FHA 203k Mortgages & Multi-Unit Family Properties

Another Great Use!

Buying and rehabbing a multi-family unit property can be done using the FHA 203k loan.  I’ve done a few of these loans and they are absolutely great!  I’m currently doing one right now — it’s a four-unit property and it’s a big job. The FHA 203k loan limits, which you can check out here, are much higher as the units go up.  So, the total rehab cost for this four-unit property is over $600,000.  It’s an enormous project and it’s one of the really cool things the FHA 203k allows you to do.  In this situation, this customer is going to live in one of the units and, ultimately, he is going to be collecting income from the other three units.  So, by doing this rehab, he is going to be able to bring in a good portion of income on a yearly basis.  It’s one of the great features of the FHA 203k loan.  The maximum amount of units you can do is a four-unit property.  You can obviously do two units; you can do three units- it all just depends on what is available in your area.  FHA 203k loans are greatly for these types of properties, but the important part to remember is with any FHA 203k loan, it is for primary residences only.  So you must, YOU MUST live in one of the units.  This is extremely important because, again, the FHA 203k loan is not for investors.  Investors may be coming down the road, but for now, this is not for investors, it is only for primary residences only.

Reserves With 3-4 Unit Properties

Another thing to keep in mind is that with three and four unit properties is you must have a certain amount of reserves.  The amount of reserves is three months, which, again, is liquid or retirement funds- anything which would be considered assets in some sort of bank account or IRA.  Basically, something that we can show that they would be able to tap into in case they would run into problems, but, again, this is only required for three and four-unit properties  The three and four units must self-support as well, which means the rental payments must be able to sustain the mortgage on its own, so that’s another important feature to keep in mind when you’re talking about a three or four unit property.

Two unit properties are just like a one unit.

But, again, there are little special nuances when we’re talking about multi-unit properties.  There’s a lot of areas in the City of Philadelphia, for one.  The large project that I’m doing right now, the $650,000 rehab, is in Jersey City.  It’s really close to the subway, which allows somebody to get back and forth from New York which is great because there’s a lot of people in New York that rather come to New Jersey for the cheaper rent and the ability to save a little bit money.  Those are other good reasons why those properties are so popular in such areas.

Supplement Your Income!

The FHA 203k mortgage allows for some great different types of properties and allows you to really make some money.  As a landlord who lives there, an occupying landlord, you’re able to make some additional money each month and that’s a great thing to supplement your income.  And in these times-  there are more people renting, so it’s great for anybody who’s interested in adding a little bit of extra money in their pocket and building equity you should consider doing an FHA 203k loan on any multi-unit family property.

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FHA 203K…The Contingency Reserve

What’s The Contingency Reserve?

The Contingency Reserve is something that needs to be addressed because it’s an extremely important part of the FHA 203k loan.  The Contingency Reserve is there for cost overruns- it is a component that is put in place to protect the home buyer or home refinancer in case of additional costs or expenses that may arise as a result of the rehab.

How Much?

The Contingency Reserve can be anywhere from 10-20% of the rehabilitation costs.  This rehabilitation number is set aside in case we open up the walls and there are broken pipes, missing, etc- one never knows what can happen when walls are opened up so there must be a reserve account- just in case!


You buy a vacant property for $200,000 and add on $20,000 of rehab. They open the walls up because it’s a 1930s house with plaster walls and it ends up there’s a problem with the electrical or a problem with the plumbing- and the costs exceed the initial estimate of the contractor.

Protection Offered:

Nobody could have known this and we all obviously want to make sure the customer is taken care of and that the property gets up to FHA minimum property standards.  So, with this being said, it’s a great reason the Contingency Reserve is there.  It’s there to protect against all these types of things.

Additional Possibilities?

