Is your 203K work in PA overbudget?
You've been approved for an FHA 203K loan and it looks like the construction costs from your contractor are going up quickly. The 203k work is coming out higher than originally anticipated and you are going overbudget!
As a 203k Consultant in PA, I have seen this happen for a few reasons. One reason could be that you decided instead of linoleum floors in the kitchen, you'd like your contractor to put in some nice marble tiles and perhaps upgrade the appliances. The other situation I have come across is the contractor starts demolition and, upon taking down the drywall for example, finds that there are structural issues to be addressed before moving on with the project.
These unknowns can happen to anyone when major home renovations are underway. What happens when the work under a 203k loan is going overbudget? First, your 203k consultant will typically add in a contingency fee of 10-20% to allow for these unforeseen circumstances. A change order form is filled out by the 203k consultant and submitted to the loan disbursement officer at the bank who approves the change.
If the additional work being completed is necessary such as the example of the unforeseen structural repair, the contractor usually gets paid once the work is completed and inspected. If the additional work is considered an upgrade and something that might not be necessary such as the example of the upgraded kitchen work, the contractor will be paid at the very end to ensure there is enough money for the other items in the original work write-up submission. If after all the work from the original work write-up submission is completed and there is not enough money in the contingency portion to cover the work, that money needs to be paid out-of-pocket.
To learn more about the 203K program in Philadelphia, Allentown, Reading, Pottstown, and surrounding Eastern PA, visit www.203kpa.com and get answers to some Frequently Asked Questions.
David Artigliere, with ARTI Home Inspections LLC, is a HUD-
Approved 203K Consultant. He plays an integral part in the
successful completion of an FHA 203k loan transaction and
guarantees rapid turnaround time.
ARTI Home Inspections LLC uses state-of-the-art construction
estimating software and electronic data transfer to consistently
submit work write-ups within 24 hours of the site visit.