FHA 203k Rehab Loans in Chicago Illinois Guidelines

In this article, we will cover and discuss FHA 203k Rehab loans in Chicago Illinois. FHA 203k Rehab Loans in Chicago Illinois is one of the most popular mortgage loan programs with the team at Gustan Cho Associates. FHA 203k Rehab Loans in Chicago Illinois are great loan products when used correctly.

It is for home buyers buying a fixer-upper or a homeowner needing rehab on their home and needing an FHA 203k Rehab Mortgage.

This will be the third in a series of articles that will attempt to give an honest and transparent assessment of several critical moving parts that make up FHA 203k Rehab Loans. In this article, we will discuss and cover using FHA 203k loans for buying fixer-upper homes.

Types of FHA 203k Rehab Loans In Chicago Illinois

There are two types of FHA 203k rehab loans in Chicago Illinois. Here are the two types of 203k rehab loan programs. They streamlined FHA 203k rehab loans. Standard FHA 203k rehab loans, which are also called the Full FHA 203k loans. The Streamlined 203k Rehab Loans are limited to the type of work the homeowner can do.

FHA 203k Streamline Mortgage Guidelines

Here is the type of work you can do with a Streamlined FHA 203k loan program. Limitation up to $35,000 construction budget. Cannot do any structural repairs such as room additions or combining two bedrooms into one

Scope of Work on Streamline FHA 203k Loans in Chicago Illinois and Surrounding Suburbs

The following types of work can be done with 203k Streamlines:

• Kitchens
• Bathrooms, HVAC repairs, and replacement
• Flooring
• Appliances
• Millwork
• Windows
• Roof
• Gutters/soffits/fascia/downspouts
• Electrical and plumbing updates/replacement/repairs can be covered

Full Standard FHA 203k Rehab Loans

With the Full and Standard FHA 203k loan program, there is no construction loan max. This holds true as long as the overall loan does not exceed the FHA Loan Limits in Chicago and the six counties of the Chicagoland Area. Chicago and its six counties have higher FHA Loan Limits than the rest of Illinois.

Chicago and Surrounding Counties

Here are the six counties of the Chicagoland Area where the FHA Loan Limits of Chicago and its suburbs apply for FHA 203k rehab loans in Chicago Illinois:

• Cook County, Illinois
• Lake County, Illinois
• Will County, Illinois
• Kane County, Illinois
• DuPage County, Illinois
• McHenry County, Illinois

The above six counties of Illinois have FHA 203k rehab loan limits of $472,030 on single-family homes. This is substantially higher than the rest of the counties in the state of Illinois.

What Types of Properties Can I Utilize With FHA 203k Rehab Loans in Chicago Illinois

HUD, the parent of FHA, considers any residential properties between one to four residential multi-family units. Homebuyers can purchase up to a four-unit multi-family property with an FHA loan with a 3.5% down payment. Here are FHA 203k rehab loans in Chicago Illinois, and its FHA loan limits in Chicago for one-to-four-unit properties:

• One Unit Properties $472,030
• Two Unit Properties $604,400
• Three Unit Properties $730,525
• Four Unit Properties $907,900

FHA 203k Rehab Loans Experts

Recently, I’ve watched the mortgage business become flooded with hundreds of newly minted FHA 203K rehab mortgage experts. They went to a four-hour seminar, and now they’re fully certified experts. They even have little diplomas to prove their expert status. Unfortunately, with this bunch, you’ll probably find Jimmy Hoffa before your FHA 203K rehab mortgage goes anywhere near a closing table.

What Are FHA 203k Rehab Loans?

FHA 203k Rehab Mortgage is a complex financial instrument. There are many more moving parts than a standard red, white, and blue, bread and butter FHA-insured mortgage home loan. Letting a loan officer originate a 203k rehab mortgage loan that doesn’t have a full working knowledge of the mechanics of this loan product would be like having a five-year-old landing a Boeing 747 aircraft.

Questions To Ask a FHA 203k Rehab Loans Mortgage Lender

When interviewing a prospective FHA 203k rehab mortgage lender, ask the following questions. How many FHA 203k rehab mortgage loans have they actually closed? How many mortgage banks do they work with closed FHA 203k rehab loans? What’s the name of the consultant they are and will be using?

Ask them to explain the drawing process of their FHA 203k rehab mortgage process. If whoever you ask these questions to can’t answer them without having to put you on hold, hang up immediately.

Contact us at Gustan Cho Associates and read up on the inner workings of FHA 203k rehab mortgage loans. Spending a little time now will save you time and headaches later. We Are Specialists On FHA 203k rehab loans with no lender overlays. Many of our FHA 203k Loans are borrowers who could not qualify at other Mortgage Companies due to their mortgage lender overlays.

Choosing and Hiring the Right FHA 203k Lender in Chicago Illinois

Here is something to consider when choosing the right FHA mortgage lender. Many lenders have higher mortgage lending guidelines than the minimum HUD guidelines due to the layers of risk with 203k rehab loans.

Many lenders will not accept mortgage loan borrowers without a 640 credit score. We have done countless FHA 203k Rehab Loans for borrowers with credit scores of under 640 FICO.

If you plan on purchasing a foreclosure or fixer-upper and need a lender with no overlay, contact Gustan Cho Associates at 800-900-8569 or email us at GCho@gustancho.com. We are available seven days a week, evenings, weekends, and holidays.