If we were to get through a project and the contingency reserve was never touched because the contractor hit the estimate “right on the head,” then you have a 10-20% contingency reserve there in place, which can be used for changes, as long as there is still money left in the reserve. In this case, you could do additional projects that you initially had thought were not possible, or, as a final option, you can allow the contingency to be put back against your principal…yet another thing that can be done with the contingency!  It’s something there to protect you, and,”if you don’t use it, it’s not like you lose it!”

Putting The Contingency Back…Any Slack In Payments?

Now, if we do put it back towards the principal balance of your mortgage, it will not lower your payment, however.  It will take down your overall balance, so that’s important to remember, because people sometimes think, “well I’m lowering my balance…shouldn’t that lower my payment?”  Your payment is set, the only thing that will change your payment moving forward is the potential for your taxes and insurance to change.  Otherwise, your principal is going to remain the same.

Other Uses For Unused Contingency

Most of my customers, typically, if they have not used up all of their contingency will add certain things on- maybe there’s an extra bathroom that they now can get done- or ,maybe there’s some extra carpeting or some extra hardwood floor that they hadn’t initially hoped to do, but now can.  I’ve had customers add on a deck, etc.  So, there’s additional things you can do with that contingency reserve that hasn’t been used.   A majority of the time we see 10% as the contingency, except for vacant homes, where we do 15% as the norm.

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FHA 203k Contractors: Are there any certified contractors?

There’s a common misconception that contractors need to be certified in order to participate in FHA 203k loansThis isn’t true!  There is NO actual official 203k training process that is certified or approved by HUD or FHA.

We make sure you’re going with reputable contractors.

The way we determine which contractors are going to be able to participate in FHA 203k loans is by:

  1. Contacting them personally
  2. Going over the premise of the loan
  3. Making sure they understand how it works
  4. Taking the time to go through their financials– making sure that they have the means and knowledge to be able to participate in one of these loans

We only select REPUTABLE contractors!

Certain contractors, if they can’t float the loan- or “float the job,” as we say, then they’re not going to be able to participate in FHA 203k loans.  Essentially, “floating the job,” means being able to finance the job right from the start.  With a Full 203k loan, contractors don’t receive any upfront cash.  So, it’s important for contractors to understand this all up front, and we make sure of this!

We make sure contractors meet ALL qualifications!

We always do the following with contractors that work with us:

  1. Contact References of the contractor to make sure that they are of sound business practices
  2. Check on Licenses
  3. Check on EDO Insurance
  4. Make sure they are licensed and insured- and bonded, if necessary

So these are the things that we will do as a lender to see if they understand and whether or not they meet the qualifications of a 203k contractor.

There are some independent companies that certify contractors.

One of these is the The 203k contractor directory at, which is owned and facilitated by Paul Welden.  He’s got a great resource.  He goes through an intensive protocol of training the contractors so they understand the program from start-to-finish.  It’s a 30 day- all wrapped into one course- kind of program.  Then once they’ve completed the course, he puts them through a test on which they must maintain a minimum score of at least 80%.  If they maintain that 80%, they get a nice, big, shiny FHA 203k certified directory logo.  We have some of these certified contractors on our Web site currently, so you can always use these kind of contractors- and know, full-well, that they understand the program and know that they are able to maintain the necessary requirements to participate in an FHA 203k loan.

We make sure our contractors REALLY understand the program!

We always use and look for contractors who really understand the program.  But, back to the main point, no, there is no certification program through HUD or FHA.  It’s our job as lenders to make sure that the contractors understand how the program works and make sure that they are going to be able to meet the requirements and get the job done!

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What is an FHA 203k mortgage?

What exactly is an FHA 203k mortgage?

An FHA 203k mortgage is essentially a regular FHA mortgage.  However, it has a special component which is an escrow account that allows the customer to be able to purchase or refinance a property and rehabilitate or renovate that said property.  This little piece that’s attached to the loan allows the customer to be able to do awesome projects!  Things as simple as re-carpeting, tiling, painting, simple cosmetic repairs, and all the way to dealing with full-scale rehabilitation projects. This includes, but is not limited to, adding square footage, putting a second floor on a rancher, and taking a home down to the foundation and basically starting new.  All of these things are allowed using the FHA 203k program.

