WHAT IS A 203 (k) LOAN?
The 203(k) loan is a fully disbursed loan, which allows a borrower to purchase or refinance a property and finance the cost of rehabilitation with one loan. Because it is fully disbursed at closing, HUD can insure the 203(k) loan as soon as the loan closes. The mortgage amount for these loans is based on the projected value of the property with the work completed, taking into account the cost of the work. HUD has taken a strong position to encourage this program and the loan is now easier to originate and close than ever before.
Use a consultant.
203(k) Consultant FeesThe 203k consultant’s fee varies depending on the cost of the repair work to be financed through a FHA 203k loan. The actual fees may vary from the amounts published by the HUD in its general fee schedule for the consultants performing the feasibility analysis report and other associated tasks. For the HUD established fee, a 203k Consultant will personally visit the property and provide all the necessary architectural exhibits along with a complete work write-up.
The base fee is $400 for the repairs that range between $5,000 to $7,500. For amounts ranging between $7,501 to $15,000 the HUD 203k consultant fee is $500. For renovation work amount between $15,001 to $30,000, it’s $600. For the cost of rehab work that falls in the range of $30,001 to $50,000, the 203k consultant fee is $700. The fee will be $800 for fix-up work that falls between $50,001 to $75,000. If the proposed repair work costs between $75,001 to $100K, the fee would be $900. In those rare cases where the renovation work to be undertaken exceeds $100,000, the fee shall be $1,000.
The above mentioned FHA 203k consultant fee amounts are meant for single family residential homes. For multi-family homes, the fee charged may be higher. Typically, it would be an additional $25 for each unit beyond the 1st one. If you are considering 203k financing using a streamline loan that allows for financing repairs under $35,000, there is no need for a feasibility analysis report performed by a consultant on HUD roster. For consultants that may need to travel beyond their local area(>30 miles for the round trip), mileage costs may also be chargeable along with the regular HUD established fees. Even if you used an independent consultant to do the feasibility analysis, a mandatory pre-appraisal inspection must be performed by a HUD-accepted fee consultant to ensure that the property is in compliance with 203k program’s guidelines and requirements. To perform this review, the utilities must be on prior to the site visit.
The fee to be charged is fixed and depends on the amount of repair work. For properties that require less than $15,000 in total rehab work, the fee is set at $100. For the repairs that range between $15,001 to $30,000, the fee for a consultant is $150 and $200 for any work above $30,000. These fees are based on the review of single-family homes. For multi-family properties, an $50 per each additional unit applies, provided these units come under the same case number as the primary unit. In cases where an additional review may be necessary, another $50 as fee is applicable.
If the distance is more than 30 miles (round trip) to visit the site from the reviewer’s official business location, additional mileage charges as established by the local HUD field office can be charged. Any additional charges related to Toll may also be applicable.
Role of the 203k ConsultantHome buyers planning on securing FHA 203k financing must work closely with 203k Consultant to co-ordinate the various steps involved throughout the process.
If the residential property being considered for purchase by the buyer is in need of repairs and the scope of the work to be done exceeds beyond the 203k streamline guidelines, then the following essential steps involves the involvement of a HUD-accepted 203k consultant.
Initial site visitCall up a local 203k consultant listed on the HUD constant roster and schedule an appointment for the site visit. The entire list of approved 203k consultant list in each state can be accessed through the HUD website.
Upon visiting the site, the consultant will perform a thorough examination of the property and provides with an assessment about the project’s feasibility under the 203k loan requirements. If the consultant determines that the project is indeed feasible, a formal agreement is signed and the buyer pays a retainer fee. The exact fee to be paid depends on the cost of the proposed repair work. The HUD stipulated fee amounts to be paid to the consultant can be figured out using the general fee schedule.
Architectural Exhibits, Detailed Work Write-up and Cost EstimatesBased on the initial site visit and inputs from buyer regarding their renovation plans, the 203k consultant will prepare a concise document regarding the project’s scope and specifications. Architectural exhibits along with a detailed cost breakdown for each of the repair tasks will also be included. Additionally, the 203k consultant will also prepare lender packages and contractor bid packages that contain everything mentioned above. Finally, draw request forms based on the work plan to be followed will be prepared.
Once the detailed work write-up is completed, a copy of the complete package with all the required documents is submitted to the lender, contractor and the borrower.
Choosing a ContractorThe borrower will then invite bids from contractors to complete the work listed in the consultant write-up. Before you proceed with the contractor bid process, make sure your 203k lender agrees to it. Most active 203k lenders may have pre-screened list of eligible contractors and they may stipulate that the work is done through one of them. If not, they may have a set of requirements for a contractor handling the rehab work. It is highly advisable to work with a contractor who is well aware of the 203k guidelines and understand the steps involved in it. If you are going to be working with a new contractor who has no prior experience, make them understand the draw process and the work completion schedule as determined by the 203k consultant in the write-up package.
Draw Request InspectionsThe 1st draw will be processed once the consultant determines that all the necessary permits have been issued from the local authorities. Depending on the completion of the work identified in write-up as per determined schedule, the consultant will make subsequent inspection visits and issues draw amounts.