Finding a certified FHA 203k contractor can be a hard thing to come by- why you ask?  Simple- FHA / HUD does not maintain a database, train contractors, or even approve them to do work.  Finding a contractor to use in the FHA 203k renovation mortgage process is the responsibility of the home owner or purchaser.  This can be a daunting task as many contractors do not understand the process- how to start, paper work involved and how to create the bid, working with the HUD consultant, even understanding how they get paid.  So then how is a customer, who is also new to the 203k supposed to find a contractor?

The Contractor Directory for FHA 203k Loans at www.203kcontractors.com is a great place to start.  This is a directory that has a criteria and process for which contractors can get educated about the 203k and how they can implement it as a financing source for clients.  I personally work with contractors who have successfully navigated the program and certification because it gives these contractors a foundation to succeed using the 203k.  To quote there website:

“Through the 203k Contractor Certification Program, contractors receive education on the 203k to help them better understand the complexities, guidelines, paperwork, time lines, compensation structure, lender overlays, necessary and recommended processes, eligible and ineligible items in addition to roles of the various participants (lender, consultant, Realtor®, and consumer) in the 203k. This education is required in order to earn the designation as a Certified 203k Contractor. To verify their 203k Contractor Certification status, contractors will be listed here in the 203k Contractor Directory, should display the Certified 203k Contractor logo and you can also request to see a copy of their Certificate of Approval.”

Do all contractor’s need this certification?

Now do all contractors have to go this route to do the FHA 203k program- ABSOLUTELY NOT.  Any contractor is able to work with the program as long as the lender they are working with has approved them.  I am simply using this blog to explain to you, the consumer, that my experience has been good using certified contractors who have gone through this program.  At AnnieMac we have worked with hundreds of contractors and many have not been certified and we have had good experiences.  So if you are considering a FHA 203k mortgage then know that any contractor, as long as they are well funded can do 203k transactions.

What is needed for contractors to work within the FHA 203k Program?

• Contractors must fill out a Contractor Profile Package which includes an application
• All applicable state and local licenses and insurances
• Lead based paint certification
• Contractor must sign a Home Owner Contractor Agreement
• Contractor acknowledgement form explaining the types of 203k loans

Otherwise it just comes down to having the expectations set for the contractor as to what the time frames are so that we are all on the same page.

Why would a contractor want to do FHA 203k Loans?

FHA 203k loans can be a great resource for contractors and if they do the work in a workman like manner than it can be a good revenue stream for them as well.  The monies to be paid to the contractor are set into an escrow account and are paid as the work is complete- so its a simple equation:

Do good, quality work + Follow the 203k guidelines = Get Paid

If you have a contractor that you would like to use the FHA 203k program feel free to have them reach out to us and we will explain the program in detail and get them setup.  Also please have them reach out to the Contractor Directory at 1-855-CALL-203k (1-855-225-5203).

How Does a HUD 203k Inspection Differ from a Standard Home Inspection?

When homeowners ask me if my inspection as a 203k loan consultant can take the place of a standard home inspection, I usually tell them that is does not.  There are several reasons it doesn’t, but the main one is because the two inspections have two different purposes.

I am a trained home inspector with many years of experience and thousands of inspections completed.  In my capacity as a HUD 203k consultant, when I go out to a house to assess it for a homeowner who is considering borrowing funds under the 203k loan program, my inspection has a very specific focus.  My main goal is to inspect the property to see if it meets the “Minimum Property Standards” as set forth by HUD.

HUD’s “Minimum Property Standards” are found in their manuals online and are an extensive compilation of criteria that applies to things such as, construction and material standards, safety and health requirements, compliance with local codes and access requirements for handicapped and the elderly for their housing.  The main area of the HUD Standards that applies to the 203k loan program has to do with health and safety and the longevity of the building throughout the life of the loan.

FHA insures the 203k loan and before they take that risk, they want to make sure that the property meets their standards so their investment will be preserved.  Although a homeowner may borrow funds to remodel their kitchen or bathroom, or to build an addition, HUD will still require the loan to include budget items to cover repairs to bring the property up to their standards.  The kinds of items they want to see present, or upgraded if deficient, are things such as a good quality roof, a solid and stable foundation, functional and intact structure, functional doors and windows and a general state of function and good repair of house as a whole.

From and health and safety perspective, the property needs to have potable and hot water, functional sewage system and a functional and sound plumbing system.  Bathroom and kitchen facilities need to be in good repair, not too aged and serving their intended purpose.  Heating, and cooling where appropriate for the climate, are major safety concerns and no house can be without these systems.  A sound and functioning electrical system that is safe and without issues is also important and required.  To an extent, the consultant is looking out for FHA’s best interest in terms of the loan, but by doing so, he is also looking out for the homeowner’s interest.

