for $400,000 if you want to do $200,000 can

work to it or you're just you're spending six hundred thousand and five

hundred thousand dollar house may be too much risk the house doesn't appraise the

bank won't go forward otherwise the real cap is just the logical amount needed to

repair it in most cases I very rarely see people run into that seventy five

percent cap on the conventional and and there is a de capital media yeah AJ you

could you could buy a house for a dollar and put $700,000 in the world are there

any type of structural things like foundations need to be repaired can

somebody get a rental owned by a property in REO for say and totally rip

it down remove the foundation build a new construction is that allowed

no yes 203k you cannot do any structural with

the limited version any nothing that's weight-bearing even something as simple

as a floor joist however with the full 203k you could knock the house down to

the foundation you must keep the foundation however the conventional is

the same the conventional doesn't have limit on luxury items so usually things

like in-ground pool you can repair a limited amount of the 203k but you don't

have a limit on the conventional no jacuzzis with the tools weekend is

considered a luxury item though that's usually what we write into but the

conventional there's no limit but loss on your question any structural limit

can you rip it down and build a new construction you said no right so you

can rip it down to the foundation to the foundation but any other renovation ones

but you must keep the foundation this entreating us if you keep it up a wall

we'll talk about that but if a person's intention is to completely remove the

house and the foundation that's not renovation there's no new construction

and that's my segue right here to a lot of people might think and I just got a

phone call actually yesterday somebody's reaching out and they want to be the

investor they're looking for the needle in the haystack the perfect scenario so

these loans probably sound great for investors so at the latter part of this

video I'm gonna share some information about a I'm gonna ask Whitney if this

alone can be used for an investor and B if it can be used how you can go about

doing that so stay tuned to the latter part of that video and we'll cover that

one other thing is I don't want to mention too if you're new to the channel

don't forget to give us a thumbs up actually two thumbs up now because got

two people here to show appreciation that you like the content and also

definitely remember to subscribe and leave some comments for further

information in further videos that you would like to me to cover maybe Quentin

in the future with that being said there's a lot of information out there

and I did some research is it different credit score's needed you know different

type of things that are needed for a rental loan versus a conventional

mortgage nothing really different as far as credit score debt to income ratio I

understand that typically you go for mortgage you're going down two different

roads at the same time one is getting the homebuyer approved based on their

income assets credit score probability and likelihood of repayment and the

other road is getting the collateral the property itself approved making sure

that we're not over lending we don't want to lend $500,000 on a 200,000

right renovation loan the only thing that's different is a collateral Road so

the other Road you know as far as your documentation your tax return gw2 use

your credit score that's all the same it's only going to be the collateral

that's different presentation is it a slow process to be you know underwritten

and approved then a conventional mortgage that's a great question at most

thank you take a little bit longer the toughest part is finding a bank that's

good at it and hat and a loan officer who's good at leads that's why I'm a

specialist probably upwards of 50 percent of my business is renovation

loans if you get a guy who doesn't once in a while he's always stumbling through

it and it will take longer even if you have someone who's good however there is

one spot it tends to be the bottleneck with a renovation loan and that's the

contract and it was explained to people get your contractor involved get him

picked make sure he has the appropriate licenses and insurance you'd be amazed

how many times they told me the guy was licensed and they sent me an expired

license or no license from the wrong County or something like that so make

sure you have a legitimate licensed insured contractor who is responsive

because if I ask you for a pay stub or w-2 you can send me that in a day by

asking for a bid now you're dependent upon a third party to respond in a

timely manner and if they don't you might wait a week oh yeah can they get

this week up either next Friday oh the girl is out I got a handle the phones

give me another week now you started running up your time waiting for the big

comeback so what i always recommend have your contractor ready to go and the

minute that your your offer is accepted verbally don't wait to get your contract

get your contractor in there the day you first day you can they give you a

written detailed bit and it's also a good idea to speak with the lender that

your work with maybe even do a conference call

that's what I like to do so it all of us on the same page

getting the renovation don't done what everyone done in a short period of time

a lot of people you know I've done them in 20-something days and people is how

do you do that how you do that it's not me it's a team effort if all three of us

are you know in lashley four of us it's the homebuyer the attorney the

contractor and the lender if all four that we're working in sync and had the

realtor in there for five and the team's gonna make it happen right and

definitely investigate with your contractor the licenses like Quentin

mentioned they could say they're licensed and now sir but you're in

Suffolk if you're if it's a contractor that's saying they do everything well

Electric electrical and plumbing are separate licenses so that's another

issue that could come about you have to make sure you get all the different

trades and the proper licenses so definitely reach out to the mortgage

person and possibly your attorney and make sure all your ducks are lined up

before you find that house because once the bank accepts your offer they have a

timeline they want to get it off their role as quickly as possible and if

you're now starting to struggle getting everything lined up they might sell it

to somebody else can these type of loans be used by investors people who want to

flip a house or any type of investor Quentin yes they can be now the FHA is

for a primary residence and they're not buying it as a as an investment and

could it be a renovation on the same thing primary residence now someone

bought it as their primary residence and stayed there for more than a year and

decided okay now I'm going to sell my primary residence and by different

primary residence they could do that and that's not obviously your typical

investor but I have seen people do that by a fixed up you know seller your

conventional renovation loan can be used for an investor only on a one a family

not on a two three or four but on a one family typically I see buying a hold

investors do this if you're going to be a fix and flip type guide then there's

other alternatives such as hard money that most of the fix and flip investors

are going to use for various reasons probably great this video but if you're

going to buy and keep it yeah you using renovation loan as a one-family

faster any closing words Quinton I really appreciate this interview oh I

would just say that if you're going to be doing this kind of loan to make sure

you're working with someone who knows what they're doing and you can always of

course a great referral from Marx Friday I think he knows I think I know a good

runnerguy and on that note I'd also say that when you're dealing with arias bank

owned properties you also want to make sure your team knows how to deal with

the REO because it's not a traditional transaction you're dealing with banks

you're not dealing with a home seller you know that lives down the block it's

a corporate it's a company it's a bank owned or a corporate owned entity and

there's different guidelines on how the offer has to be presented so if you're

not dealing with the team in this case a realtor that knows or has worked in this

type of scenario before you put yourself at a disadvantage just like in the case

of rental loans all right equipment from movement mortgage I really appreciate

your time and for you guys out there thanks for watching