203k Full Renovation Loan Guide: Phase 1

The main reason I was itching to start blogging again was to share our 203k Renovation story. There isn’t enough information about them being published and I really want to share the highs and lows of living through a 203k. Building a house with a 203k loan has been the most stressful thing I have ever done. More stressful than passing my master’s degree thesis while working full time. More stressful than planning a wedding. More painful than an IUD. To put it bluntly – it sucks. Sure, I know it will all be worth it but honestly, living through it, there are days you just want to lay down and cry, cursing yourself for why you ever thought this would be easy. Oh, how young and naive we were then!

It has been over a year now since we purchased our house and we still don’t live in it. Currently we reside in my parent-in-law’s house (shout out to my amazing MIL) with two dogs. I’m going to break these posts down into a series because there is soooo much to share about this process and I am hoping that in my mess you might help find some peace…or feel pity for me and put out some positive vibes into the universe because I need it apparently.


So I guess I’ll start at the beginning, when we were just two young kids with a dream. We knew the neighborhood we wanted to be in so we found one of the only available houses on a great lot that was essentially a crackhouse and made an offer. That was a difficult process as well with investors bidding against us, but with a personal letter from moi our offer was accepted. I researched how to “build your dream home when you have no money” and the FHA 203k Renovation Loan popped up. With the 203k Loan, because it is a government FHA loan, you only needed to put 3.5% down which frees up more money for the upfront costs this loan will cost you (building surveys, appraisal, architecture drawings, 203k consultant fees, etc.) which I will outline later on.

There are two different types of 203ks: 1. Streamlined version for items under $35k like your kitchen & flooring and 2. 203k Full Renovation loan where all you have to keep is the foundation and spend more than $5k – up to a percentage of the appraised home after repairs. This is where you can get tripped up because they base their appraisal on homes that have sold in your neighborhood recently, which can fluctuate, and the proposed plans you want to make to the home, so you have to get architectural drawings done (which costs $$). The plans have to submit to the lender for them to agree to the amount the loan will be for. Whatever the total amount is subtract your purchase price and that is the money you have leftover to renovate your home with.

TIP: Pull Comps in the Area. To get an idea on what you think the rehabbed home will appraise for, have your realtor pull comps in the area. The last comparable home in our area sold for $230,000. Our purchase price was $107,000. In general, if you assume the home will appraise for $230, minus the purchase price and you are left with $123,000 for renovation. The way they figure out the loan is complicated but this is a general idea of where you would need your bids to come in around. If the numbers are off and the home doesn’t appraise for what you want, but you still want to make all changes on your plan, you can come up with the difference at closing.

I think we all know how to buy a house and the tons of paperwork behind that so I will skip that part. Once you own the house and you have the keys, your next step is to go to your local building department and pay for a copy of the existing survey of the property ($1.50). The architect is going to need these to do construction drawings, especially if you are doing any additions so he can see the set backs on the land.

STEP 1. Property Survey.ย Our last property survey was very outdated so we paid to get a new survey done with an elevation certificate ($450). We were not in a flood zone but we still needed elevation for the architect to properly do the plans. The architect recommended a local surveyor company. You can call them to order the survey and they send someone out in a few days.

STEP 2. Hire an Architect. First you will meet with him at the property and walk through the house, letting him know anything structurally changing he may need to include in the plan. He will then take the existing survey, the new survey and your meeting to draw up basic drawings off the general existing structure. We decided to use as much of the existing plan as possible to keep costs reasonable so no major walls being knocked down, just internal walls which is much cheaper. Our realtor recommended for the best appraisal that we add at least another bathroom to make it a 2/2, but we also added an addition to make it livable so the home became a 3/2.

Basic Drawings – The architect will create basic drawings for you to approve and make changes to before he begins the full construction drawings. You can’t do much with the basic drawings and must have the complete construction drawings for the consultant and contractor to do their part. Once you have approved the basic drawings the architect can start the full construction drawings.

Construction Drawings – As the architect is working through the plans he will email you specific plans that you need to make decisions on, such as: Roof line options, Electrical plans, etc. You will go back and forth a few times to get the house exactly the way you want. Once everything is finalized you will sign a notice to Proceed. This means the plans will be finalized. You will receive the final plans in an email and can send them to a local Blue Print Shop to print them out to size. You will want to get a few copies of the final plans to provide to your GC (or you can email them and they can get them printed).

During this process you have to know what you want because decisions have to be made quickly. By not changing the footprint of the existing house I felt it was easier to make decisions for us. If you were starting from scratch and had a complete blank canvas I would think it would be much more difficult (and expensive!). What this step really comes down to is whether this house is your forever home, or a starter home that is going to end up being sold/rented out in a few years.

Step 3. Meet with 203k Consultant ($1,000 for projects costing over $100k): You can find a list of them online at HUD or your mortgage broker can find one. You will need to meet with the Consultant at the property, bring your basic drawings and walk him through everything you plan on doing. He will deem the property uninhabitable (you can later use this to have up to 6 months of your mortgage payments rolled into your loan during the build if the numbers work out). After he has reviewed the property and seen what you plan on doing he will provide you with a Specifications of Repairs, which is a long list that breaks out the costs for everything. You should provide this to all of your GCs along with their construction plans so they can fill everything out properly when submitting their bids. If they don’t fill it out in the right format you can still submit them but then that creates more work for the Consultant to redo them.

Exhausted yet? This is the just the beginning of the process. Next post will be the most important – choosing a contractor. I could write a novel on that! xx, Beth

Here is an Image Gallery of the crackhouse we bought before demo began. Enjoy!


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