Buying a home or investment property using a 203k rehab loan in Chicago
The first time I came across an FHA 203k rehab loan, I had no clue what the process was and most of the information online was very vague. It turns out it’s a very simple process if done correctly and a great financing option.
How many times have you seen a property that you really liked and in a great neighborhood but the kitchen is stuck in the 70’s?
You can use a 203k rehab loan to get a new kitchen and still buy that home in that great neighborhood. A 203k rehab loan basically allows you to finance the costs of improvements or repairs into your mortgage at the time of purchase and minimizing your expenses.
A 203k rehab loan requires only 3.5% down and allows up to 6% in seller concessions.
Here’s some Q & A that will come in handy when working with a 203k rehab loan in Chicago.
#1 - Does your contractor need to be 203K certified or approved? NO, however the contractor has to be licensed, insured and bonded. The bank may also require letters of recommendation from your contractor.
Also,I found out that most so called 203k certified contractors are way too high on their estimates, 15-25% more. The contractor I hired had no experience with 203k rehab loans but I explained the whole process and he was fine.
# 2 - Utilities do not have to be activated - Wrong! All utilities must be operational. If you can not activate the furnace for whatever reason, than the furnace must be included in the bid. If you can not turn the water on because of busted pipes than the repairs and water heater must be in the bid.
# 3 - Need to have permits for everything - You need permits as required by your local city or Village. In Chicago you can do certain repairs without a permit, for more information click here.
# 4 - What is the actual down payment I need? Your downpayment will be based on the total financing amount including repairs & contingency fund. Let’s say you are buying a home for $300,000 and you will need $25,000 for a new kitchen plus the contingency fund which is 10-20% of the bid or $5,000 in this case. The total is 330,000 and your required down payment will be based on that amount or $11,550 (3.5%)
# 5 - There’s a $35,000 limit - There are two versions of FHA 203k loan, Streamline 203k allows up to $35,000 and does not require a 203k consultant. The Standard or Full 203k rehab loan allows for full rehab projects or improvements exceeding $35,000 and requires a 203k Consultant.
# 6 - What does a 203k Consultant do? The Consultants job is to oversee the entire process. A liaison between the lender, contractor and you the borrower.
# 7 - FHA loan - The property must meet FHA guidelines, focus on repairs that are required first.
# 8 - Loan limits in Cook County, IL - UPDATE 2019
Single family home $368,000 | 2-UNIT $471,100 | 3-UNIT $569,450 | 4-UNIT $707,700
Please feel free to leave your comments or questions.
Other interesting articles:
Posted by: Jose Hernandez| Coldwell Banker Residential Brokerage in Chicago