It’s a good idea to line up and interview home inspectors and contractors as you’re looking for your dream home. Ideally, once you’ve found a home and have an agreed to price, you’ll want to have the home inspected by a qualified inspector. One way to find a qualified inspector is to go to one of the major trade associations such as ASHI, the American Society of Home Inspectors.
Using the home inspection as a checklist, and adding any renovations you’d like to make “just because you want them that way”, you can hand the contractor (hopefully he attended the inspection” your inspection as a checklist for the work he or she is going to bid. You can get bids for any number of contractors, but your 203k lender only needs the bid from the contractor or contractors you choose.
Realtors who aren’t experienced with 203k loans believe a home inspection isn’t necessary when a buyer is doing a FHA 203k renovation loan. This is NOT true! It is important, when doing a FHA 203k loan, to know what’s wrong with the house so that you can have a complete list of needed repairs and fix everything that’s wrong with the home.
In many cases, a home inspector will make recommendations for things that may not be required but would be helpful to correct or modify. These can also be included in FHA 203k loan renovations as well as things you may just wish to do to your new home! You can get a general checklist for the 203k Streamline loan from the HUD website.
There are many qualified contractors who specialize in doing work in conjunction with 203k loans. It’s best that you talk with as many of these contractors as possible as a part of your search and initial evaluation process.
Borrowers should use their own due diligence in choosing a contractor to carry out the renovation work:
- Check with your better business bureau
- Ask for references, and check the references
- Search the internet for reviews
- Make sure that the contractor you use is properly insured
- Check your county court website for liens and lawsuits involving your contractor
Once your lender receives the bid or bids, it will be time to order the appraisal. The appraisal will take into consideration what work is being done to the house, and the appraiser will be asked to value the home as if all of the repairs contained in your bids have been completed. This is called the “after repaired value”. The appraiser will want to have all of the utilities on at the time he or she inspects the property.
The appraiser is NOT an inspector, yet the appraiser has a responsibility to note any items that seem to be in disrepair that are not included in your bids. If the appraiser finds items that need repair that are not in your bids, the appraiser will note these and you will then need to subsequently add these items to your provided bids. This will cause a delay in your loan process, as your loan will need to be re-underwritten and appraised based upon this new information. This means it is CRITICAL for you to include all needed items in your bid to begin with if you want to close on time. Not closing on time can jeopardize you losing your purchase contract or invoke financial penalties that are contained in your contract!
HUD 203k Consultants
HUD Consultants are private consultants that are certified by HUD to work with consumers in order to help them through the FHA 203k loan process.
The 203k Consultant inspects the property (this is not a substitute for a home inspection, although some 203k consultants are also home inspectors). The HUD consultant works with the consumer or borrower to insure that the home will meet FHA standards once all of the work is completed, reviews all contractor bids and qualifications with the borrower, and provides a “work write-up”, which provides a detailed accounting of all the work to be done and by who.
On Full 203k loans, HUD requires the borrower use a HUD Consultant. HUD Consultants charge a flat fee that is dictated by HUD based upon the total cost of repairs in the transaction. Presently, the HUD Consultant fee schedule is as follows:
Cost of Repairs Fee
$5,000.00 – $7,500.00 – $400
$7,501.00 – $15,000.00 – $500
$15,001.00 – $30,000.00 – $600
$30,001.00 – $50,000.00 – $700
$50,001.00 – $75,000.00 – $800
$75,001.00 – $100,000.00 – $900
$100,000.00 and above – $1000
An important part of the FHA 203k loan process is working with the right team – take the time to make sure that you have the right people who can help you get the job done right – the first time!Click to See the Latest Mortgage Rates»