Contrast this to the standard home inspection where the inspector is hired by and works purely for the homeowner or homebuyer.  A home inspector has a different set of standards he work from such as the California Real Estate Inspection Association Standards (CREIA), The American Society of Home Inspectors (ASHI), or International Standards of Practice for Performing a General Home Inspection, through The International Association of Certified Home Inspectors (InterNACHI).

The various standards by which a home inspector conducts his inspection can be much more rigorous than the HUD Standards.  Certainly there is overlap between to the two, however a home inspector will do a much more detailed and exhaustive inspection, followed up by an itemized inspection report.  This is great for the homeowner as he can have an itemized list of every little thing that is wrong with his house.  The inspection report generated by the HUD 203k consultant is mainly for his use only to compile a budget and have a record of what he saw while inspecting the property.  It is not usually forwarded to the homeowner for his review or records. Another very important thing to keep in mind is that home inspectors typically carry errors and omissions insurance that will cover them in case they miss large and costly repair items.  Their main purpose is the find out everything they can, given the limits of a visual inspection, that is going on with the house.  They will comment all items, whether they are in acceptable condition or not.  An experienced home inspector will generate a very thorough report that can be relied upon for accuracy, future repairs and as a resource of valuable information about the house.

A full-scale, extensive home inspection can cover many things such as the general home inspection, sewer main line inspection, chimney inspection, mold inspection and termite and pest inspection.  Having these different experts assess the condition of the property from their perspective only helps a homeowner get fully informed and know exactly what he is getting into when buying a house.  When refinancing a house, these inspections may not be necessary as the homeowner would already be familiar with the issues concerning his house.

The 203k loan can be used when buying a house and also for refinancing.  I recommend that a homebuyer take advantage of the various specialty inspections when buying so he understands his purchase very thoroughly.  A HUD 203k consultant inspection will not get into any of these specialty inspections as they require the expertise of numerous trained persons.  It is certainly in the best interest of the homeowner to understand these differences and what they address so he can make the most informed decision possible.

When using the 203k loan program for refinancing, it will be the homeowner’s choice whether or not he wants to have specialty inspections.  There is no requirement from HUD that he does so other than the inspection done by the consultant.  Certainly if he wants the information and the understanding it would be his choice.

However, the homeowner needs to understand the HUD 203k consultant inspection does not take the place of a thorough inspection by a qualified home inspector.
Steven Laszlo,

HUD 203k Consultant

www.hudconsultant.net

1)    The Buyer works with a realtor to find the right property for them, or the owner is ready for a renovation on their existing property.

2)    Get pre-approved by lender for the price range and repair estimate.

3)    Go to contract on the house noting that it is FHA 203k financing (for a purchase).

4)    A meeting is scheduled with a HUD Consultant on site of the property to complete the work write up and the estimate of repairs.

5)   The lender orders the appraisal for the property. The appraisal must contain the before and after renovation value of the home.

6)    Closing of the property takes place and escrowing the funds for repairs and upgrades.

7)   The contractor starts work on the property and draws down funds for repairs and upgrades.

8)    Lastly, you move into your new home or settle into your new and improved home.

The FHA 203k inspection, work write-up and cost estimate are essential elements in processing the FHA 203k insured loan.  Therefore, when a consultant is used for the project it is the responsibility of the consultant to assure that the specification of repairs are properly prepared.

These steps will help guide you through the FHA 203k mortgage process and get you into the home of your dreams.

• The FHA 203(K) is a loan that allows the buyer to purchase a home without a CO at closing.
• Can be used with short sales, REO and foreclosures.
• It can also be used to refinance your current mortgage to upgrade your home.
• 30 Year fixed rate loan.
• Creates equity fast.
• Convert commercial 5-6 units to HUD limits of 1-4 family.
• Convert single family homes to 4 family homes.
• Mixed use properties with no more than 25% commercial space is eligible.
• Buyer can borrow up to 110% of the appraised completed value.
• Project must start within 30 days of closing and be completed within 6 months of closing.

There are solutions to your home improvement problems.  The answer is the FHA 203k Refinance.

These are prime times for the FHA 203k program more than ever. There is a large inventory of homes on the market that fit the requirements for participation in the FHA 203k and it can be a simple process with the right professionals on board.

Contractors can offer their clients a new way to finance their remodeling projects with the FHA 203K Loan.

