How to Write a FHA 203K Purchase Contract

If you’re a Realtor chances you are, in some capacity, working with foreclosures, short sales or other types of distressed property. You are also battling an inventory shortage that is affecting the ability to find a home, any home, for your potential buyers.
The FHA 203K Loan can help you on both fronts. It allows for buyers to finance neglected properties since property condition is not an issue for renovation loans AND it also increases the pool of potential properties for finicky buyers. They don’t need perfection in their potential homes because they can perfect it themselves, with their own touches as part of their renovation mortgage.
Before I get into the details on what you need to expect, how you write the 203K offer and the other caveats to 203K financing, I want to say one thing – WORK WITH AN EXPERIENCED RENOVATION LOAN OFFICER.
Now that we have that out of the way, on to the task at hand.

Writing a FHA 203K Purchase Offer

  • Put 203K in the Purchase Contract – Many lenders require this to be there, but it also lets the seller / listing agent know that those property condition issues that have killed deals in the past are NOT going to be an issue this time around.
  • Provide for a Longer Contingency Period – Best practice says allow for enough time to get the Home Inspection AND a Contractor Bid. 70% of my clients underestimate the the cost of the renovation initially.
  • Give at least 45 Days to Get Closed – 203K Loans have more 3rd party items, give some additional time for the buyer to get a couple contractors to the house AND give the contractors time to price accurately.

What to Expect During Your FHA 203K Transaction

  • Expect the Appraisal to Come Later in the Process than You Are Used To – 203K Appraisals are based on after repair value. You have to have the contractor bid FIRST before we can do the Appraisal
  • Expect to Provide More Access to the Property – Inspectors, Contractors and (sometimes) 3rd Party Consultants will all need access to the property.
  • Keep CALM – There’s more going on with a 203K Loan. More 3rd parties and more potential for delays. If you’ve heeded my initial advice and have chosen and experienced loan officer you’ll be fine even with a delay or two. You need to keep calm because if something does come up that slows the purchase down your calmness will ensure the listing agent stays cool as well.

All in all FHA 203K loans are not that much more difficult from the Realtor’s side. This is especially the case if you have chosen an experienced RENOVATION SPECIALIST to work with. Have I driven that home enough yet?
Now, get out there and sell someone a foreclosure already! Oh, 203K Loans are not just for distressed property, you can use them on move in ready homes as well. Don’t limit yourself, sometimes your buyer’s need some help seeing the vision.
Need a FHA 203K PRE-APPROVAL? We have you covered in 28 states, just click to contact me and we’ll get back to you within hours to walk you and your clients through the process and pre-approval phase.
Aundrea Beach-Greco
Mortgage Advisor, CMP, CMPS