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FHA 203(k) – Understanding Its Real Value – Part 2

Here is Part 2 of Skip Schenker’s two part series on understanding the FHA 203(k) and its real value. In case you missed yesterday’s, here is a link to Part 1.

How Is the Appraisal Completed?

The appraiser is given a detailed report from either a licensed contractor [for the “Streamline” 203(k)]; or from an FHA 203(k) Consultant [For the “Standard” 203(k)]. This Bid/Report details the scope of work that will be financed into the loan.  The appraiser visits the home and uses the scope of work report as his “rose colored glasses” and appraises the home under a “hypothetical assumption that the work has been completed”.  Thus the home is appraised “As-Repaired” even though the work has not been completed nor is it required to be completed until after the transaction closes and will be completed by the buyer thru his contractor.

Financing at 110% of the “Repaired Value”

Yes, it’s true.  Let’s use yesterday’s example; if the home is sold for $200,000 and the buyer’s acquisition cost is $258,000 including the renovation account.  If the home is appraised “As Repaired” at $235,000, this transaction will close because 110% of $235,000 is $258,500 and the acquisition cost is $258,000 which is less than 110%.  FHA will insure this loan and the transaction will close (some lenders have underwriting overlays and will only fund loans at 100% of the “repaired value”).  The FHA 203(k) can keep transactions together and eliminate the seller from having to make price reductions at the eleventh hour to keep the buyer from walking because the value did not come in.

Create Homeownership Opportunities for Owner-Occupant Buyers

Sellers have the opportunity to improve their image in the communities they serve by assisting in the revitalization efforts and helping to create homeownership opportunities.  Some servicers are being proactive by developing the feasibility study prior to marketing the property for home improvements a buyer may want to finance into their new loan.  A contractor provides a real bid that can be shared with prospective buyers.  This takes out the guesswork out of what the repair costs before the property goes under contract which reduces the potential for fall-out due to inaccurate estimate of the repair costs prior to contract acceptance.  I would encourage servicers to order the $150.00 feasibility study from the FHA 203(k) Consultant which gives a fool proof estimate of the required repairs that FHA will require to close the loan and make the home habitable.

The typical investor buyer is in it for the short haul– get in, make the home look nice, get it sold and get out with a profit.  The more the profit and the faster the turn time the better.  The owner-occupant buyer is typically in it for the long haul.  They want to raise their family and put roots in the community and make sure the repairs will provide years of enjoyment and safety.  They want to customize the home to their tastes.  They don’t want to purchase a home with white paint, beige carpet, cheap cabinets, fixtures and appliances.

Job Creation

When homes are purchased and repaired people are put to work.  It helped get us out of the depression in the 30’s and 40’s and it will work again. When someone purchases a distressed home using the FHA 203(k) and finances funds to update the home, they are helping put Americans back to work; the window manufactures, the carpet mills, the appliance makers, cabinet makers, light fixture manufactures, sink and toilet makers. Contractors are working again; retail stores and distributors are put back to work. Home inspectors, termite companies, roofing contractors, the list goes on and on including the jobs created in the real estate, escrow, title and finance industries.


This is a WIN for the sellers of homes who will be able to sell their distressed assets to owner occupant buyers for a greater net than to investors… a WIN for the buyer who gets to purchase a home for a good price and gets to improve the property the way they want according to their tastes…  it’s a WIN for the Community because we are revitalizing neighborhoods and stabilizing home prices…  and it’s a WIN for the country and our economy by creating jobs and putting our unemployed back to work.


Skip Schenker is the National Renovation Lending Manager at Benchmark Mortgage Inc, Benchmark Mortgage is a 10 year old mortgage banking firm located in Plano TX.  Skip, who also manages the Tustin, CA branch, has specialized in renovation lending since 1994; and has held positions at First Horizon, Wells Fargo, Bank of America and National Pacific Mortgage; He was a licensed contractor in the 1980’s.  Skip has spoken at industry conferences REOMAC, REOCON and has been teaching his continuing education class to hundreds of Realtors in CA since 1999.

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