How the process of the 203k mortgage works ..Lots to read (from FHA site)

Mortgage and Lending with Free America Realty

Home buyer Locates the Property.

After the property is located, the home buyer and their real estate professional should make a marketability analysis prior to signing the sales contract. The following should be determined:

1) The extent of the rehabilitation work required;

2) Rough cost estimate of the work; and

3) The expected market value of the property after completion of the work. Note:

Sales Contract is Executed. A provision should be included in the sales contract that the buyer has applied for Section 203(k) financing, and that the contract is contingent upon loan approval and buyer's acceptance of additional required improvements as determined by HUD or the lender.

Home buyer Selects Mortgage Lender. I HOPE IT'S ME..JUDITH

Home buyer Prepares Work Write-up and Cost Estimate. A consultant can help the buyer prepare the exhibits to speed up the loan process.

Lender Requests HUD Case Number.

Fee Consultant Visits Property. The homebuyer and contractor (where applicable) meet with the fee consultant to ensure that the architectural exhibits are acceptable and that all program requirements have been properly shown on the exhibits.

Appraiser Performs the Appraisal.

. Lender Reviews the Application The appraisal is reviewed to determine the maximum insurable mortgage amount for the property

. Issuance of Conditional Commitment/Statement of Appraised Value. This is issued by the lender and establishes the maximum insurable mortgage amount for the property.

Lender Prepares Firm Commitment Application. The borrower provides information for the lender to request a credit report, verifications of employment and deposits, and any other source documents needed to establish the ability of the borrower to repay the mortgage.

Lender Issues Firm Commitment. If the application is found acceptable, the firm commitment is issued to the borrower.

Mortgage Loan Closing. After issuance of the firm commitment, the lender prepares for the closing of the mortgage.

Mortgage Insurance Endorsement. Following loan closing, the lender submits copies of the mortgage documents to the HUD office for mortgage insurance endorsement. HUD reviews the submission and, if found acceptable, issues a Mortgage Insurance Certificate to the lender.

Rehabilitation Construction Begins. At loan closing, the mortgage proceeds will be disbursed to pay off the seller of the existing property and the Rehabilitation Escrow Account will be established. Construction may begin. The homeowner has up to six (6) months to complete the work depending on the extent of work to be completed. (Lenders may require less than six months.)

Releases from Rehabilitation Escrow Account. As construction progresses, funds are released after the work is inspected by a HUD-approved inspector. A maximum of four draw inspections plus a final inspection are allowed. The inspector reviews the Draw Request (form HUD-9746-A) that is prepared by the borrower and contractor. If the cost of rehabilitation exceeds $10,000, additional draw inspections are authorized provided the lender and borrower agree in writing and the number of draw inspections is shown on form HUD-92700, 203(k) Maximum Mortgage Worksheet.

Completion of Work/Final Inspection. When all work is complete according to the approved architectural exhibits and change orders, the borrower provides a letter indicating that all work is satisfactorily complete and ready for final inspection. If the HUD-approved inspector agrees, the final draw may be released, minus the required 10 percent holdback. If there is unused contingency funds or mortgage payment reserves in the Account, the lender must apply the funds to prepay the mortgage principal......

Comments (3)

David Monsour
Keller Williams Keystone Realty - Gettysburg, PA

My Lender suggested having the appraisal before the fee inspector comes out because it's cheaper.  Just an idea.  I'm doing my first 203k right now so I'm still learning.  He said if it doesn't appraise for what we want we will save the money on the inspector.  Thoughts?  I'd love to hear them.

Oct 28, 2009 12:31 PM
Dino Patras
Coldwell Banker Residential Brokerage - Arlington Heights, IL


High quality post. There are so many agents out there, myself included, that don't have a firm grasp of all the nuances of the 203k. Thanks for the info!

Oct 28, 2009 12:37 PM
Rita Minion
O'Brien Realty - Solomons, MD

Hi Judith,

Thank you for the information on 203K financing.  It's a great program that we all need educated on!  Thank you for your post!



Nov 05, 2009 11:56 AM