203k Loans Do It Yourself Fix-Its Not Always Allowed

A 203k loan may be alluring to a do it yourself handyman.  You get buy a home in need of repair and get a fixer upper home loan, the 203k loan, and receive funds within the loan to fix up the home or remodel it to your liking.

It is within the FHA rules to allow do it yourself work on the 203k Streamline loan and the 203k Standard loan.  However just because FHA has this guideline doesn’t mean a lender may not put an additional overlaying guideline on top of that to not allow it.  Lenders who offer the 203k loan can put any overlay on the the product that they want.  Lenders are increasingly shying away from do it yourself work on the both 203k loans.  Why?  It gets sticky.  There is a myriad of forms that have to be explained to the do it yourselfer on how to fill them out ledgibly and correctly.  This causes frustration and delays on both ends of the process.  Fraud is another possibility.  The do it yourselfer must also demonstrate that they are a master at the project they are working on.  They may need to demonstrate that they have an active license as a contractor, and possibly show proof of past clients work, and if they have a crew working on the project have ample workmans compensation insurance.  If the lender ends up foreclosing on the property they want to make sure the work done is up to code and in a worksmanlike manner.  This is now the mentality of a lender in todays market.

So now several 203k loan lenders are putting an additional overlay on these loans to the effect that no do it yourself work can be done.  Some are even going as far as stating that all work must be done by one contractor.  It makes it easier for the lender this way.  Instead of having to deal with several contractors and explaining the 203k loan process to them, they just have one.  Taking it even a step further, some 203k big box lenders have a deal set up with Lowes, or Home Depot to do all the work which in my opinion is not good.  It limts your choices.

The 203k loan is not your everyday loan.  It does require some knowledge regardless on if you do the repairs yourself or if you hire a contractor to do the repairs.  203kcontractors.com have contractors who have been trained on the nuances of the 203k loan.  This is worth checking out to save you time and frustration on finding a contractor who is willing to accept the terms of the 203k loan.  Contractors don’t get paid right away on this loan which means they may have to float money until the entire rehab on the property is done.  This is not popular with contractors!

Just make sure that if you are a do it yourselfer and want to use the 203k loan to buy and rehab a home, that your lender of choice allows you to do the work yourself, and if they do, what parameters must be followed.  Do this upfront before applying for the loan to save yourself some headaches but either way the 203k loan is viable way to buy and rehab a home all in one low fixed rate loan.

If you have a question in regards to this article please click here and let me know your scenario!

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5 Comments

  1. Posted August 24, 2011 at 3:06 pm | Permalink

    Very informative article, Kevin. This is certainly an option little known, but worth taking a closer look at. I, myself, am not yet too familiar with 203K loans, and I’m so glad to have stumbled upon your post. Tok a quick tour of your blog, too, and have found other substantial articles. Keep writing, Kevin!

  2. Posted September 7, 2011 at 7:11 pm | Permalink

    There are a LOT of things that I would undertake as a Do-It-Yourself project, but this is definitely not one of them. Loans and money matters are something I never take into my own hands, because I know that screwing something up could cost me a lot more than I’m aware of. Thanks for this article, it really sheds light on exactly why DIY is NOT the answer for 203k loans!

    ~Kayla

  3. Posted October 25, 2011 at 8:51 pm | Permalink

    This is a good housing plan. However, some homeowners are inept at carpentry and might not put the money lent to good use. A renovated house is best enjoyed when it is designed according to your needs.

  4. Posted December 12, 2011 at 1:26 am | Permalink

    Self-help is NEVER allowed if you call me. Underwriting nightmare, not a good idea for several reasons.

    First, we prefer you out working your job and making money to make your mortgage payment rather than working on your house.

    Second, if you screw up the work then we have no recourse.

    Third, nights and weekends won’t cut it. We want your house finished and you living in it ASAP

  5. kathleen hambrick
    Posted May 30, 2013 at 2:32 pm | Permalink

    As a experienced do-it-yourself’er I find this loan exasperating. I understand covering ones a** but, those things that do not require trade skill (non structural, electrical, plumbing, a/c, roofing, etc) sould be alloed from the homeowner. Painting, Tiling, putting in cabinets, light fixtures, etc are all basic homeowner skills. I should not be forced to finance the cost of a constrator to do these items that I am fully capable and willing to do (and can show that I have done them before!)

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