203K FHA REHAB LOANHow to Purchase and Finance a Rehab Project

Prepared By: Barbara Barker

DECIDING IF RENOVATING IS RIGHT FOR YOU

Renovating a home can be time consuming, challenging, yet highly rewarding if you have the right team working for you.

Each step should be carefully calculated and swiftly taken to keep a good pace in the process.

There is a specific timeline – you’ll need to be prepared with the right action plan in mind

BUILDING THE RIGHT TEAMHave A-Team players working for you to ensure the best results and limit complications through the process; such as:

1. An experienced local Realtor who has done fix and flips or 203k renovation loans.

2. An accredited local specialized renovation loan expert.

3. Specific experienced local FHA inspector

4. Experienced detail oriented local home inspector

5. Median priced experience, responsive & reliable contractor

6. Real Estate Attorney (preferably one the agent has worked with)

COMMIT TO A GOOD REALTOR & LENDERBarbara Barker, Real Estate Broker of RE/MAX Edge, has nearly a decade of working with developers, property investors, flippers and has the experience, creativity in design, excellent analytical skills and insight to successfully cultivate dreams into a reality. I have sold 2 homes within the last year profiting over 27% return ($30,000) each and about to renovate my own 2-flat where I will be paying about $1100/month.

Perry Farella of AmeriFirst Home Mortgage has been in the lending business for over 14 years specializing in renovation loans. “My focus has always been on superior client service and education. For me that means being there evenings and weekends and available by phone most any time. I recently helped a client secure an FHA 203K renovation on a 4 flat where the client will live totally free in one unit while the rent from the other 3 will fully pay all mortgage expenses, taxes, insurance and still generate more income monthly.”

GET PRE-APPROVED

Getting pre-approved is the #1 1st thing every buyer should do before searching for homes.

You will be asked for ample information, don’t fear, this is for your own good. Banks have become extra careful in vetting out new homebuyer’s qualifications in order to keep them from over spending.

The pre-approval process takes as long as the buyer does in gathering information. It can take a few days – a year (all up to you!)

SOME OF THE INFO TO PROVIDE FOR YOUR PRE-APPROVAL▪ Last 2 years of tax returns

▪ Last 3 pay stubs

▪ Last 3 consecutive month’s of bank statements including all blank pages

▪ Most recent IRA, 401K, Shareholder, Stock, pension, child support and or alimony statement(s)

▪ Copy of ID

▪ Provide any other info that adds to debt or income

*want to look rich to your lender AND to the IRS for 2 consecutive years*

START YOUR SEARCH, DO THE CALCULATIONS & PUT IN THE OFFERFind Properties that are:

1. In need of work, but not tear down

2. In areas that are hot or up-and-coming areas

3. Do the math on the as-is value and fix-up value

4. Book showing

5. Put in offer

6. Offer gets accepted

BUY THIS NOT THIS

CALCULATE AS-IS VS FIXED

AS-IS

$165,000

Cost to repair to upgraded quality

$50,000

Down Payment

3.5%

Closing Costs

$5,775 (est)

Fixed

$259,000

Profit

$44,000

ROI

Hint: 17% equity brings you to 20% down on your loan making you eligible for refi, this will drop the PMI & the interest rate!

17%

CHOOSE YOUR HOMEList Price $315,000, closing costs $9,500, purchase price $324,500:

Needs 2 new kitchens = $30,000

New roof = $7,000

2 new baths = $10,000

Ceiling and leak repair = $3,000

New porch = $10,000

Total work to be done = $60,000

Bundle living expenses after closing = $5,500

Total loan = $390,000

From REALTOR projections

HOW CAN I AFFORD THIS HOME?TOTAL ESTIMATED PAYMENTPurchase Price = $390,000

% Down Payment = 3.5

$ Down Payment = $13650

Interest Rate = 5%

Term = 30 years

Insurance = $100 / month

Rent = $1800 / month

PMI = $276.25 / month

Principle & Interest = $2020.33

$1028.91

WHAT NEXT?

▪ Put in offer

▪ Seller accepts

▪ FHA inspection/regular inspection/contractor estimate

▪ Appraisal

▪ Results

CONTINUE AFTER THIS WITH REGULAR CLOSING PROCESSYou will:

1. Follow the remaining buyer timeline heading to closing2. Close3. Receive contractor and permit checks at closing4. City of Chicago permits 5. Demo6. Rehab

After closing, it should take 2-3 months to rehab (earlier, we included housing allowance into the loan costs, that covers your housing while you aren’t living in the home. You can also steer the mortgage payments until after the rehab is done)

FINISHED PRODUCTFINAL WORTH & EQUITYSo you’re done with your project? Where does the value stand?

This finished home can now be listed for $469,000, sold for $465,000, you pay the closing costs, commissions & your total profit is $40,125 (not bad for 190 days of work!)

If you choose to stay in your home, you can refinance into a conventional mortgage at a lower rate given the finished product is worth at least 16.5% more than your loan amount. Your monthly payment would then be even lower!

BUT WOULD THIS WORK FOR ME?

Do I have the potential 3.5% down payment saved?

Can I gather all the documents needed for my pre-approval?

Can I dedicate the time to process a loan, meet with professionals, take a work day off for the closing and choose finishes?

Can I into my customized remodeled new home?

If you answered yes to all of these questions, a renovation loan may be right for you!

LET’S GET STARTED!

Email or call Perry to get pre-approved: pfarella@amerifirst.com or 773-793-8803

Email or call Barbara to inform her of your interest in buying:urbanrealtor@live.com 312-798-9675