Financing a Fixer with a 203K Loan

For many the idea of buying a home that needs TLC is appealing, but the financial reality of coming up with a down payment and  money for work to the home can be daunting. However, with a 203K loan, you can actually finance the cost of the repairs and upgrades, provided that total loan amount is less than the projected value of the home once it’s been fixed up.

Our listing at 845 Obispo Avenue in Long Beach is a perfect candidate for this kind of loan. An already historical property in the Rose Park neighborhood, this lovely home has lots of character but at almost 100 years old, it’s showing its age and could use a little work. Built in 1913, the house has wonderful features, like a shiplap ceiling, wood floors, and a traditional porch and shaded backyard that make you want to linger a while. Originally built for a young man named Edward Bell who moved to Long Beach from Indiana, the home has seen many owners, including a previous bartender and manager to neighborhood classic watering hole, Joe Josts. For someone who loves Long Beach and older properties with a story to tell, 845 Obispo is a awesome opportunity for a would-be renovator.

Buying a home that isn’t “move-in ready” can feel overwhelming for some would-be homeowners, but there are lots of resources for renovation, as well as for obtaining renovation financing.

A new homeowner can feel a little overwhelmed when first considering their to-do list to make the space their own, so we’re including examples of info you need to make this beautiful home your own, as well as resources to learn more.

Planning for a 203K Loan

The first thing to establish when applying for a FHA 203K loan is exactly what you want to repair or update, and how much each of these things will cost. The place to start for this is a contractor to place bids on the different items that need work. You will also want a home inspector to come through and confirm the important things to fix on the house, which will make asking for and choosing different contractors much easier, as well as prevent having to make multiple revisions to your documentation for health/safety items that might need work.

Here’s a few things to keep in mind:

  1. Write everything down. If a home inspector or contractor makes a bid or estimate, you’ll want it in writing so that there is no confusion or unexpected changes later.
  2. Make sure you are following safety guidelines and building code. For example, if your home was built before 1978, you’ll need an EPA or state certified painter to do any work on chipping or peeling paint if lead based paint had been used.
  3. No family can be a contractor for a 203K loan. This keeps the transaction impartial.
  4. Do the math carefully. There’s a lot of potential work being done, and knowing the accurate total ahead of time makes requesting the 203K loan much simpler for you and your lender.
  5. Keep the seller’s agent in the loop! Getting bids on the property’s repairs might mean multiple trips to the house before financing is fully secured, so be prepared for the possibility of competition in a hot market, and working around the seller’s schedule.
  6. Generally speaking, the items that can be approved for repair on the house must add value, and do not include luxury items like pools. Things like solar energy can be added by certain lenders, but to what extent will vary.

You can check some resources from iMortgage here to better help prepare you for this part of the process, and decide what kind of renovation loan is best for you:

The Loan Itself

Once your bids and estimates for work on the house are complete, you’ll want to bring this with you to your lender. The amount that can be lent for repairs might be restricted if the loan is a 203K limited loan, and it must follow the county guidelines. Just as you would with a regular home purchase, you’ll still need the loan to be approved during your escrow period.

Speaking with lenders prior to applying for a 203k loan will give you a better idea of how much you can afford to do in repairs and what your overall monthly mortgage payment would be. While you are financing the cost of the repairs, that cost is paid back as part of your monthly mortgage payment. The bright side is that these repairs that the 203k loan finances will add value to your house, and sturdy new construction for you right after moving in.

Is This The Right Loan and House For Me?

Before deciding whether to pursue a 203K loan, ask yourself if you prefer to purchase a home that’s already been fixed up or one that you can make your own, using your vision and a lender’s up-front money. For some, the prospect of transforming a home is exciting, the chance to live what they see on TV’s house-flipping shows, even though they lack liquid capital. A classic home like 845 Obispo is a great candidate for this, giving a buyer the opportunity to have old features but new construction, and a prime location in the greater Long Beach area.

About the Author

Shannon Jones has been selling real estate since 1998 and specializes in listing and marketing homes. She has consistently been one of the top Realtors in the Long Beach area. Prior to her award-winning career in real estate with the Shannon jones Team, Shannon has had successful careers in journalism and public relations. She holds a bachelors degree from UC Irvine and a masters degree from UC Berkeley. Shannon holds E-Pro, CDPE (Certified Distressed Property Expert), and PSC (Pre-Foreclosure Specialist) certifications. Shannon is very personable and maintains a very strong moral compass, always putting the best interest of home buyers/sellers above monetary goals. A California native, Shannon enjoys gardening, travel, reading, cooking and poker when she’s not selling homes MY DESIGNATIONS Lic# 01247705 | CDPE (Certified Distressed Property Expert) | E-Pro | PSC (Pre-Foreclosure Specialist) MY SERVICE AREAS Anaheim Bellflower Buena Park Carson Cerritos Cypress Downey Fountain Valley Garden Grove Huntington Beach La Palma Lakewood Long Beach Los Alamitos Los Angeles County Norwalk Orange County Rossmoor San Pedro Seal Beach Signal Hill South Bay Westminster

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