FHA 203(K) Consultant

FHA 203(k)~ The Best Program Available For Distressed Property

Christopher Colvin (Gravity Architects & Consulting) — Fri, 23 Apr 2010 18:57:37 -0700

Going 203(k)? GREAT! But it's time to make a call...

The very first thing to do is call the 203(k) Consultant. The 203(k) Consultant is your guide into the loan, and will assemble the FHA/HUD package to get you past underwriting. As a professional 203(k) Consultant, I handle a lot of these loans, which is your assurance that I know exactly what to provide to the Lender and how to work with the Contractor. Unfortunately, its been my experience that a lot of misinformation exists on the web about this program, and it is VERY IMPORTANT to have clarity and direction when you are first considering the property ~ so don't hesitate to call when you are thinking about going under contract.

The 203(k) WHAT loan?

There are TWO primary types of 203(k) loans, and as I am discovering, the Consultant is being required on more and more Streamline loans - not just the Full 203(k). It's important to pin this down before you get too far with your Lender, as time can be of the essence if you are in due diligence. Note that all lenders are not equal in this arena. You want a Lender who has been closing 203(k) loans for a while now, and has worked out all the office-drama that these seem to generate.

The 203(k) Streamline:

The 203k Streamline program is intended for uncomplicated rehabilitation or improvements to a home for which permit drawings, consultants, engineers or architects are NOT required. This program allows discretionary improvements and/or repairs shown below:

Repair/Replacement of roofs, gutters, down spouts and diverters.
Replacement of existing HVAC systems-- unless it's a theft situation where tertiary damage has occurred.
Repairs to plumbing fixtures, and very minor electrical items
Repair/Replacement of flooring.
Minor interior remodeling, such as kitchens and bathrooms, which do NOT involve structural alterations.
All surfaces must be in stable condition in order to be painted.
Weatherization: windows, doors, insulation, weather stripping, caulking or new siding.
Appliances: including ranges, refrigerators, washers/dryers, dishwashers, microwaves and hoods.
Accessibility improvements for persons with disabilities.
Lead-based paint stabilization or abatement of lead-based paint - interior and exterior.
Repairs to decks, patios and porches.
Basement finishing and remodeling, which do not involve structural alterations.
Basement waterproofing.
Septic system repair or replacement.

Mortgagors may NOT use the 203(k) Streamline loan program to finance any required repairs arising from the appraisal that do not appear on the list of Streamlined 203k eligible work Items or that would:

Necessitate an FHA 203(k) Consultant to develop a Specification of Repairs aka Work Write-Up.
Require plans or architectural exhibits.
Require a plan reviewer.
Require more than six months to complete.
Result in work not starting within 30 days after loan closing - or cause the homeowner to be displaced from the property for more than 30 days during the time the rehabilitation work is being conducted.

The Full 203(k):This program is generally for more aggressive remodeling and alterations, items listed are not eligible for financing under the Streamlined 203k loan program.

Major rehabilitation or major remodeling, such as the relocation of load-bearing partition walls.
New construction, such as room additions or attached structures.
Repair of structural damage to load bearing partitions or floor systems.
Repairs requiring detailed drawings or architectural exhibits - or any permit drawings.
Landscaping or similar site improvements that correct an inherent flaw with water flow.
Any repair or improvement requiring a work schedule longer than six (6) months.
Rehabilitation activities that require more than two (2) payments per specialized contractor.

It is important to note that certain types of theft can turn a Streamline into a Full K loan. Regardless, you are going to need a professional Contractor - who has completed the Contractor Validation Package for the Lender... and you will more than likely need PERMIT DRAWINGS for the City or County in order to pull a permit.

So, take a deep breath, and know that when the Consultant hits the scene - things tend to smooth out and accelerate toward a closing table!

It is important to call the Consultant early, but not before the property is under contract. Sometime I can do a free walk-thru if the property is close by, and answer questions about what's up ahead. Feel free to link to me directly... www.GravityConsultingGroup.com, or just call 404.680.5773 for Christopher Colvin.

203(k) and the Realtor

Christopher Colvin (Gravity Architects & Consulting) — Fri, 23 Apr 2010 18:40:01 -0700

FHA 203(k) ~This is the most important program in your life...

