FHA 203k rehab loans- Question and Answer- Part 2

Hi guys- thanks for reading our last post about FHA 203k rehab loans.  We have received a few more questions and as promised I am going to answer them here for everyone to read.  I am hoping to have a few contractors and a good 203K consultant I know to do a Question and Answer here for you in the next few days.  Enjoy the information and feel free to contact me with any questions regarding the FHA fixer upper loans!

Man and contractor

Question #1- What are the steps when buying a house with a FHA 203k rehab loan?          

I took this answer directly from the HUD website– the process is simple follow these steps and be sure to ask me for help!

The 203(k) loan includes the following steps:

 -   A potential home buyer locates a fixer-upper and executes a sales contract after doing a feasibility analysis of the property with their real estate professional. The contract should state that the buyer is seeking a 203(k) loan and that the contract is contingent on loan approval based on additional required repairs by the FHA or the lender.
 -   The home buyer then selects an FHA-approved 203(k) lender and arranges for a detailed proposal showing the scope of work to be done, including a detailed cost estimate on each repair or improvement of the project.
 -   The appraisal is performed to determine the value of the property after renovation.
 -   If the borrower passes the lender’s credit-worthiness test, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the allowable closing costs. The amount of the loan will also include a contingency reserve of 10% to 20% of the total remodeling costs and is used to cover any extra work not included in the original proposal.
 -   At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.
 -   The mortgage payments and remodeling begin after the loan closes. The borrower can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it is estimated to complete the rehab.
 -   Escrowed funds are released to the contractor during construction through a series of draw requests for completed work. To ensure completion of the job, 10% of each draw is held back; this money is paid after the lender determines their will be no liens on the property.

 Paint Brush

 

Question #2- Why are banks looking for buyers who are using FHA 203k and conventional loans only when selling bank owned properties?

When banks are trying to selling there properties they realize that in order to sell them they need loans that allow for repair escrows or can be financed “as-is”.  Regular FHA loans are great for purchases but most lenders need the repairs to be done upfront.  FHA 203k is your way around this.  I get calls from borrowers all the time who are told that they must get financing using the FHA 203k only- they are confused but once we go over the details they usually are excited to find out what the loan can allow them to do- replace carpets, remodel kitchens and baths, replace major appliances, etc, etc…

Bank owned properties

 

Jeff Onofrio – Village Home Mortgage – 856-505-6717 – jonofrio@village-capital.com

www.whatisFHA.com / www.myVillageMortgage.com

Comments

4 Responses to “FHA 203k rehab loans- Question and Answer- Part 2”

  1. Jason on March 31st, 2010 2:11 pm

    I am currently an a sticky situation with the 203k I had a FHA consultant at my house and told me that I needed to do a new roof removed electrical panel inside, we could turn it into a junction box, I already had an upgraded panel in the basement. Estimated cost $2500 come to find out we had to have a panel installed outside to meet building code this ended up costing more than anticipated, my contingency covered the extra cost. But now the inspector will not sign off on the electrical because of other items in the house. Some plugs not grounded reversed polarity basement not up to code. These extras are going to cost approximately $6,000 my loan was for $15,000
    what are my legal rights. Is the FHA consultant liable or the contractor liable for not noticing, the scope of work, and the actual cost to fix it.
    I just found out about this to day. I was wanting to move into my house by Easter. But now I am stuck.
    Thank you for your help

  2. Jeff Onofrio on March 31st, 2010 2:53 pm

    Hi Jason:
    Honestly this is a case that I would have to defer to an attorney. Since there is possible litigation on the loan you need to get someone who is licensed to provide that type of advice. My personal opinion is that you may have an issue with the contractor. The 203k consultants job is to help with making sure the property meets FHA requirements but the job of making sure of keeping the home up to code would fall back on the contractor. Again- i am not providing legal advice so your best bet is to contact an attorney. Sorry and I wish I could be more help. Good luck and let me know how it turns out. Have a good day. Jeff

  3. Steve on July 23rd, 2010 1:00 pm

    I am having the same problem only with the broker, 203k consultant, and the contractor. The broker didn’t process my paperwork properly because the contractor license number isn’t on the contract due to the fact that he wasn’t licensed when we closed on the loan. The contractor did poor work and now wants to sue me for money he thinks he is owed, and the 203k consultant referred me to a fraudulent arbitrator when trying to resolve the dispute between the contractor and me. I’ll tell you all the problem with this type of loan and litigation… no attorney on the planet (Pittsburgh, PA) has ever heard of an FHA203k loan. The bulk of the money spent on the attorney would be paid for him/her to do research on the subject!!!!!!!

  4. Jeff Onofrio on July 26th, 2010 4:29 pm

    That is a tough situation. As I have told many of my borrowers recently- only use lenders do not use a brokers #1 and when trying to get a consultant- make sure you find one by going to http://www.the203kconnection.com- this is where you can find good contractors and FHA 203k consultants. I am sorry to hear you are having such a hard time- getting good FHA 203k people on board is tough, not impossible though. Try calling FHA and talk to someone at the HOC. They should be able to help or point you in the right direction. 800-225-5342. Good luck and I hope this gets straightened out for you.

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