FHA 203k loan process
What’s the process for getting a 203k loan?
There are more steps involved in getting a FHA 203(k) loan than a traditional mortgage or refinance loan. The extra steps are primarily for the renovation portion of the loan, as you’ll have to work with a consultant and contractors to determine what renovations you’ll need and do and provide detailed work plans to the lender so it knows how much it’ll lend you and how the funds will be used.
Because of these extra steps, the process also generally takes longer than what’s involved for a traditional mortgage.
The steps involved in getting a 203k loan
- Find an eligible property that you want to purchase and renovate
- Reach out to a lender that provides 203(k) loans (we have a list on the top of this page) and get pre-approved by the lender
- Put together a sales agreement with 203(k) contingencies (e.g. contract is contingent on 203(k) mortgage approval) and make an offer on the property
- If you’re getting a Standard 203(k) mortgage, choose a certified 203(k) Consultant who’ll do an inspection, provide estimates, and determine what fixes are needed with you
- Select a licensed contractor to draw up bids (i.e. cost estimates) for the repairs
- The lender will order an appraisal that’ll provide both the “as is,” or current, value of the home and the future value of the home after all of the repairs
- Obtain final loan approval from the lender
- Once approve, a portion of the loan proceeds is used to pay the seller, or, if a refinance, to pay off the existing mortgage, and the remaining funds are placed in an escrow account and released as work is completed
- The contractor starts the construction work, which must be complete within 6 months of closing and inspections will take place throughout the construction period
- Once all work is completed and meets conditions after a final inspection, the funds are disbursed to you and all liens on the home are release
You may also do all of the work yourself and not hire a contractor. There are some separate steps involved in that.