Figure 1 before a 203k consultant was involved
Most 203(k) consultants are presented like a football team’s offensive coordinator – a point guard that runs plays on a basketball court and a star infielder – all in one the point is working as a team!. Seem like an exaggeration? When it comes to 203(k) consultants the comparison is accurate: these professionals really know the HUD and Fannie Mae Guidelines and prove to be the most valuable member of the Renovation Loan Process that helps out when you buy a home and make major repairs with a standard FHA 203K renovation loan – also called a Consultant K* loan or the Home Style Loan.
When you buy a property that needs structural repairs and/or needs repairs, you are talking about projects that may require professional experience and expertise in construction, architecture, building codes and more. Most homebuyers do not have the level of knowledge and experience required to oversee such a major undertaking. That’s why you need a good 203K consultant at the same time you select and contractor, loan company and loan officer. If your project is less than $35,000 all you need is a new kitchen and bath and hire your certified home inspector to tell you that the foundation is in need of repair now you have a project where a 203k Consultant is needed, you did not expect this upfront expense.???? If you had involved the consultant doing the process you would have learned this early in the process and avoid would have avoided a lot unexpected expected expenses.
Most 203K consultants are licensed or certified home inspectors, general contractors, and sometimes architectural designers and architects. (Licensing requirements vary by state) we are qualified as architectural designers in the state of California. And we can and have submitted various documents that prove our expertise to HUD – the Department of Housing and Urban Development. The requirements are fairly rigorous, and only HUD-approved consultants are listed on the official FHA 203K Consultant Roster.
Figure 2 discovered after a 203k Consultant was involved incomplete foundation repair!
Here’s a look at the highlights of what a 203(k) consultant does during the home purchase (including up a 4 plex) to transaction.
If you decide to buy a home and it needs some updates, repairs or renovations, a 203(k) consultant would inspect the property and talk with you about both the repairs that will be required to meet HUD’s Minimum Property Standards and the optional renovations you would like to make beyond the required items. In the case of the an inspection where the kitchen and the bath was the only thing that needed to be upgraded a certified home inspection revealed that the foundation would have to be repaired. So much for a kitchen and bath!!! Will this kill the deal? When was the consultant called in? At what point will the consultant be involved with the transaction? Now there is a need for a structural engineer and a Architectural Engineer or Designer? Because the seller did not let anyone know about the foundation failure! And now the first time home owner is relying on the team to give them accurate information and cost to close the loan as presented and if the 203k Consultant fee are not explain correctly, there is a frustration that the borrower did not expect! HUD requires the mortgagee to hire a 203k Consultant.
The consultant then prepares paperwork that the lender uses to determine the loan amount and underwrite the loan. This paperwork typically includes the feasibility report, architectural plans, and a work write-up that reflects specifications on all of the repairs that will be done, including:
cost of materials and cost of labor for each repair,a recommended “contingency funds” amount to be set aside in case there are cost overruns, a recommended inspection schedule, showing the times during construction when the Consultant will inspect the work performed and completed If the lender needs additional paperwork – for example, a termite inspection report or certification that a roof is structurally sound – the consultant and lender work together to coordinate ordering these reports and making any needed changes or adjustments to various documents, if additional repairs are needed.
A 203K consultant also performs valuable services after the loan closes and repairs begin. When your 203(k) loan closes, a Repair Escrow Account is set up. The consultant inspects repairs as they are completed and, provided the work is satisfactory, tells the lender that funds can be released from the Escrow Account to pay the contractor. On major projects, this inspection and drawing of funds from escrow to pay for completed work will typically happen as often as five times, before the final inspection and final payment.
A 203K consultant can help you throughout your home renovation project, providing valuable insight and support when you are working with a general contractor. Again, it’s important to choose a Consultant who is a good match for you.
One final thing: consultant fees. Ask your mortgage loan originator whether the 203(k) consultant’s fees can be rolled into your 203(k) loan in which case the mortgage originator will co-sign the consultant agreement for the fees to be paid even if the loan will not close because the consultant fees is due even if the loan does close . The fees consultants can charge are uniform amounts that are set by HUD, and fees are based on the total dollar amount of the repairs that are made. Typically, you will pay for an initial feasibility study, if needed, out of your own pocket, and the lender may possibly allow you to finance any additional fee amounts.
Fred Sweezer Sr
Certified Master Home Inspector
Certified 203k Consultant S0712
FHA Compliance Inspector T477