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When Is 203k/Construction Financing Necessary?

203k renovation loans are available with both FHA and Conventional financing. 203k loans allow buyers to borrow more than the purchase price in order to finance repairs and improvements, as we have discussed in previous blogs.

We were asked yesterday, when is a 203k loan absolutely necessary? We were asked by a borrower who preferred to do the necessary work after close of escrow without going to the trouble of obtaining 203k financing.

Borrowers do not need to use 203k financing as long as no glaring repair or condition issues (leaky roof, sloping floors, gutted kitchen, etc.) are apparent to either the underwriter or the appraiser. As long as the Multiple Listing Service (MLS) and the purchase contract do not disclose any repair issues, and as long as there are no significantly visible issues for the appraiser to see and call out, repairs do not need to be made prior to close of escrow or via 203k financing.

A house can be very old, “tired” and dated and still not need any repairs prior to close.

203k Loans are necessary when borrowers either do not have enough cash to do all the desired and necessary repairs after close, or when the repair-needs are so obvious, glaring and significant that they need to be addressed prior to close of escrow.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646