The FHA 203k renovation and rehabilitation mortgage clears the way for numerous homeowners to get the very best buy on purchasing their home.    In my career as a mortgage loan officer for the past 20 years, I have seen my customers seal some of the very best deals buying real estate in Memphis using the FHA 203K Repair and Renovation loan.

My customer, Mr L, called me when they put the last finishes on their repairs on the house they purchased for just cents-on-the-dollar.   Here’s how he snagged the “deal of the century” as we are calling it.

Mr. L knew that his family needed to purchase a home that would more than meet their needs but still remain within their budget. They had been on the hunt for their perfect home for about 2 years.  I could hear the excitement in his voice when  Mr L called me to get the loan application completed and the preapproval letter drafted so that his contract could be accepted by the seller.

“This is the perfect house for us, Jo.  It is so unbelievable that we getting this house in this neighborhood for so little money.  Not only is our payment going to be within our budget, but is going to leave room for other stuff.  What a deal!”

Here is the process we went through to get the perfect house for Mr. L.

(1)   First he looked at the house with his contractor and got an idea of how much it would costs to repair

(2)   I gave him an estimate of what terms would be on the loan

(3)   He and his realtor wrote an offer to purchase the home and it was accepted.

(4)   I set up an appointment for the appraiser, the HUD consultant and the homebuyer to meet at the property.   The HUD consultant reviewed the specifications and cost estimates from the contractor who would do the work.  The appraiser gave us a value for the property.  Later the HUD consultant delivered the “official” reasonable costs estimate that the mortgage office would use to calculate Mr. L’s loan amount.

(5)   Mr. L submitted his income and asset documents and loan disclosures to the mortgage office and we submitted the loan to underwriting for approval.

(6)   Mr. L closed on his loan leaving the money for repairs in escrow to be pulled out little by little as the repair on the house gradually came to completion.   The HUD consultant came out 4 or 5 times to inspect the work as they would get to a certain stage in repairs.  At each inspection, a draw was made on the repair money sitting in the escrow account to pay the contractor until the work was completed.

Here is how the 203k loan structure looked approximately for Mr. L. :

Sales price:  $80,000

Cost of renovations:  $38,000

15% reserve on renovations: $5,700


X           96.5 (to subtract 3.5% mandatory down payment)

$119,371 (FHA base loan amount)

X            1.01 (adding 1% upfront FHA mortgage insurance)

=    $120,564 (total loan amount with upfront MIP added)

Mr. L’s money needed to close:

Down payment  3.5%  $4,339

Closing costs including $800 HUD consultant fee & 3 inspections $5,000

Escrowing property taxes and insurance $2,700

Seller agreed on contract to pay $2,400 of closing costs for buyer. (FHA allows the seller to pay up to 6% of the closing costs if it can be negotiated on the contract)

$4,339 dp + $5,000 closing costs + $2,700 tx & ins=$12,039 minus seller pd $2,400=Mr L to pay $9,639 to close.

The house value was assessed at over $200,000.  What a deal for Mr. L!  What a deal for anyone who can buy a house that far below market price, fix it up and walk into an instant 40% equity position!

Jo Garner, Mortgage Office

Evolve Bank & Trust

(901) 482-0354


The FHA 203K mortgage loan financing was a great real estate home purchase  for Mr. L living in Memphis.