As a Realtor, you want to help SELL the house - and when you see one that needs work, or is in disrepair, a walk-thru can be a scary thing. And you can really lose your footing once it is under contract with everyone wondering how to put the place back together again. It is VERY important to call a 203(k) Consultant, and we can do a FREE phone interview to help you.

First things first. Say the words "FHA 203(k) Loan", because you just made a sale.

There are only 2 types of 203(k), a Streamline, and a Full 203(k). One requires a Consultant (Full K), and the other doesn't, but you need to realize that the industry is changing - and we are seeing the Consultant required on more and more Streamline 203(k) loans. As this countries housing stock slips further into disrepair, repairs and remedies aren't as easy as they used to be - and the pressures on Contractors aren't the same either. As a Realtor, it is important to realize that the Consultant is part of your team, and completely supports the Buyer.

The moment you have a property under contract, that is leaning toward needing improvements, have your Borrower call us immediately - as we know the best Lenders in the South East who can actually CLOSE a 203(k). And believe me, we have some stories about slow motion train-wreck situations that were completely preventable. We can help them take the next critical steps with choosing a 203(k) lender, finding a Validated contractor, and knocking out the FHA Package that the Underwriter is expecting to see. In just few minutes, we will give the Buyer the information they want, and the confidence they need to get through the weeks and months ahead. This is very important - you need to rely on the 203(k) Consultant.

When you finish, we are only just beginning...

Here is the real bonus~ 203(k) is a Monitored Loan. Whereby the Consultant sticks with the project and releases money across the duration of the construction - and inspects the Contractor's work to approve funds for release at every step. The Borrower is not left alone with the Contractor after the loan closes.

Why is all this important to Realtors?

The FHA 203(k) Consultant is a professional, and will help the loan to close - and is absolutely vital in making sure that the property is improved just as the Contractor had promised. Gravity has over 10 years with 203(k), so please leverage our abilities and knowledge to help make the sale.

Christopher Colvin, www.GravityConsultingGroup.com, 404.680.5773

Borrowers and the 203(k) Contractor

Christopher Colvin (Gravity Architects & Consulting) — Tue, 20 Apr 2010 16:12:57 -0700

Ok, you have the house of your dreams under contract, anxious for a closing table to appear before you, and you’re ready to remodel. As you start interviewing Contractors, you want to make sure you get the best man for the job.

In the rush of the excitement from choosing plumbing fixtures, cabinets, and tiles for a remodeling project, the most important decision you make won’t involve color swatches or sexy brochures. It’s the Contractor you pick that makes or breaks the project. That choice will determine the quality of the craftsmanship, the timeliness of the work, and the amount of emotional & financial stress later on. To make sure you’re getting the best contractor for the job, here are a few questions to ask the candidates.

Have you talked to the Lender yet?

Great… You have invested some time and think you’ve found a few potential contractors. You’ve talked to the former clients on each of their reference lists, now it’s time for one additional bit of footwork: making sure the Contractor has completed the “Validation Package” for the Lender. Without this being submitted in a timely fashion and without this being formally accepted by the Lender, you won’t reach a closing table. Inside this package there is a W-9, a Homeowner-Contractor Agreement (HOCA), a Notice to Contractor, and a Renovation Contractor Statement – to be submitted with proof of insurance, a copy of their STATE license card, and sometimes a copy of their drivers license. So, have them budget ahead for doing this, and make sure they get it in… as this is often the point where the Contractor will walk away or become non-responsive.

Thanks, but can you fix this bid?

Now that you have a bid from the Contractor, remember that renovations are more than one single item, and the bid should reflect that by being broken apart into pieces. Many contractors prefer to give you a single price for your project, but this puts you in the dark about what they are charging for. For example, let’s say the original plan calls for tile in the kitchen, but you decide to go with ¾” oak. How much should you be credited for that, or is it a Change Order that increases the price of the renovation? With a single bottom-line price, you have no way of knowing. Plus, on a 203(k) loan, the 203(k) Consultant won’t accept a single price bid – it has to be broken down into the 35 sections that FHA recognizes on the Specification of Repairs.

On the other hand, if you get an itemized bid, it’ll show the costs for all of the various elements of the job—demolition, framing, plumbing, electrical, tile, fixtures, and so forth. That makes it easier to compare different contractors’ prices and see where the discrepancies are. If you need to cut the project costs, you can easily assess your options. Plus, an itemized bid becomes valuable documentation about the exact scope of the work, which eliminates disputes later. Always, always have an architect prepare your permit drawings – this is the single most important decision you can make.

