Author Topic: 203 (k) loan type for a rental - any available banks?  (Read 213 times)

craiglepaige

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203 (k) loan type for a rental - any available banks?
« on: November 21, 2017, 07:11:25 AM »
I was speaking with my brother who works for the city's land bank and he said he's getting a 4-plex unit soon. The price will be in the $30k range and will need another $15k+ in renovations.

With baby #2 less than 2 weeks away, I can't justify wiping out the money from our savings for this property, so I was thinking of financing it. I know about the FHA 203 (k) loan but considering this is a rental, it doesn't apply. So do you guys know of any banks that offer a "renovation loan" where I can finance say, $50-60k for the unit plus reno?


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toganet

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Re: 203 (k) loan type for a rental - any available banks?
« Reply #1 on: November 21, 2017, 10:41:43 AM »
I was in a similar situation recently, and had trouble finding a bank that would give me a mortgage for such a small amount (from their perspective).  I was about to approach a very small local bank who claimed to offer mortgages in that range, but the price of the property came down even further and a cash deal made more sense.

I leveraged the repairs with a personal loan, and plan to do a "cash out refinance" using a home equity loan some time next year, as by then the exterior repairs will be completed.

My advice would be to look for local lenders, especially credit unions, and see if they can help.  If you've got a relationship with a banker, it doesn't hurt to ask for advice there, either -- they are typically well-versed on the options even if they can't help you directly.

Good luck!

MOOVN2MTL

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Re: 203 (k) loan type for a rental - any available banks?
« Reply #2 on: December 01, 2017, 02:02:47 PM »
Sounds like a candidate for a construction loan. However, it comes with a few caveats:
-Interest rate will be higher than conventional.
-Lender may require you to convert to conventional loan when construction and final inspection is complete, thus having to pay some or all closing costs twice.
-Reconstruction plan with detailed cost estimates from licensed contractor(s) probably required to support your plan.
-May be required to use a licensed GC and subcontractors to do the work so saving money by doing yourself may not be an option.
-Presentation of plan to loan committee by either you, your GC, or your loan officer (or all three).
-Appraisal includes estimated value when complete as well as current value.
-Expect loan payments in 3 or 4 draws, with inspections to qualify completeness to get the next draw.
For me, I wish I had just used my own cash as it delayed my remod project significantly and cost more money than what was probably necessary. But, I would suggest you investigate for your situation, you might find it favorable for you.

tralfamadorian

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Re: 203 (k) loan type for a rental - any available banks?
« Reply #3 on: December 01, 2017, 03:39:33 PM »
I know you said you didn't want to pay cash, but you should consider cash at that low a price. Your loan closing costs would be 10%+ of total loan costs and as MOOVN2MTL said, the process of construction loans are time consuming and paperwork heavy for that small an amount.