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203k vs. Conventional Rehab

What are the advantages of a conventional rehab loan over the FHA 203(k) loan? by RKline_462_853 from Sandy, Utah. Aug 7th 2012 Reply


Gary W Smith (garywsmith)
#1 ranked lender in Washington - 108 contributions

Most rehab loans conventionally will require a greater amount of equity available to do the loan than a FHA 203K. With FHA, you will need to determine which 203K product is right for you. If nothing requiring a permit or an architect, then a 203Ks will allow up to $35000 of eligible repairs and the maximum LTV on a refinance transaction is 97.75% of the LESSER of the sum of the existing mortgage debt + total rehabilitation costs + borrower paid closing costs + Pre-paids + discount on total loan amount - discount on repair costs - FHA MIP refund OR the lesser of the sum of the "as is" value + the total rehabilitation/repairs costs or 110% of the after improved value. Gary W SMith - MLO#53963; First Priority Financial (253) 536-5626; ext.304

Aug 7th 2012
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William J Acres (William_Acres)
#1 ranked lender in Arizona - 4,994 contributions

The biggest advantage of conventional rehab vs FHA is the lenders.. Very, very few lenders will do the conventional rehab.. just about everyone out there does do the FHA 203K.. The rate will be lower on FHA, and when you add back in the mortgage insurance, you will be pretty close to what you would get going conventional. Both of these will be troublesome, and anyone who tells you differently is inexperienced in doing rehab loans. But FHA is going to be less of a headache then conventional.. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. 480-287-5714 WilliamAcres.com

Aug 7th 2012
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Bert Carpenter (BertCarpenter)
#42 ranked lender in Arizona - 1,733 contributions

Conventional re-habs ( HomePath Renovation) loans are a royal pain in the rear. First of all there are only a handful of lenders, nationally that will consider them. FHA 203k on the other hand are complex, yet easy to originate, process and fund. Because FHA has set the standards, it is easy to get your project estimated and approved. If the property is NOT going to be your primary residence, then you can't do FHA, otherwise it is the only way to go. ~ Bert Carpenter, The LoansA2z team of NOVA Home Loans ~ NMLS 40586 ~ www.LoansA2z.com 888-889-9950

Aug 8th 2012
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Brett Pehrson (brett@homeloansinutah.com)
#19 ranked lender in Utah - 217 contributions

I think a lot depends on what you're describing to be the conventional rehab loan. The main advantages I can think of right now are that you would have the option to avoid mortgage insurance (depending on your equity/down payment) and perhaps less paperwork and fewer restrictions on what is considered acceptable rehab. For example, with an FHA 203K Streamline, it is essentially for cosmetic repairs (no structural) and has a limitation of $35000 (which includes contingency reserves). Most of the time, on the conventional side, you're going to be talking about a specific bank's portfolio construction/rehab program and subject to their own guidelines and restrictions; there is a Fannie Mae rehab loan available, but quite honestly I don't know of any local mortgage company that offers that specific program. I'm well-experience here locally with the 203K program and have a conventional portfolio program available, as well; if you'd like me to review these with you in more detail and offer you guidance, feel free to call me at 801-918-9385 or email me at brett@homeloansinutah.com.

Aug 7th 2012
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Brett Pehrson (brett@homeloansinutah.com)
#19 ranked lender in Utah - 217 contributions

Let me clarify something from my previous answer. On the conventional rehab, you likely would be required to have 20-30% equity under most of the programs I've seen available, therefore you avoid mortgage insurance because of the required equity position. The 203K advantage here is that you have the option to put as little as 3.5% down and even borrow up to 110% of the value of the property to make improvements. Each has their pros and cons; a lot depends on your specific situation as to what is considered an advantage.

Aug 7th 2012
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Team Best Mortgage Option (AtEmbassyFundingLLC)
#32 ranked lender in New York - 1,973 contributions

The only advantage of a conventional rehab is probably less fees such as the FHA rehab has an upfront and monthly mortgage insurance premium and you wouldn't have that with the conventional rehab but you would have to put down more money and the rate would be a little higher than on the FHA.

Aug 7th 2012
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James Barath (JamesBarath)
#1 ranked lender in Indiana - 344 contributions

There really is no advantage of a conventional rehab loan for an owner-occupied home. Especially when you consider the loan-to-value conventional rehab loan will be based on today's unrepaired value and an FHA 203(k) Rehabilitation Loan will lend based on 110% of subject-to-repairs value.

Aug 7th 2012
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