The contractor shouldn’t give you a hard time about itemizing his bid. He has to figure out his total price line by line anyway, so you’re not asking him to do more work, only to share the details that already exist. If he resists, it means he wants to withhold important information about his bid—a red flag for sure.

Is this an estimate or a fixed price?

Homeowners generally assume that the bid they just received is a fixed price, but some contractors treat their proposals as estimates, meaning that what you will end up paying for the project is basically undetermined. If he calls it an estimate, follow up and request a fixed price bid instead. If he says he can’t offer a fixed price because there are too many unknowns about the job, then eliminate the unknowns.

Ask the Contractor to open up a wall, or pull off some siding to shed some light on what could be a big issue later on. As you will have a building permit and permit drawings, ask your architect to address any changes that are discovered. IMPORTANTLY, do not let the Contractor prepare the permit drawings – this is a conflict of interest and leaves the Borrower at risk. If you simply cannot resolve the unknowns he’s concerned about, have the project specs describe what he expects to do—and if he needs to do additional work later, a Change Order can be issued that you BOTH agree to.

What side of town do you normally work on?

A good contractor who’s been renovating locally for 5+ years has an established network of subcontractors, suppliers and referral sources…with a reputation to uphold. That makes him a safer bet than a contractor who’s either new to the business or new to the area—or who’s planning to commute to your job from way across town.

You want to see a nearby address (not a PO box) on his business card—and should ask him to include one or two of his earliest clients on your list of references. This will help you verify that he hasn’t just recently hung his shingle—and will give you perspective from a homeowner who has lived with the contractor’s work for years. After all, the test of a quality job, whether it’s a bathroom remodel or a master suite addition, is how well it stands the test of time.

Who will I be seeing here every day?

Many contractors don’t actually swing hammers. They spend their days bidding new work and managing their various jobs and subcontractors. In some cases, the contractor you hire may not visit the jobsite every day. So, the job foreman—the one who’s working on your project every day—is actually the most important member of your team.

Meeting him in person and seeing a job that he’s running should give you a feel for what is in your future. Plus, it gives the general contractor an incentive to assign you one of his better crews since you’re more likely to hire him if you see his A-Team. If the contractor says he’ll be running the job himself, ask whether he’ll be there every day. Again, he’ll want to give you a positive response—something you can hold him to later on.

Remember-- NO DEPOSITS TO THE CONTRACTOR ARE ALLOWED within the Full 203(k) program.

Green Insulation? Try SPF Spray Foam!

Christopher Colvin (Gravity Architects & Consulting) — Sun, 08 Feb 2009 19:12:38 -0800

Spray Foam Insulation (SPF)

As a designer and 203(k) Consultant, I LOVE how SPF spray foam insulation adheres to any shaped structure - from the roof rafters all the way down to your floor joists, so a protective sealed envelope is formed around your home. This keeps air from penetrating your walls, and stops the dust and pollutants that can come in with it. SPF insulation also helps keep your home cool in the summer and warm in the winter, further reducing your home's environmental footprint. I have worked with this product many times as a designer, builder and inspector, and am continually impressed with its performance.

Spray foam insulation won't sag, shrink or pull away from your walls, EVER. It never needs to be replaced or added to, thanks to its durable nature. Fiberglass batts can sag over time, blown-in cellulose can settle, which leaves sections un-insulated and you'll feel the temperature difference because of it. Spray polyurethane insulation (SPF) completely adheres to wood and sheathing and is rigid; the result is a permanent barrier to heat loss and air entry. Also, the micro-cellular spray foam insulation blocks neighborhood noise, making your home the peaceful healthy haven it was designed to be.

A couple of SPF choices are: Closed Cell (2#) SPF or Open Cell (1/2#) SPF, with a lot of conflicting information out there, but the SPF basics are this:

*R value of 6+/inch for SPF compared to fiberglass batt R value of 3.5/inch.

*Minimizes the transfer of sound.

*Structurally enhances the surface that it bonds to.

*Creates an air-tight seal as it expands into place.

*The cost savings are seen immediately upon application.

*The HVAC system can be downsized, due to SPF’s efficiency.

*Will not settle, shrink, or deteriorate, and it’s guaranteed to retain its R-value and noise-reduction qualities over the life of your home.