The extent of the rehabilitation under the FHA 203k may range from relatively minor (minimum of $5,000 in cost) to virtual reconstruction: a home that has been demolished or will be razed as part of rehabilitation is eligible, for example, provided that the existing foundation system remains in place. The types of improvements that borrowers may make using FHA 203k financing include:

• Structural alterations and reconstruction
• Repair or replacing well and/or septic system
• Roofing, siding and gutters
• Landscape work and site improvements
• Enhancing accessibility for a disabled person
• Additions
• Kitchen and Bathroom renovations
• Replace/Upgrade existing HVAC systems
• Replacement windows and doors
• Finish Basements and Waterproofing
• Plumbing and Electrical upgrade
• Appliances, Floor and Wall covering

Items that are not eligible for improvements include; swimming pools, tennis courts, basketball courts, hot tubs; simply, no luxury items

A full FHA 203k allows for complete renovations and rehabs of properties.  Everything allowed in a streamline FHA 203k is eligible for a full FHA 203k.  A full FHA 203k is used for all repairs and renovations over 35,000.

• does the house need painting?,
• do I need new carpeting?,
• how’s the landscaping?

These things are typically thought of once the first time home buyers get into the property.

Many times they just want to get in and are not thinking about what happens after.  The FHA 203k mortgages can really help with those additional costs that happen.  It can be used for appliances, counter tops, vanities and carpets in addition to many other items.  Why shouldn’t a buyer be able to roll the improvement costs into their loan at a very low interest rate? It makes total sense for the customer.  This will enable them to keep some money in their pockets, and not be house poor once they move in.  It is very easy for items to add up when you move into a new house.  Typically, most people don’t have that kind of money as a first time home buyer.  If they do, then it should be used for a rainy day fund for those unexpected expenses.

The FHA 203k mortgage program allows customers to keep money in their pockets.  The customer should be able to enjoy their home and not be burdened with trying to figure out how they are going to pay for those needed items in their new house.  Many first timers don’t have a lot of disposable cash lying around which makes the FHA 203k the perfect option.  It’s a great time to buy a home and this program allows first time home buyers to be able to have a reserve in their bank account.  The FHA 203k can play a big part in building one’s financial future.  It allows one to save out of pocket money in addition to building instant equity.

This program should definitely be considered as an option for all first time home buyers.  If it’s not being offered to you, ask why?   Many times it’s because the mortgage lender doesn’t offer the program, which may be the reason you’re not hearing about it.  Feel free to give us a call and we will help you accomplish your goals and get into your new home

4-Steps to moving 3 million REO properties with a 203k and other tools

Here is a simple (even oversimplified) action plan to move 3 million REO properties:

1. Reduce overall market inventory by an aggressive Short Sale/Refinance program This will stop the flow of new inventory onto the market, keep people in their homes and reduce new foreclosures. To accomplish this, lenders should be pressured to reduce principal amounts on 1st mortgages to a level of affordable payments. Then place a “soft 2nd” for the remaining balance that balloons in 5 years when the market and economy are likely to be doing much better.

2. Bring back the Investor 203k with terms that encourage local individual investors to risk their own capital and take action to buy, fix and sell or rent as local markets dictate. This will invigorate local markets and stimulate local economies much more than any institutional bulk sale can ever do.

Buying Foreclosures with FHA 203k Financing

3. Offer the same discounts to individual buyers that are being considered for the bulk institutional buyers. After all, why should the individual homeowner have to pay the institutional buyers a higher price (to account for their profit). The discounted prices could be and should be offered to individuals who after all, are the taxpayers paying for the government bailouts anyway. Get a 1,000 points of light who are motivated to do something with these properties and ignite energy throughout the country.

4. Allow institutional bulk buyers, but only after a certain “bid period” that allows individuals to buy at the same, or close to the same discounted prices as those being considered for institutional buyers.

This is THE BEST buying opportunity and the BIGGEST market correction in history with the LOWEST interest rates ever! Individuals should be given every tool and every opportunity to invest right now BEFORE the market turns upward. The FHA 203k loan program is a safe and efficient financing option.

True many cannot afford to, but those who can should and they will help stimulate the economy and change the attitude which will help those who do not yet qualify.

There’s more to do of course, but I hope that does provide some clear steps for housing professionals, government policy makers and individuals to make decisions about investing in our future.

My website www.203kServices.com  and my Blog “Today’s Real Estate Matters” at www.203kExperts.com  has information about how to use the FHA 203k as a tool in today’s market. You can reach me by email at vsimone@203kServices.com

It is imperative for the customer, Realtor and general contractor to understand the importance of the Specification of Repairs.  Unlike the bid itself from the contractor, this document is attached to the appraisal report and presented to the appraiser to assist in determining the value and future value of the property, based on the work to be completed.

