203k Loan Advice, Get A Contractor Bid Before You Write An Offer

In regards to the 203k loan advice, I don’t know everything and I don’t pretend to, but I know more than most.  However lately I’ve been receiving calls from troubled borrowers who have started a 203k loan with another lender and it’s falling apart and they need help keeping their deal together.

One of the main issues on the Standard 203k, (the one that does the bigger jobs such as adding on a room), I’ve been hearing about is that the home buyers got their home looked at by a contractor AFTER they made an offer to buy a home.  This can cause huge headaches.

It’s best to have a contractor, who is experienced with the 203k loan and it’s nuances, look at the property before you make your offer.  Give your contractor your wish list on what improvements you want to do and get a bid as to how much these upgrades are going to cost.  You need to know this upfront!

Also keep in mind if there are any health and safety issues such as dry rot damage, or a broken HVAC unit, broken windows and such, the lender will demand these items to be fixed before any of your requested repairs are to be done, so your repair amount may be increased to take care of these items.  This is where a trained 203k loan experienced contractor comes into play.  They may have an idea of what these health and safety items are or better yet have a HUD Consultant view the property before you make an offer as well, especially if the home has apparent damage. It doesn’t matter if the loan is to be a 203k Streamline (where a HUD Consultant isn’t required but is suggested to protect the homeowner) or a 203k Standard. There could be more damage than what it seems and if they are deemed health and safety issues, these fix it items will need to be added to the remodel/repair project.

Another reason why a contractor bid is needed upfront before you qualify for a 203k loan is that the repairs are part of the formula which calculates your final loan amount.  It’s best to get an idea on how much of a loan you qualify for, including the repairs as early in the process as possible.  It’s common sense, and you would think the lender would be guiding the home buyer on this, but many times they don’t.

To summarize, have your contractor selected before you make an offer on a home.  Walk thru the property and check it out thoroughly with the contractor and go back to the property if necessary a few times before you make the offer and don’t forget about having a HUD Consultant look over the property as well.  Look at it as a pre-inspection.

Also make sure the lender does both the 203k Standard loan as well as the 203k Streamline loan.   The 203k Streamline loan only gives $30-35k in funds for repairs and upgrades and if you are doing the 203k Streamline and if you go over budget and your lender only does the 203k Streamline loan, your home purchase is in serious jeopardy because you’ll have to switch lenders and possibly have to pay for a new appraisal since the appraisal may not be able to be transferred from one lender to another.

If you have any questions in regards to 203k loan advice feel free to email me your scenario and I would be glad to help!

Best

Kevin Walton

 

 

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3 Comments

  1. Ms. Robinson
    Posted January 15, 2012 at 10:37 am | Permalink

    I have been notified by the draw dept. that I will received my first half of the draw in a few days, BUT my contractor and I have decided to part ways. Help!!!!!!!!!! Can anyone give me heads up about what I’m facing? Will I lose my 203k Streamline funding?

  2. Posted January 19, 2012 at 7:32 pm | Permalink

    Very well put Cliff. The HUD Consultant can do a feasibility test as well to help the homeowner especially on the 203k Streamline where the home owner is on their own working with the contractor. Getting a contractor who has some sort of certification on the 203k loan will also help being that the contractor is educated on the 203k loan process and it’s nuances.

  3. Lisa Erban
    Posted April 3, 2012 at 6:11 pm | Permalink

    I wish I read this article before I started my 203k loan project. My original lender cant do a large ($30,000) 203k and I originally thought I would need about $15,000. Too bad I already put in an offer, while the seller demanded I have a closing date in 45 days because this has become an expensive headache and learning experience for me.

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