One of the biggest objections I hear when talking about the FHA 203k renovation loan, is that the mortgage is too complicated. There is no doubt that the Chicago area FHA 203k renovation loan has more moving parts and there is more involved in getting the mortgage approved and closed than is the case with more vanilla mortgage loans. FHA rehab and renovation loans are certainly not for every home buyer or every situation, but the truth is that with the market dominated by short sales and foreclosures, these loans do fit a real need in the market and for the right person and the right property, they can save a lot of money and help you build equity right from the start. But first time home buyers are new to the home buying and mortgage process, and the home buying process by itself can be a little overwhelming even without the added complication of dealing with the rehab and construction process. So the question is, are these mortgages too complicated for first time home buyers to attempt?

My answer in my opinion, is no, first time home buyers can use these mortgages safely and effectively. There are a lot of advantages to buying a home with an FHA 203k rehab loan here in the Chicago area. First, you can buy with a minimal down payment – just 3.5% of the combined purchase and renovation cost. You can find “fixer uppers” which sell for a big discount, and turn them into homes that you are proud to live in. Buying a home this way often builds instant equity. You can buy with an FHA 203k mortgage even if you don’t have perfect credit, and if you don’t have a lot of savings, you can use a gift from a family member for the down payment and closing costs. There are a lot of advantages to buying a home with the Chicago area FHA 203k rehab mortgage, but it is extremely important that you know exactly what they are getting into, what is involved and what your responsibilities will be in the process.

Here are some tips for first time home buyers on what they can do to make the most of a Chicago area FHA 203k rehab and renovation mortgage:

Don’t bite off more than you can chew – If this is your first time buying a home, doing a full rehab might not be the best option. The Chicago FHA 203k streamline mortgage is available for work in the $30,000 and under range, and as the name suggests, it is a quicker and easy process. If you need to go with a larger project, or if you need structural work done, you will have an FHA 203k consultant to help you through the process, but this will still mean more time and effort on your part. The key here is to make sure that you can manage what you start.

Assemble a team of experts – This is probably the most important thing you can do to insure success with an FHA 203k rehab or renovation loan. Make sure your lender is an expert on these loans. Your loan officer or lender is the one who structures the loan and keeps the entire process on track. This is more complicated than most mortgages, and you don’t want them to make mistakes and learn things the hard way when your home and your money is at stake. Make sure your Realtor understands how the process works and is open to the loan, even if she has never worked with it before. Some Realtors want to control everything and the process here is different than with most loans. Getting a good FHA 203k consultant (if you need one) and the right contractor will mean less stress and will save you money. Ask for referrals for the contractor and make sure you feel comfortable with them, both personally and professionally. Lastly, make sure you get a good real estate attorney. Not all attorneys focus on real estate, but for this transaction you want one who specializes in real estate. Make sure that your team communicates well as this will keep the project on track and make it easier for you.

Make sure you fully understand the process before committing – When  first time home buyers make mistakes, it is often because they are impulsive, jumping in before they understand exactly what needs to be done. Make sure you talk through the entire process with a good qualified loan officer first, going over the entire details of what the home is like now and what you want the home to be like when you are done. This consultation will give you a road map of what to expect as you move forward. Make sure you get a detailed home inspection (it may make sense to have an FHA 203k consultant do the inspection – they will get the detail right, and will save you money down the road if you need to go with a consultant) telling you everything that could be an issue with the house. The same thing with the contractor, make sure you are on the same page and fully understand what work will be done, and how it will be done. Planning ahead will make everything easier later.

Don’t be penny wise but pound foolish – Cheaper is not necessarily better. Working with the discount contractor who says he can save you $1,000 but doesn’t return your phone calls or make it to appointments on time is not going to be a good idea. Trying to do the work yourself sounds like a good idea, but it usually isn’t. Trying to save by taking on projects you don’t have the time or expertise to finish is usually a recipe for bigger problems down the road. Saving a little on your mortgage rate could turn out to be expensive if it means you don’t close on time (or at all), or if lender mistakes lead to bigger problems, or draws aren’t released in a timely manner, or … you get the picture. Price is important, but quality, experience and communication are usually better investments for a successful transaction.

Keep your eye on the big picture – The mortgage process is more involved now than in the past, and when dealing with a Chicago area FHA 203k rehab and renovation mortgage there are bound to be some little surprises along the way. Maybe you have the scope of work all set up and the appraiser comes back with something else that needs to be done. Or there could be issues on the seller’s side, or a hundred other little details that could come up during the home buying process. When something unexpected happens along the way, don’t panic. Take a deep breath and look at the big picture. When you are done you will have your own home fixed up the way you want it. It is common for little issues to come up during the course of your transaction. When they do, call your team and get them working on a solution, there usually is one.

Buying a home and improving it with an FHA 203k rehab and renovation mortgage isn’t too much of a jump for most first time home buyers, if they are prepared for what they are getting into. If you are thinking about buying a home in the Chicago area and you want to explore your options, give me a call and we can do a full consultation to see what will work best for you. Let me know what I can do to help.

Free- Home Buyer’s Guide

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Peter Thompson/ Prospect Mortgage    630-479-6424

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