Besides its dramatic energy savings, SPF’s are formulated from renewable agricultural resources and uses a state-of-the-art, environmentally friendly blowing agent with zero ozone depletion potential (ODP).

A Draw Request? Why do I need a Consultant to give me MY money?

Christopher Colvin (Gravity Architects & Consulting) — Thu, 05 Feb 2009 09:23:45 -0800

This is a great question, and I try to carefully explain this at each inspection...

Once the 203(K) loan has closed and renovation funds are placed into escrow, the Contractor quickly begins ordering materials, pouring concrete, removing walls, framing, etc, per the approved Specification of Repairs. The 203(k) program is unique that it requires that the Contractor to provide ALL funds to begin the project, and they aren’t paid until the Consultant is called for a Draw Request or Change Order verification.

NEED MONEY? IT'S TIME TO CALL THE CONSULTANT:

Inspections by the local permitting authority, the City or County, still have to occur as required by the General Building Permit. Typically the 203(k) Consultant is called at the same time to verify that the Permit has been signed and all construction (labor and materials) have been put in place as set forth in the Specification of Repairs. A maximum of 5 Draw Requests can be called in... typically they occur at 30/60/90% intervals and then the final 10% when the Punch List is substantially completed. The fifth inspection is to insure that the property has been turned over to the Borrower in good condition, and to release the 10% Holdback to the Contractor.

SITE VISIT AND STANDARDS:

The Consultant visits the property, is insuring that all FHA minimum standards are being met, the money is accurately and honestly being spent by the Contractor to directly improve the property, and construction is up to code (IBC Standards). The Consultant should give you peace of mind - as you are NOT ALONE with the Contractor.

DOCUMENTS ARE SIGNED, AND CHECKS RELEASED:

At each Draw Request inspection, the Contractor is required to sign a Lien Waiver, insuring that all subcontractors and material suppliers have been paid. This document is turned in with the formal Draw Request, is considered mandatory by the Underwriter, and insures clear title for the property. The check generally arrives within 7 business days, and is issued in the name of the Borrower AND Contractor.

So, What Does A 203(K) Consultant Do?

Christopher Colvin (Gravity Architects & Consulting) — Sat, 17 Jan 2009 08:08:21 -0800

This is, without a doubt, the first thing that I am asked each time I meet a new client. Often, the time and cost that it takes to meet and hire a Consultant is unexpected, and it helps to have a clear understanding of what my role is in the loan process.

The 203(k) Consultant is a professional who has been vetted by FHA, to act as a Consultant to Borrowers, and help them through the different stages of remodeling. It is essential that the Consultant have a clear understanding of remodeling, contracting, subcontracting, materials and contracts – because they each have unique roles here.

With that said… here’s how it works after the Borrower has chosen a house:

1. The Borrower meets the Consultant on site, bringing copies of all bids and prior inspection reports.

2. An agreement between the Borrower and Consultant is signed.

3. A $400 base fee is paid to the Consultant, based on HUD’s fee guidelines.

4. An inspection is performed to the residence, noting all deficiencies and existing systems.

5. The full FHA Package is submitted, typically next day, to the Underwriter, Lender and Borrower.

(What’s in the Consultant's FHA Package?)

Specification of Repairs

Notice To The Contractor

Borrower/Contractor Contract

Certification Letter

Identity of Interest forms

W-9’s for the Contractor & Consultant

First Draw Request form

Self-Help Agreement (if Borrower is to be the Contractor)

All specific form required by the Underwriter to close the loan.

6. If a major addition or remodel is planned, architectural drawings will be required.

7. All drawings are provided to the Contractor for bidding and permitting purposes.

8. The Consultant takes the Contractor’s final bid and adjusts the Specification of Repairs form, as all numbers have to match up before the Underwriter sends the loan to closing.

9. An Appraiser is sent to the site, along with a copy of the architectural drawings and the final Contractor’s bid, and determines the After Repair Value.

10. Assuming all goes well with appraisal, all papers are forwarded to the closing attorney.

11. The Contractor pulls all required permits and the sawdust starts to fly!

12. As repairs move forward, the Consultant is called for a Draw Request (up to 5 times over the course of remodel) to review all work put in place, and funds are released to the Contractor for the determined value.

13. For each Draw Request, a Lien Waiver is submitted to insure clear title.

14. After all repairs are complete, the Consultant performs a final inspection, and the 10% Hold Back from the Contractor is released… and the Borrower can move in!