Why use the FHA 203k program?

With the current environment and the amount of inventory that is out there, a lot of properties, if not really all, have some sort of rehab that needs to be done. I tell customers all the time, if you’re looking to buy a home, there’s no reason not to at least look at 203k as an option because there really is no move-in ready home. Move-in ready homes are called new construction or are homes that have already been completely renovated. Still, that newly renovated home is not your creation, it’s the creation of someone else. The FHA 203k program allows for you to be able to completely, 100%, design the home the way you want it, which is what the 203k was designed for!

The great part is the FHA 203k program comes in two flavors!

The two flavors are a Streamline 203k, and the standard, or Full 203k. They are very different programs.

  • The Streamline 203k Program:
    This program limits you to $35,000 in work. What I try to tell everybody, though, is that $35,000 is really about $30,000, because once you add in the fees, all of the updates and everything else that goes into the project, you really are limited to $30,000 in work that can be completed. I get a lot of calls from people who say, “Well, I want to do the Streamline…”  And I totally understand, but the thing that you need to consider is that the Streamline 203k doesn’t always mean that your loan amount is $35,000 or below. We require that you do a Full 203k if the property is a bank-owned or vacant property. In this situation, you couldn’t use the Streamline 203k- even if it was only $5,000 worth of work! These are instances where the Streamline 203k doesn’t work, even though the loan amount is $35,000 or below. The Streamline 203k is really for small rehabilitation projects. This means we allow for you to be able to do cosmetic repairs, small rehab projects, kitchen, bathroom- as long as it’s nothing structural. Structural repairs are not allowed to be done with a streamline. The Streamline 203k is simply to be used for small projects, cosmetic in nature, etc.
  • The Full 203k Program:
    The Full 203k program is great because it allows you to basically do whatever you want! It gives you a clean slate, a clean palate per se, so that you can actually sit there and start a home and do whatever you want- knock down walls- if its a rancher add a second floor- basically do whatever it is your heart desires! Whatever the home can appraise for and basically whatever you can think of doing, you can! Think of this as the clean slate- that’s what this allows you to do. If you see a home in the neighborhood you want, but its not the home you want, think about the 203k– realize that if you can get a property for a good price, you can do whatever you want to that property. I’ve seen some amazing projects!

Don’t hesitate to contact me!

I’d be happy to share more in subsequent blog posts. That’s the major information regarding the FHA 203k programs. The program is not limited, other than by the FHA limits, which can be searched on the FHA Web site. Reach out to me, talk to me about what questions you have, what’s allowed to be done, what’s not allowed to be done…I’m here to help!  Thank you very much and please keep reading.

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Common Misconceptions FHA 203k Rehab Mortgages

There’s some really big misconceptions regarding the FHA 203k mortgage, we’re going to talk about a few here.

The first one is that the FHA 203k rehab mortgage is hard.

It’s not! This isn’t rocket science guys, it’s really not that hard. The truth is the program really comes down to the people that are involved and the people that you have working with you on the project. If you have a lender who doesn’t know what they are doing, if you have a consultant who’s only done a few consultant reports in the last 10 years, if you’ve got a contractor who’s never done one and you have a Realtor who’s never done one- guess what, you’re going to have a problem- big surprise! Here’s the deal though, by selecting a lender with experience (someone like myself), who actually plays what we call the FHA 203k quarterback. You can reference my old blog about that. You will see that the program can be done quickly, easily and efficiently.

Basically what this person does (as in myself), we coordinate the entire transaction:  1- we coordinate the buyer- we make sure that they are pre-approved 2- we coordinate the consultant to make sure that they are ordered up 3- we make sure that the contractor understands the FHA 203k program- they have to understand how they get paid and finally then we have the same conversations with the realtor. We mentioned that the realtors understand exactly, as well, because truth be told, when all of the parties don’t understand and the expectations are not set we run into problems. If done correctly, the FHA 203k loan can be done quickly, easily and efficiently.

