Realtor and Buyer FHA 203k Mistake Avoidance 101

The FHA 203k Loan is a popular tool for financing distressed properties. The benefit of the FHA 203k Loan is that it allows home buyers to finance the purchase price of a house and the subsequent cost of renovating the property post-settlement with one loan.

For Realtors working with a Client using a FHA 203k Loan and home buyers using FHA 203k financing there are several common errors that can readily avoided by understanding how the FHA 203k Loan functions. These common mistakes are as follows:

FHA 203k Loan Common Mistake #1: Assuming that the house purchase price can go up to the maximum loan amount that the borrower is approved for as indicated in the pre-qualification or pre-approval letter. On a normal transaction without any home improvements required that may well be the case. However, if there are repairs required on the property, the renovation budget has to be netted against the maximum loan amount to determine the maximum purchase price.

FHA 203k Loan Common Mistake #2: The FHA 203k Loan renovation escrow account, which is used to fund the repairs post-Settlement, is the summation of the contractor invoices. This is not the case. The final FHA 203k Loan renovation escrow account is determined by the following:

FHA 203k Loan Common Mistake #3: Not contacting the Lender ahead of making an offer to request an updated pre-qualification or pre-approval letter based on the loan type being a FHA 203k Loan and factoring in the estimated renovation or repair budget. This is important when the original pre-qualification letter was based on a FHA 203b Loan, which offers a more favorable interest rates than the FHA 203k Loan program.

To calculate a FHA 203k Loan scenario based on a purchase price and a contractor estimate reference the following link:

The FHA 203k Loan Purchase Calculator will provide you with the following information:

To learn more about your financing options through the FHA 203k Renovation Loan Program complete a contact form or call (866) 747-2882 to speak to your Nationwide FHA 203k Renovation Loan Experts.

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