How to use an FHA 203k renovation loan to Eco-Rehabarama your own Dayton home

When you head off to the Eco-Rehabarama in May (details here), you might go to find your next home- the homes will be for sale- but seeing as there are 10 homes on the tour and they are expecting a couple hundred guests, obviously not everyone who visits is going to buy one of those homes. Many guests will be looking for inspiration for either their own home, or, information on how to turn a classic brick ranch into a stunning dream home. You will find it all at the Eco-Rehabarama, but today I wanted to share some information that might help you finance not only a home, but the renovations as well.

This can be done through a relatively unknown loan called an FHA 203k loan. It’s basically mortgage and renovation

financing rolled into a single loan and a single closing. I spoke with Mortgage Banker, Jerry Stewart, of Evolve Bank & Trust in Dayton, 937.528.6881, to find out how home buyers in Dayton can benefit from using the FHA 203k renovation loan. Here’s what Jerry said:

There are several things that make these renovation loans so great and often they are the only option for home buyers.

By renovating an existing property you are really choosing location over property specifications and we all know the three rules of real estate, location, location, location. So you can now buy that distressed or obsolete home in that desired location.

Sometimes buyers want to live in a specific community, but the price of a move-in condition home make that area off limits to them. The buyer may not have the cash on hand, or skills to do renovations on a distressed home themselves.
The FHA 203k loan can help with that. This is going to be important factor for older cities like Dayton and the first-tier or inner ring suburbs, which have a tremendous stock of aging homes and distressed neighborhoods. What better way to get those homes updated and the neighborhood values stabilized than by renovating existing housing stock, like the homes you will see at Eco-Rehabarama. The photos used in this article are before-and-afters from the same home, pulled from the Dayton Area Board of Realtors. While the 203k loan wasn’t used to finance these updates, this is an example of the type of work the loan could cover. Jerry explains another way home values are improved through this loan:

The other factor is value. When bank foreclosures or REOs are placed for sale, if they do not meet the minimum home standards that conventional and government loans require, they can only be bought with cash. This severely limits the amount of potential buyers. Lowering the number of buyers in turn lowers the eventual sales price. This gives you a great advantage to come in and buy these homes at a substantial discount and finance the needed updates.

Think about the ramifications for older neighborhoods: this can increase the number of owner occupants and decrease the number of investors, absentee owners, and negligent landlords that can devastate communities. But a buyer’s financial stability is also increased when the renovations are financed through a renovation loan. Jerry explains it like this:

With upgrading the major mechanicals you provide a certain level of certainty for years to come. The majority of home buyers in our area are doing so for the first time. Finding a home is the first part of home ownership but staying in the home is the most difficult part. Why not renovate the major mechanicals at purchase, and make the process that much more enjoyable, not to mention the tax credits.

A number of the short sales and foreclosures we see are being sold in mid-remodel, in other words, the buyers simply ran out of money or their financial situation changed and they are unable to finish needed upgrades or cosmetic improvements to the home. Sadly, it’s back on the market and it’s distressed, and the neighborhood is suffering as well. The FHA 203k loan can help get these homes mechanically sound at the time of purchase so the families do not have to come up with the money for those repairs later.

Ultimately though, for anyone who is looking for a renovation loan, this is a labor of love, with all the benefits of creating the home you’ve always wanted. Jerry talked about the emotional benefits of making a house, a home:

By doing it this way you make it yours. You pick the kitchen, the carpet, the square footage, not the previous owner. In 15 years of originating these loans the majority of projects I’ve done didn’t require renovations but the owners wanted to make it their own at the time of purchase.

So your home doesn’t have to show a need for renovations- it does not have to be distressed, you can simply finance your wish list using this loan as well.

Meanwhile, over the past few years the big box home improvement stores have made it easier for buyers to get the 203k renovations done with a minimum amount of hassle. As an example, you can see Lowe’s REBuildUSA program here for some general information about the process.

This loan is not going to be for everyone. It takes patience, organizational skills, and tenacity, but if you are looking for a way to finance your home and the renovations you’ve dreamed of, talk to your own lender, or Jerry at Evolve, to see if you qualify for the FHA 203k loan.