How to invest in Southwest Florida real estate using FHA 203K loans

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Are you a real estate investor that is interested in rehabbing homes in Southwest Florida? Many times I get asked by newer real estate investors how to break into the investment market if they don’t have a ton of cash to make cash offers. Yes having large amounts of cash at your disposal will definitely give a real estate investor a big advantage over someone that needs to get traditional financing. As the Southwest Florida market for short sales is dwindling and more big money are chasing rehab projects the newer investor needs to learn about how FHA 203K loans work. The whole reason that the FHA 203K loan was created was to help improve neighborhoods by providing loan funds to purchase homes and rehab them.

HUD doesn’t loan the 203K money directly but instead uses specific approved lenders that are 203K insured. The way the 203K loan is different from a normal mortgage is that the repairs are usually made after closing. The alternative loan products for rehabs would be getting a conventional loan combined with a construction loan or a bridge loan which ends up adding more to the bottom line of expenses of rehabbing the house. With the 203K loan as long as you qualify and stick with all the regulations and rules of the loan there is only one loan and no need to refinance once the rehab is done as you have to do with a bridge or hard money loan. As a newer investor or an investor that doesn’t have the financial ability to buy houses for all cash that need to be rehabbed this is a great program. A huge benefit of the 203K loan is that the down payments are very low (usually around 3.5%), the interest rate on these loans will be lower than having to use hard money loans and you don’t have to have perfect credit.

Of course nothing is perfect and this loan is not for everyone especially if you have to do a fast closing. I recommend you use a lender that specializes in 203K loans because the application process can be frustrating and tedious as compared to normal conventional loans and not all properties will qualify. Because rules change, I recommend checking out the HUD website ( and finding a few local lenders that are experts in the 203K loan.

The reason you need to hire an expert in preparing a 203K loan is depending on how extensive the repairs are going to be is that there are 2 different versions or types of 203K loans. The first one which is a streamlined version is one where the house needs minor repairs that will cost less than $35,000. It requires that you also occupy the house for a minimum of 12 months unless the entity buying is a qualified non-profit organization. The full version will allow for converting the property in to a multi-family, adding on rooms or converting a multi-family into a single family home. This version covers structural issues and major renovations if they are covered under the loan guidelines. The repairs must be over $35,000 and this full version is mandatory if the repairs/renovations will take more than 6 months to do and when paying the contractors it will require multiple payments.

The types of properties eligible for the 203K loan are single family homes that are one year or older, condos if they are FHA approved to be owner occupied, triplexes, duplexes, fourplexes. The 203K lender will fund the purchase price of the property and holds the repair money in escrow and pays it out once the pre-approved repairs are completed by the approved contractors.

FHA usually requires 2 separate appraisals. The first appraisal is for the as-is value and the second appraisal will be for the anticipated “based on improvement” value will be once the repairs are completed.

So there you have it, if you would like to get more information on listings in the Southwest real estate market that are potential rehab projects give me a call and I can send you the best potential rehab deals as they come on the market.

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