203K Loans - How to Write the Purchase Contract

How to Write a FHA 203K Purchase Contract

If you’re a Realtor chances you are, in some capacity, working with Foreclosures, Short Sales or other types of distressed property.

If you’re not working that market yet then maybe you want to add it to your bag of tricks! If you work that market then you’d better understand the mortgage products that are needed to finance that purchase.

The king of distressed property mortgage loans is clearly the FHA 203K Loan!

Before I get into the details on what you need to expect, how you write the 203K offer and the other caveats to FHA 203K financing, I want to say one thing – WORK WITH AN EXPERIENCED RENOVATION LOAN OFFICER.

The bad press the 203K gets, is due mostly to inexperienced loan officers trying to offer the product with little to no 203K experience. There are a LOT of mortgage loan products we refer out. Why? Because we know people that are better at those loans then we are.

Loan officers, you send me the 203K’s and I’ll send you the VA loans or whatever is your niche. This mortgage market is too complicated to know everything about everything.

Realtors, the same goes for you. Just because your mortgage guy rocks a 20% down conventional purchase loan DOES NOT mean they are going to rock a 203K loan.

You guys get me? I don’t ask my Dentist to check my Prostate. I find a specialist.

Now that we have that out of the way, on to the task at hand.

Writing a FHA 203K Purchase Offer

• Put 203K in the Purchase Contract – Many lenders require this to be there, but it also lets the seller / listing agent know that those property condition issues that have killed deals in the past are NOT going to be an issue this time around.
• Provide for a Longer Contingency Period – Best practice says allow for enough time to get the Home Inspection AND a Contractor Bid. 70% of my clients underestimate the the cost of the renovation initially.
• Give 45 Days to Get Closed – 203K Loans have more 3rd party items, give some additional time for the buyer to get a couple contractors to the house AND give the contractors time to price accurately.

What to Expect During Your FHA 203K Transaction

• Expect the Appraisal to Come Later in the Process than You Are Used To – 203K Appraisals are based on after repair value. You have to have the contractor bid FIRST before we can do the Appraisal
• Expect to Provide More Access to the Property – Inspectors, Contractors and (sometimes) 3rd Party Consultants will all need access to the property.
• Keep CALM – There’s more going on with a 203K Loan. More 3rd parties and more potential for delays. If you’ve heeded my initial advice and have chosen and experienced loan officer you’ll be fine even with a delay or two. You need to keep calm because if something does come up that slows the purchase down your calmness will ensure the listing agent stays cool as well.

All in all FHA 203K loans are not that much more difficult from the Realtor’s side. This is especially the case if you have chosen an experienced RENOVATION SPECIALIST to work with. Have I driven that home enough yet?

Now, get out there and sell someone a foreclosure already! Oh, 203K Loans are not just for distressed property, you can use them on move in ready homes as well. Don’t limit yourself, sometimes your buyer’s need some help seeing the vision.

Need a FHA 203K PRE-APPROVAL? It’s one small click away

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