Next, the FHA 203k rehab mortgage program takes too long to close!

No, it does not! That is not the truth. I’m going to give you a prime example. I had a customer who came to me from a referral, a Realtor who had never done a 203k. You can reference her on my YouTube video here. She will tell you about her experience with the FHA 203k program. Truth be told, when she came to me she had no idea, now she loves it! Because, here’s the deal, she came to me, I explained to the customer, I got them pre-approved, hooked them up with a contractor (actually a couple of them), he already had one as well, we explained to them how the program worked, he hooked up with our consultant, we all met out at the property and literally within 30 days we closed the loan. That’s right, guys, 30 days!

Realtors ask me all the time, how long does it take to close one of these loans? It always comes back to the same thing-  it only takes a long as the client takes themselves because, ultimately, it’s a FHA loan.  The only difference is there’s a special escrow that’s set up. So the customer needs to select their contractors in a timely fashion. We do our work the same way we normally do. So if the customer sets up their contractors quickly and decides on somebody, we can close on of these loans in 30 days.  Again, working with experienced 203k lenders, consultants and contractors make all the difference. So when looking at doing this, I always recommend Mike Grace from the 203k Connection as my spot to go for my consultants. I also recommend Paul Weldon at These are two great resources. And, of course, I recommend myself as the lender because I know what I’m doing!  If it’s a state I’m not licensed in or someone in my company that I cannot oversee, I will recommend you to a lender that I have worked with or that one of our guys have worked with in the past. We want to make sure the job is done correctly and out of the gate right. So please, do yourself a favor and deal with experienced people only.

So, those are two HUGE misconceptions.

The third misconception is that you are required to use only certain contractors.

That’s not true either! HUD and FHA do not certify contractors. The 203k Contractor Directory has a training program and certifies people as their certification, but HUD and FHA do not have a certification. So, again, my job as the lender is to make sure that your contractor understands and, at the end of the day, not every contractor is going to want to do FHA 203k mortgages. It’s very simple- it doesn’t work for everyone. Most contractors aren’t well-funded enough to be able to do them. Now it doesn’t mean anything is wrong with them as contractors because some of the best contractors out there I know don’t do 203k’s. At the end of the day, it’s not for everyone. So keep that in mind.

And those are a few misconceptions and we’ll come up with more as we continue to go forward. Keep these in mind. Feel free to reach out to us and have a great day.

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Have you seen the show “Property Brothers” on HGTV?

I got really excited one day when this new show came out called the “Property Brothers.” I swear when I watch the show I think that I may actually be related to these guys in one-way or another. I believe I might be the third brother- the one that nobody knows about- the one that helps you to be able to finance the projects that these guys are doing!

Property Brothers on HGTV

Jeff Onofrio Professional Picture








So what do you think?  Ok- so maybe I don’t really resemble these guys but I know how to help you get the money that you  need to get these types of projects done!

FHA 203k Renovation Mortgage

As you can imagine most people don’t have the 50, 60, 70, 100 thousand dollars that these guys are using to do these great projects that they’re doing on the show, and normally they need a loan to do it. And what loan is that? What it really comes down to for most of my clients is the FHA 203k program. I’m hoping to actually get in touch with these guys and see if I can get this involved in one of their shows, because what their show really shows you is that any home that you look at, with the right eyes, can be turned into your dream home.

So the “Property Brothers” do what I am basically trying to preach. They look at homes in areas that are distressed- that have been neglected- properties that, at the end of the day, were once great homes and, as the years have gone on, their owners have gotten older and they’ve let the houses go but the structure is still there. They’re in the developments, they’re in the towns and they’re in the population that people want. However, the truth is, the houses have just deteriorated. So the great part about what these guys do, and what the FHA 203k program allows you to do, is to go into this property and kind of have a clean slate. It lets you look at the properties and say, “Hey, you know what? This property is not what I want, but it is where I want it, and the price is unbelievable! So here is what we can do: hire a contractor to come in and do what we want-  I want new kitchen cabinets; I want this cream color for my family room; I really like the open space concept; I really want a finished basement; and this issue of mold-  I’d like to get that mold remediation completed- this is a great house if it had all of this done!” There’s all kinds of things that the FHA 203k program allows for.

