Rehab Loans - Proper Planning Makes Them Easy
In This Post
FHA 203K Loans made easy.
If you are not finding the quality in the home you had hoped to purchase, try attacking the problem with an FHA 203K Loan in hand. The 203K Program allows you buy a home that needs repairs, close on the home and then do the repairs after closing. The cost of the repairs is rolled into your total loan amount. The seller can exit the property without doing work orders and the buyer has full control the standards to which the work is completed.
If you are a buyer with some construction experience you may be able to do some of the work yourself and contract for the rest. If not, a contractor can handle the whole process.
I spoke with Ken Steiner of Home Street Bank in Seattle recently and he gave me the 13 steps you’ll want to follow if you want such a purchase to proceed smoothly from offer to closing and repairs. Ken has had many years of experience with this type of loan. Not all lenders may agree with the process he describes and I welcome the input of others. Making the purchase of such homes as stress free as possible for buyers and sellers is my goal.
There are 2 types of FHA 203K Loans available (Keep in mind that Fannie Mae rehab Loans are different than FHA Rehab loans in that they require 20%. The FHA requirement is 3.5% down, and 4-unit owner occupied multi-family properties qualify.
1. The Streamline 203K (or Cosmetic 203K) is good for up to $35,000 worth of work which may include a new roof, plumbing and electrical fixtures, paint and plaster repair.
2. The regular FHA 203K loan allows for structural changes, foundation work and kitchen and bath remodels.
The Thirteen Steps
1. Contact an experienced FHA 203K lender and get preapproved.
2. Select the target property, negotiate with the seller and present the signed agreement to the loan officer.
3. The loan officer assigns the case to a 203K consultant (not necessary for Streamlined 203K). Consultant fees in Washington vary between $600 and $1400 depending on the extent of the project.
4. Obtain bids from licensed contractors, even if you plan to do the work yourself.
5. Rehab documents prepared by the contractor, borrower, or consultant include cost breakdown, spec, buyer-builder contract, plans and a narrative. The loan officer will often assist the buyer with these documents.
6. An appraisal is ordered by the loan officer and the appraiser is given the rehab documentation.
7. Underwriting reviews the appraisal, title, and construction documents and gives final approval.
8. Build permit if required is obtained from local authority.
9. Transaction is finalized and closing documents are signed.
10. Sale closes, loan closes, and an escrow account is set up for construction draws.
11. Construction begins within 30 days of closing.
12. Draw requests are submitted to lender, lender sends inspector to job side, draws are issued to homeowner.
13. Construction completed within 6 months, final pay offs made and title is updated.
The process can easily be completed with minimal hassles when using experienced professionals. Make that fixer your dream home all on your original loan.
Glenn Roberts, SRES*
Lake and Company Real Estate
206-524-3665
Seattle Residential ~ I Do That
Licensed broker since 1985 offering spectacular service to buyers and sellers in greater Seattle, with particular interest in Green Lake, Ballard, Phinney Ridge, Wallingford, Ravenna, Bryant, View Ridge, Roosevelt and the University District.
*Senior Real Estate Specialist
Referrals from past clients and other agents always make me smile.
Glenn...the house with a scarf is too much.....
Richie - I liked that one too.
Glenn - Great post! As a mortgage gal, I rather like doing these loans. There are more challenging and they take longer to close but it's absolutely amazing what buyers can do with these loans. In our market (SoCA), we have so many run-down, dilapidated dumps that will never qualify for standard financing and unless you're an all-cash investor, a 203k is the only way to go.
Donne - Since prices started down, there is not the same amount of care given to homes in many places. While I hate to see that, it's nice to have 203K's around to help some starting out.
I have been exploring the possibility of purchasing a home with a 203K. The biggest problem I have come up against is finding a reliable 203K consultant. There doesn't seem to be any acountability process. The first guy charged me $250 to do a feasibility inspection then dropped off the face of the earth for a month. I emaied another guy and he said he would need to do his own inspection and that he'd charge me $500 (for a house that's under 1200 sq ft). None of the 203K consultants on HUD's list for the Seattle area are rated on Angie's List. It all seems very, very fly by night and sketchy. Any advice for finding a reputable, reliable 203k consultant in the Seattle area?
Thanks!
Jill - Thanks for commenting.
Here is the best 203K lender I know:
HomeStreet Bank
David Hatlen
601 union St. Suite 1800
Seattle, WA 98101
Phone: (206) 389-4408
Fax: (206) 389-4401
Email: david.hatlen@homestreetbank.com
Web site: http://www.homestreetbank.com
The only charge you may have is an appraisal, after you find a house. Tell Dave that Glenn from Lake and Co. says Hi. It's been a while since I've done one of these, but it is a good way to go.
Glenn - WOW! Jill's experiences reminded me of some of my 203k transactions. I've had more problems and issues with HUD's 203k consultants than I have with any other professionals involved in the transaction.
Having gone through a few of the listed consultants on the HUD site, I've definitely learned which ones are flakes @$$holes ego-maniac not worth calling again and which ones are at the top of my list to use again. It's really great to find one that is worth their weight in gold.
Glenn
When I referred to "203K consultant," I wasn't referring to a lender. I have one of those. A 203K consultant is the person who oversees the rehab, starting with a feasibility inspection, followed by a work write-up based on the contractor's bid. Later they sign the checks over to the contractor and decide if the work is adequately completed at the end. They are typically home inspectors who got "certified" by HUD to oversee the rehab process. They are not lenders. And you can't do a full 203k rehab without one.
Sorry, Jill, that I misread. The consultant has always been refered by the lender. I'm away at the moment.
HI Glenn. I'm certain that you know where to find the 203k Consultants in any area. Here's the link https://entp.hud.gov/idapp/html/f17cnsltdata.cfm . Also, we know how difficult it can be to find the knowledgeable and experienced contractors for the FHA 203(k) loan. Well, now there is an online directory of the approved, knowledgeable and experienced 203k Contractors. Here's the link http://203kContractors.com .