FHA 203k Loan Process In Illinois

Due to the real estate and credit collapse 2008, bankruptcies and foreclosures have skyrocketed, and housing values have tumbled. Potential home buyers can really get their dream homes at a fraction of the price on foreclosures. However, foreclosed homes or those trading at steep discounts often need work.

Buyers on a budget may find they have a choice between houses that are too small for their needs or homes that need extensive remodeling.

Some homes might need new kitchens, bathrooms, plumbing, electrical, or windows. In the following paragraphs, we will discuss and cover the 203k home loan process In Illinois for buyers of fixer-uppers.

Homes Needing Rehab

Unfortunately, homes in dire repair cannot be financed. A lender will not want to finance a house with half the kitchen torn off, or a bathroom with no vanity or toilet. Fortunately, the U.S. Federal Housing Administration (FHA)–a division of the Department of Housing and Urban Development (HUD) has a 203k Loan Program, a mortgage insurance program specially tailored for this situation. While this article focuses on how to use the program to purchase a home, 203(k) loans can also be used to refinance an existing mortgage to rehab the current home a homeowner owns.

How Much Home Can I Afford?

Determine a budget based on how much you can afford. Current 203k home loan programs are 3.5% down. So, a $200,000.00 home will be $7,000 down. Talk to a lender to see what loan amount you can be approved for based on income and expenses. Most importantly, the homeowner must determine how much home they can afford.

It’s not uncommon to be approved for a loan that will stretch a homeowner’s budget to the point of foreclosure.

Look for a house with an upside appreciation potential. Look for a house you like in a neighborhood you like. The 203k home loan program currently cannot be used by investors.

FHA 203k Rehab Loans in Chicago, Illinois, on Primary Owner-Occupant Homes

Only owner-occupant properties are eligible for FHA 203k loans. Together with the real estate agent, perform a preliminary feasibility analysis. Identify the repairs necessary, estimate the cost of these repairs, and estimate the market value of the home after the repairs. Homebuyers can save themselves some money by doing this before ordering appraisals or estimates. This holds true since you may determine that the cost of repairs is too high.

Drafting Up the Purchase Contract on FHA 203k Rehab Loans in Chicago Illinois

Execute a real estate purchase sales contract. To proceed with the 203k home loan application process, buyers will need a real estate purchase sales contract. The contract needs a clause stating that the sale is contingent on the ability to obtain financing through the 203k loan program.

Seller Concessions  on Purchase Contract with FHA 203k Rehab Loans in Chicago Illinois

Closing costs can cost thousands. The lender will allow the seller to help buyers with closing costs with seller concessions.

Apply for a FHA 203k Rehab Loans in Chicago Mortgage Application

Contact a HUD-approved lender to apply for the loan. Borrowers can obtain a list of approved lenders at the nearest HUD field office or on HUD’s website. FHA 203k loans are not difficult. The acquisition and renovation mortgage program is streamlined and simple to process, fund, and do the renovation work.

Many loan officers do not want to take on a 203k home loan borrower due to the immense paperwork involved. The construction amount cannot increase once the construction phase has started.

You must have a firm bid and no extras. The contractor must realize this because contractors tend to charge extras on construction projects. My recommendation is to get an estimate from a HUD-approved contractor or fee consultant. Homebuyers can find approved consultants on HUD’s website.

Appraisal on 203k Home Loan

Order an appraisal. Buyers will need an as-is appraisal and a as complete appraisal, so essentially. The first appraisal will be for the current value of the home, and the second appraisal will be to estimate the value after the repairs. The loan amount may not exceed the lesser of either the value of the home in its existing condition plus the cost of repairs and six months’ worth of mortgage payments or 110% of the estimated value of the home after repairs. The loan amount is also subject to maximum FHA mortgage limits, which vary from place to place.

Hiring a General Contractor on an FHA 203k Home Loan

Get a reputable licensed contractor. The 203k home loan program requires that a qualified contractor perform the repairs. Most people hire a licensed contractor (typically the one from which they got the estimate). Keep in mind, however, that borrowers can only be paid for materials if they are doing the work themselves. If this costs less than the contractor’s estimate, the excess money can be used for additional improvements or applied to the loan’s principal. All repairs need to be completed within six months of the purchase.

Does HUD Certify or Endorse HUD-APPROVED General Contractors

HUD does not recommend or certify contractors of any type. But Certified 203k home loan Contractors have validated 203k home loan experience or have completed a comprehensive education, testing, and training program on the 203k and have been thoroughly vetted to ensure they can comply with the financial requirements of the 203k home loan.

Close on Your FHA 203k Rehab Loans in Chicago Illinois

If everything is approved, buyers can purchase the home with a 3.5% down payment. Borrowers have six months after the purchase in which to complete the repairs. The repair fund is held in escrow and is disbursed in installments to the contractor. A HUD-approved inspector must review the progress before each disbursement is made. Once work is completed according to the initial plans, get the final inspection. If there is money left over, it must be applied toward the principal of the loan.

Using FHA 203k Rehab Loans in Chicago Illinois For Renovation

The market value of a home depends largely on its location, so it’s usually best to find a fixer-upper home in a desirable location rather than one in an area with a depressed housing market. Once work is completed, the 203k home loan mortgage can be refinanced as an FHA 203(b) loan, which may result in lower payments. The minimum repair amount necessary is $5,000. Beyond this, many repairs are eligible for the loan, including energy conservation and renewable energy upgrades and even moving an existing house onto the foundation of a home you intend to demolish.