What you need to know about 203K loans

Real Estate in Review

Hi, this is Gina Mullen with Gina Mullen Realty and today we are going to talk about a 203K Loan, which people refer to as, you know, “That loan that I'm going to get that is going to help me renovate my house.”

So most people think that when you do a 203K Loan, that you're going to take out a mortgage that's going to be over the cost of what you paid for the house and that the mortgage company is going to hand you the lump sum of money so that you can go ahead and make the updates and renovations to the house that would increase its value. But that is not the way that it works.

Yes, you do get a mortgage and it is for more than what you paid for the house, but you have to hire contractors to do the work. You cannot do the work yourself and you will have to provide the mortgage company with the progress all along the way. So this requires you to find a contractor that is insured and bonded. They need to submit an estimate to the mortgage company. You're real estate agent would need to send in comps to the mortgage company to show that the market will allow for the renovations to be done and it still not be underwater. You have to provide progress along the way. You will have an inspector that comes to the house to make sure the work is being done, that it's been done properly, that all permits have been pulled, and that the people that are doing the work on the house are people who are professionals in doing that. So a little bit of a different scenario than what most people think with a 203K Loan. So if you're thinking of buying a home and flipping it, keep that in mind that yes, you can get a mortgage for more than what you pay for the house. However, you will have some oversight by the mortgage company on who does the work and how the money is spent. If you have any questions, please give us a call at Gina Mullen Realty. Thanks.