Staying On The Same Page

The contractor and the consultant must also be on the same page, otherwise a situation may arise where the contractor may be willing to perform work for a price that differs from what the consultant determines- the numbers can very slightly but overall we want it to be in line.

Market Value = Less Problems

A perfect example of this would be having a contractor come in with a low bid—say $20,000 instead of $30,000-which would be the “market value” of repairs.  If he were to be unable to perform the work , then the work would have to go to another qualified contractor.  This new contractor should be able to complete the job within the budget allotted by the consultant, not within a budget that was originally provided by a contractor with a more attractive price.  So, please be aware of any contractors like this who may be offering you a deal, when, in fact, it could be a major problem in disguise.

So keep in mind that the FHA 203k Work Writeup, (SOR- Specification of Repairs) on the FHA 203k mortgage, based on the market value of the work to be completed, so that in the unlikely event that a particular contractor is unable to complete his work, we would be able to have a new contractor in place right away.  This is done for the protection of all parties involved in the transaction.

How come more Realtors and customers don’t use FHA 203k loans?  It’s a great question!

1. The answer really lies in the fact that most lenders (in house mortgage companies for the Realtors) don’t do the FHA 203k loan, or just don’t do it well.
2. Secondly, Realtors have fear about the FHA 203k loan because of past experiences with using the loan with inexperienced teams of people around them trying to secure the financing.

This is a great loan for today’s market.

The product really should be offered out to more people and recommended to pretty much all first-time homebuyers and really any other type of buyers, specifically because the inventory out there today, unless it’s new construction, really needs some sort of rehab or cosmetic repair work.

There are no homes out there, unless it’s new construction, that are move-in ready.  There’s no home that people move into and look at everything and say, “Wow!  That’s exactly what I want.”  That’s why the FHA 203k loan should be considered in almost every purchase transaction.  The reason it is not is because a lot of the in-house lenders that realtors use don’t offer the product.  Or the lenders or Realtors believe that the loan is hard or time consuming and truth be told it can be if the people working on the loan do not have experience.  Successful FHA 203k transactions happen when there are experienced lenders, FHA 203k consultants and contractors involved.

Feedback is always appreciated!

Make sure that your lender is offering this to you as an option, and if they’re not offering it to you as an option, ask them why.  Ask them and say specifically what is it about the FHA 203k loan that is the reason that you’re not offering that to me as an option for me to buy this house?  Then do me a favor, reach back to us and send us an e-mail telling us the responses that you’re getting from the in-house mortgage guy or from the guy you’re working with, as to why they’re not using the loan.  I would love to personally hear those answers so that I can help to create educational programs for clients like you, your Realtors and contractors alike.

Renovating and Rebuilding America – One Home at a Time

From A Customer’s Standpoint:

1. For customers, the interest rate is typically a little bit higher– somewhere usually about a quarter to a half percent higher than you would get on the typical FHA loan.
2. The second one is that it can be a little more expensive.  From an expense standpoint- there is a HUD certified FHA consultant who is involved.  The FHA 203k Consultant fees can range anywhere from $400 dollars to $1,100 dollars depending on the cost of the rehab. In addition, there are re-inspection fees included for that must be paid when a draw is requested (fees fees are financed into the loan).

The cost of this loan is slightly higher than using a typical FHA 203b mortgage or conventional financing however these other financing types do not give you the flexibility to roll in renovation and rehab into your mortgage so there is a tradeoff.  The pros far outweigh the cons for using a FHA 203k mortgage.

From A Realtor’s Standpoint:

From a realtor’s standpoint, there aren’t any downfalls.  There really is not much that has to be done differently except for giving additional access of the property so that we can get the FHA consultant and contractors into the property.  That’s really the only thing that’s going to change on the realtor standpoint.

From A Contractor’s Standpoint:

From a Contractor’s Standpoint, as we spoke about in other blogs, the contractor doesn’t get paid up front- they are paid on a draw schedule.  The truth is, some contractors are going to work with FHA 203k loans and some aren’t.  The one great thing about working with the FHA 203k loan is the contractor is going to get paid.  He doesn’t need to worry that the money isn’t going to be there.

So, as I said, there are some cons to a FHA 203k mortgage but the pros far outweigh the cons when it comes to renovation financing.  I hope that answers all of your questions.  Please feel free to e-mail me with any additional questions at jonofrio@annie-mac.com.