The 203k Streamline Needs a HUD Consultant.

The 203k Streamline is gaining some steam and increased Realtor acceptance. However, with the increased popularity comes misconceptions. The 203k Streamline is meant for minor cosmetic work and has a cap of $35,000 in repairs, a hombuyer and contractor is all that’s needed……or is it?
Any repair amount greater than $35,000 is still possible, but the loan gets classified as a 203k Standard loan.
The 203k Standard can do more in depth repairs such as room additions, and again can go well above the $35,000 than the 203k Streamline repair loan limit.
Due to the higher repair limit and increased complexity, the 203k Standard has a higher interest rate and fees and it also requires an approved HUD Consultant to oversee the project which yes is an additional fee, but well worth it.
Many times the 203k Streamline repairs bump up against the $35,000 maximum leaving no room for error. When a 203k Streamline project ends up going overbudget, which happens often, the loan must be flipped over to a 203k Standard which can put the entire transaction in jeopardy. Not all banks do both the 203k Streamline and the 203k Standard which creates problems and not all borrowers can qualify for the higher loan amount and interest rate that accompany the 203k Standard. So how do we avoid these problems?
Using a HUD Consultant on a 203k Streamline isn’t required, but it should be. The HUD Consultant knows contracting in and out, as well as the 203k. You can head off problems in the beginning by using a HUD Consultant to inspect the property which will give you piece of mind knowing that a qualified individual has let you know if the property can be submitted as a 203k Streamline or not based on the HUD Consultants findings.
The HUD Consultants fee is similar to the Home Inspector that your Realtor recommends to their clients.
If you have a HUD Consultant inspect your property, you don’t need a Home Inspection, and their fees are similar.
Knowing up front if your dream fixer property fits in the 203k Streamline “box” upfront should be required thinking and a HUD Consultant can save a homebuyer, Realtor and seller, headaches and aggravation if they are given the opportunity to inspect on all 203k Streamlines.

If you have a question in regards to this letter, please let me know by clicking here.

Best KW

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3 Comments

  1. Garrett Feis
    Posted October 2, 2010 at 2:51 pm | Permalink

    Kevin:

    Good article. We as a group of Consultants are all advocating using a Consultant on Streamlines. I’m suggesting that a Consultant be hired to do a Feasibility Study before the Home Inspection or Contractors bids. For those of you that don’t know about Feasibility Studies, a Feasibility Study is used to determine —is there enough money available in the project to get everything completed. My procedure is to answer the following questions:
    Purchase Price 100,000
    After Improved Value 150,000
    _________
    Construction Budget 50,000

    Buyer Pre-Qualified Amount 135,000

    The borrower’s ability to finance here becomes the limiting factor in this transaction. Therefore, the construction budget can’t be any more than 35,000.

    In the first 30 min, I walk thru the home to determine if all the mandatory repairs can be completed for 35,000 or less. If so, you have a feasible 203k. If I see 50,000 worth of mandatory repairs, I kill the deal right there. Nobody wastes time or energy. I write up a one page letter stating what the major repairs are and offer a dollar range. So, even if it’s a Streamline, the lender knows what has to be done and approximately how much it should cost. Now the borrower knows what has to be addressed, the contractor knows what has to be bid and has the lender has something to reference when they review the Contractors bids.

    My charges are a flat fee of $250.00. This is a fast service for us to offer and it’s less than a Home Inspection.

  2. DW
    Posted November 2, 2010 at 2:45 am | Permalink

    This is excellent advice if the consultant is licensed as a home inspector and carries appropriate E&O insurance. Some HUD consultants are excellent, while others, unfortunately, are not.

    Where would a buyer or RE agent find themselves if a serious defect was not found by the HUD consultant and there was not insurance coverage to remedy the situation?

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