talk to me about 203(k) loans

can_can

My realtor just called and said she attended a seminar last week about FHA 203(k) loans, and thought of us. We live in a 3 bedroom, 1 bathroom house, where one of the bedrooms is VERY small, and the basement is partially finished (meaning, it has cement floors, no walls, no ceiling, but there is lighting down there).

Our big plans for our house were to a) finish the basement and b) bump out the back of the house to expand the 3rd small bedroom, and as part of that expansion add a bathroom (to make it a master suite) and because the bedroom is on the 2nd floor, we'd also like to create a family room off the main living room.

Our realtor is convinced that this loan is for us, to use at the very least to finish the basement and add a bathroom in the basement, but depending on the estimate for bumping out the house, possibly that as well.

Anyone know anything about these loans, drawbacks, etc? We plan on speaking with a mortgate lender (our current loan is through Wells Fargo, and I have a good contact with someone from there)... but figured I'd ask in case someone has been through this recently. Our current loan is FHA, so we'd be refinancing, and I'm guessing would want to pay as little out of pocket as possible (so maybe no streamline?)

Thoughts?

BirdGirl01

The big drawback is that the rate is higher.  You also need to make sure you can afford the higher payments of the higher loan amount once you refinance. I would strongly recommend against rolling your closing costs into your loan, which may mean you need to pay out of pocket for your closing costs.

can_can

Hmm... our realtor mentioned that since rates are so low, we might actually be able to refinance with a lower rate than what we currently have (4.875%). So is that not true, or does it depend?

BirdGirl01

can_can:

Hmm... our realtor mentioned that since rates are so low, we might actually be able to refinance with a lower rate than what we currently have (4.875%). So is that not true, or does it depend?

That's probably true. I just meant higher than FHA rates, whatever they are now. Look into PMI very carefully though FHA PMI rates had gone up a LOT.  Many people were finding they couldn't refinance an FHA loan w/o paying more b/c even though interest rates went down PMI more than doubled.  That may have changed in the past couple of months.  Not sure.

can_can

Awesome! Thanks!