The “Property Brothers,” really get it. They understand that the opportunity is there to be able to buy great properties and do things that you want. The truth is you can create instant equity. So take that into consideration when going out to buy your home.  Whether your a first time home buyer or buying a move-up home, the one thing to keep in mind is that the FHA 203k program is for primary residences only, and as I’ve seen on most of the shows so far from the “Property Brothers,” they really only deal with primary residences which is great!

One of the things to keep in mind as well is that the FHA  203K mortgage program is only limited by county loan limits and those are established by FHA and HUD and can be searched FHA website. You want to check your county before you go out and start shopping and thinking this is the loan for you. Now understand there are other options but the FHA 203k is the crème de le crème of renovation programs that allow you to be able to do everything that you want with not a whole lot of limitations.

So check out the show, its on HGTV on Wednesdays, and think about the brother that is not on the show (that would be me, Jeff Onofrio) and understand that there is another component to buying these houses and that if you’re a first-time home buyer, or any other type of buyer, or even somebody that is interested in refinancing, you can do the same thing!  You are not limited, these people are not the only people out there that can buy great deals and include the renovations into the mortgage- you can do it too!  Who knows, maybe we can talk to the “Property Brothers” and get them to come out to the property and show you what you can do using our program. So consider the FHA 203k mortgage program when considering purchasing a home, and realize that it’s not just for major rehabs, it can be for little ones as well. Thank you very much!

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What to Expect When You Apply for a Mortgage

You’re ready to make that big step into home ownership, which can be exciting, but if you’ve never gone through the process? It’s easy to get overwhelmed but when you have a better understanding of what to expect from the process of obtaining a mortgage, you will feel much more confident about every decision you make no matter what comes your way. While we can’t cover everything that you may experience when you apply for a mortgage, here are a few things you can surely expect!

The Mortgage Application Process

1. Discuss your needs and your finances with your mortgage professional – While this is not a step that you are required to take, even before you begin shopping for a house or a mortgage, it’s a good idea to go over your finances with a mortgage representative that can provide further advice on saving for your down payment or which debts you may want to pay off in order to qualify for the mortgage amount you’re hoping for.

2. Get Pre-Approved – Before you begin shopping for a house, you want to get pre-approved so you know what your lender will allow you to spend. In order to do this, you will need to need to complete a basic mortgage application and provide information about your income, debts and expenses.  Your mortgage professional will look at all of this information and will advise you on the best mortgages for your needs, and provide a guideline as to how much you can spend on your home.

3. Commit To a Mortgage – The specific process depends upon your lender, but typically once you’ve made an offer on your home, you will have to provide a few further details about you that way your mortgage application can be formally processed. You will receive a mortgage commitment, but there may be some conditions attached.

4. Fulfilling Your Mortgage Conditions – It depends upon your state and lender, but often you will be asked to prove that you have your down payment and even some of your closing costs in place 30 days before you’re set to close on your  home.  If some of your down payment will be coming from a family member as a gift, you may also be asked to provide a gift letter. Your lender wants to ensure that you aren’t borrowing your cash assets that you’re using for your home purchase.

5. Sign Your Closing Papers – This may happen before your closing date or on your closing date depending upon your lender and where you live.  You will then confirm the frequency of your mortgage payments and arrange a payment method for your mortgage premiums.

The above outlines some of the main components of the mortgage application process, though some of the finer details will depend upon your lender and the state you live in!

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Home Values Show Increase, Signs of Recovery?

