Contractors and the 203k Stockton

By
Home Inspector with 203kOnLine.com, covering the USA S0289

 

Realtors and agents NEED to get this as it is important for a successful 203k loan project. It is your client who will suffer. The Streamlined k doesn’t “REQUIRE” a consultant… that is a key word, you are fooling yourself if you don’t use a consultant on a 203k loan. A 203k consultant is your KEY to a successful project… we are the glue that can hold it together. On a streamlined k just have the consultant do the 203k inspection rather than a home inspection, or have your home inspector take a course on the 203k so they can be prepared to address your 203k issues in their report.

Contractors need to understand the mechanics of both types of 203k loans.

Streamlined k is the most used product for buyers right now which handles “light repairs” no structural work allowed, and renovation under $35,000 (including costs and fees). That is typically about $34,200 in actual work if there is no contingency which is allowable on the streamlined k. If you have a 10% contingency then your renovation must be under $30,780. Simple yet people are going over the $35,000 every day, and if your lender only does the Streamlined “k” then the work must be cut or the bid reduced in some acceptable fashion. A 203k consultant would be able to guide you through that process.

Don’t ever let a lender tell you the work is just too high for a 203k. Believe me, I hear that all the time. It may be too high for the Streamlined k and their company, but not because the work was too high for the 203k. We have a couple going on that the work exceeds $410,000 and $380,000 respectively. They are clearly not streamlined k loans but they are FHA 203k loans.

Contractors may get an advance on this type 203k project of 35%-50% depending on the lender investor. In the case of a Bank of America funded deal they have been advancing 50% of the construction monies up front at the time the loan closes. If you don’t get that advance at the close of escrow it may be 30-45 days later. Be sure it is funded at the COE for your client. If you have a smaller contractor they probably should start off with these smaller deals and get some of their money up front. In this case they only get one draw upon completion. This program also allows for up to 5 trade contractors and each of them can get one final draw so they don’t have to wait for everyone to finish the job to get their hold back money. Hold back money is 10% of the draw amount that can be held up to 35 days after the close of escrow at the lenders discretion.

Full 203k loans on the other hand have much larger project sizes sometimes but there are NO UP FRONT MONIES to get the work started. The contractor must use their own money or good credit to start the work and get paid for a percentage of work completed as the work progresses. These progress payments must start within 30 days of the loan closing so the owner should let the contractor know when the loan closes, that is the only way they will know.

The Full 203k can handle structural issues no problem. You may have a $20,000 job that has structural issues. It CANNOT be a streamlined k and must be a Full 203k. In addition there is no limit to the work that can be completed other than the home must appraise with the repairs high enough to cover the purchase or acquisition cost and the renovation costs. Yes, we can go up to 110% of the “after improved” appraised value.

Contractors should be aware that many smaller lenders sell these loans to Bank of America and they pay slower typically than Wells Fargo. When you call for a draw request you should expect up to 45 days for the first draw so schedule the work to begin in 2-3 weeks from the COE to eat up some of that 45 day wait. After the first draw they are about 5-7 days getting a draw out to the borrower. The checks in all cases will be made to the borrower and the contractor. Wells Fargo on the other hand is much faster at getting the draw payments out to the contractors. We have seen the check in the borrower’s hands within 3 days from the time we turn it in on many occasions and rarely is it five days.

 

Posted by

Mike Young, 203k Team Leader    Mike ready for your 203k order

To learn more about the FHA 203k loan program go to www.203kOnLine.comWhat is your fee? 

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Comments (6)

Katherine Fornale
REMAX REALTY 9 - Howell, NJ
SFR, GRI

Thanks for the info Mike.  There is definitely an advantage to knowing the difference and being able to advise buyers.

Nov 09, 2010 02:20 AM
Jose Dias
Home Sellers Help in Scottsdale-Phoenix-Peoria-Glendale - Scottsdale, AZ
Sell Your Home in Scottsdale-Phoenix-Peoria-Glendale-Goodyear

Mike,

great post about 203k loans. In my experience most lenders avoid the full (non-streamlined) 203k loans. I guess it is because of the paperwork. I am saving this post for future reference. We never know when we might need to help a client through this process. Thank you.

Nov 09, 2010 02:22 AM
Mike Young
203kOnLine.com, covering the USA - Las Vegas, NV
FHA 203k Consultant 916-758-1809

Katherine, Thank you for your comment.

 

Jose, the paperwork is all done by the consultant if you have a good one. about twelve years ago HUD had the "paperwork reduction act" that was a little misleading to say the least. They just meant they weren't going to produce it, the borrower had to and that is what a 203k consultant does. We can close a Full 203k in the same time frame for a Streamlined k and it is merely a function of the type of work you are going to need. Thank you for the comment.

Nov 09, 2010 02:25 AM
Patrick White
Home Driven Realty, Inc - Baldwin, NY
Driven to bring New Yorkers home

Good Morning Mike

Thanks for the post. Have a great day.

Nov 09, 2010 02:40 AM
Anonymous
Garrett Feis

Again Mike---This is something that needed to be said.  There is nothing coming up in the agenda for Nov. 15th.  However, the Investor 203k and Consultants are on the agenda.   

Nov 10, 2010 05:31 AM
#5
Mike Young
203kOnLine.com, covering the USA - Las Vegas, NV
FHA 203k Consultant 916-758-1809

Garrett,

It would be nice for the investors to get back into the 203k game but I'm consulting for them using the Fannie Mae product which is another product we consult for. 

Thanks for the comment. I'll be anxiously waiting for your call whatever happens in DC at the discussion.

Nov 10, 2010 07:45 AM