The FHA 203K: A Mortgage Option for First-Time Buyers/Rehabbers (with a case study!)

Dawn Griffin Posted by
Mortgages and Loans, Rehabbing Apr 2007

There are many ways to fund a renovation project. Mr. White, a man who renovates smaller projects around South City, said to me a while ago when I asked his secret, “CASH.

Well, not everybody has CASH and for those who have never even owned a home, there isn’t even equity. Never fear… there is always a way to finance your dream home even if you are a first time buyer or rehabber. In the case that you have never owned a home and have no experience doing any sort of renovation, there is still a way to buy a building that needs a considerable amount of work and not get in over your head.

The loan product is called an FHA 203K and the beauty of it is that while the property is under construction you don’t have to the pay the mortgage (although like anything else you will end up paying) and it is designed for a person without any renovation experience. There are many checks and balances to make sure that the borrower is doing the necessary planning and is working with reputable contractors. Before any money is lent the project undergoes a full review including inspection, appraisal of after-improved value and renovation plan. But don’t take my word for it. Below is a copy of a Q & A I had with a former client.

Kirsten is web designer with a passion for letterpress design. She needed a very unique space for her studio and she found that in an old brick building that was originally used as a horse stable for a St. Louis Police Station.





How did you know this was the building for you?

Because I have a lot of heavy equipment that would fit perfectly on the first floor of the space.

Did you have any $ for down payment?


Did you have any experience in renovation?


How did you finance the project?

The best thing about it was not having to pay on the loan for the first 6 months. I suppose the con would be that you have to borrow a bit extra, but other than that I didn’t really see any downfalls, as it allowed us to get the project done.

Can you explain the 203K process?

HA! I would have to look through my paperwork again.. But basically an inspector has to come out and verify that the property will be worth the amount that they are lending to you once you are done before they will lend the $ that you need for the renovation.

In retrospect do you think you could have accomplished the project without the 203K?


How did you find contractors?

Word of mouth.

What were some of the biggest hurdles in the process?

Communication with the contractor was pretty tough, and a lot of times they dont show when they say they will, etc… There were some hurdles to work through with the subcontractors as well, and disputes between the subcontractors and the contractor at times.

Is it finished or still a work in progress?

Very much a work in progress.

What did you splurge on?

The bathroom

What did you skimp on?

The kitchen.

Did you do any of the work yourself?

Yes, we did some custom ceiling work, installed fancy trim, tiled the kitchen counter, and some of the work on the deck and all the demolition. If you can take on the demolition on your own, it’s great because it saved us about 7,000$ to do it ourselves. It’s dirty and not fun, but you can’t really screw it up.

Any advice to other other first time rehabbers?

Find a good contractor!!!! And don’t be wimpy when dealing with them. I think I was too easy-going, and didn’t communicate a sense of urgency enough to the contractor. It seems with those guys the squeaky wheels get the most attention, as with most things, and I always tried to be pretty nice about stuff, but it ended up that a lot didn’t get done until the 9th hour.

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