This week was marked by several indexes showing similar gains in housing prices, a change that every home owner has been waiting for and a sign that the summer housing market is moving in a positive direction.

The Case-Schiller index, which is a measure of of home-value is calculated from repeat sales of single-family homes (as opposed to relying on median home prices) showed that home values rose 0.8 percent for the 10-city index and 0.7 percent for the 20-city measure when compared with March.

Click to Enlarge

Similarly, the Federal Housing Finance Agency’s monthly House Price Index (FHFA Index) shows U.S. home prices rose 0.8 percent on a seasonally-adjusted basis from March to April. The FHFA monthly index is calculated using purchase prices of houses backing mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac.

Finally, the National Association of Realtors Pending Home Sales Index (PHSI) showed growth of 8.2% month over month, which is 13.4% higher than May 2010. It is also worth noting that this is the single largest gain since November 2010.

About the NAR Pending Home Sales Index:

NAR’s Pending Home Sales Index (PHSI) is released during the first week of each month. It is designed to be a leading indicator of housing activity.

The index measures housing contract activity. It is based on signed real estate contracts for existing single-family homes, condos and co-ops. A signed contract is not counted as a sale until the transaction closes. Modeling for the PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years.

If you are considering purchasing a new home but aren’t sure how much you qualify for, we can help. Now is a great time to take advantage of historically low rates, waiting may result in having to pay more for a higher rate, so don’t hesitate with any questions you might have. Have a happy and safe 4th of July!

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BuildFax? What is it and Why is it Free Until July 31st?

You’ve probably heard of CarFax, a service that enables you to get vehicle history reports before you purchase a car to make sure that you aren’t buying a car with otherwise undetectable problems or history that may cost you money in the future. Now BuildFax, based in Austin, Texas is offering a similar service for prospective home buyers that want to do further due diligence prior to purchasing a home.

BuildFax bills itself as a “a one-stop shop for building, remodel, and repair information for over 70 million U.S. properties”.

From the BuildFax Website:

BuildFax collects and organizes construction records on millions of properties from cities and counties across the United States. Once in our system, we analyze, mine and compare the data so that it becomes like a “background check” on a property. We have data on new construction, major systems repair, additions, renovations, roofs, pools, demolitions, contractors and more.”

BuildFax’s database of permit information from building departments covers in excess of 4,000 cities and counties. BuildFax provides summary reports showing major renovations or repairs done on properties including additions, plumbing, air conditioning, roof replacements, etc. BuildFax reports also including contractor and dates of work completed.

BuildFax reports are usually $39.99 per report, but you can sign up for a FREE REPORT until July 31, 2011.

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Mortgage Outlook for the Week of June 27, 2011

We start the week off in a positive direction for mortgage rates stemming from multiple positive economic events last week. The first event was good news regarding Greece’s debt issues as the country looks to pass an act that will lay out a plan for remaining solvent and keep other European nations and the IMF happy.

The second positive event was that the Federal Open Market Committee left the Fed Funds Rate (interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions) unchanged at .000% – .250% while lowering it expectations of growth in the future for the US economy. While the expectations growth outlook was not positive news for the economy as a whole, it is good for mortgage rates, which move lower in times of economic uncertainty or turmoil.

Economic Calendar for Week of June 27, 2011

  • Monday – Personal Income & Outlays Report for May, Kocherlakota and Koenig from the Fed speak, 2 Year Treasure Note Auction
  • Tuesday – Case-Shiller 20-city Index, 5 Year Treasure Note Auction
  • Wednesday – Consumer Confidence, Pending Home Sales, 7 Year Treasure Note Auction
  • Thursday – Initial Jobless Claims
  • Friday – Construction Spending

Not sure if you are in the best mortgage for your needs? We can give you the information you need to decide which options make the most sense for your current or future mortgage. Mortgage rates have continued to maintained low levels for months, creating a great opportunity to lock in a low rate on new home purchases or refinances, now is a great time to take advantage of low rates before they inevitably begin to move higher.

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