This valuable program from its inception has done much to proliferate the 203K by affording a less restrictive process enabling lenders to fast-track the loan itself. Additionally, it's helping borrowers, requiring minimal repairs or renovations, to purchase homes from the current housing stock. Many of these are first-time buyers. While the success stories of this program are many, at the same time it is fraught with peril as contractors are receiving up to $15,000 as an initial upfront payment with no accountability whatsoever. Furthermore, there is no oversight of the actual construction itself and relies on a cursory inspection by an Appraiser, who may or may not have construction experience, at completion to validate that all work has been completed in accordance with Minimum Property Requirements or Minimum Property Standards, whichever may be applicable. The initial Loan Limit for this renovation program was $15,000 but was increased to $35,000, which includes a Contingency Reserve and all applicable fees. In most cases the borrowers can purchase up to $30,000 or less for the actual construction. One of the problems here is that the program was intended for simple repairs generally considered Single Mobilizations, i.e.; roofing, siding, interior painting, new kitchens or bathrooms. The scope of work for the repairs and renovations is called a Work Plan, which can be prepared by the borrower, contractor and in some instances a HUD Consultant. This Work Plan is generally subject to interpretation by the borrower who is not a construction professional if not prepared by a consultant.
Subsequent to the increased loan limit from $15,000-$30,000, more complex renovations are commonplace often at the fringe of a Standard 203K. I have been contacted often to validate the accuracy of the contractors bid related to the Limited 203K for accuracy. Additionally, Work Plans not prepared by a HUD Consultant are often rejected by the Appraiser, who may be requesting additional Health and Safety items that are not included in the contractors bid. This creates delays, budget overruns and eventually requires the mandatory insertion of a consultant as defined in 4000.1. In some instances the loan no longer qualifies as a Limited 203K, or worse, the borrower cannot qualify for the necessary repairs combined with the improvements. As loan originators mobilize contractors to reduce the scope of work, more often than not the Appraiser reduces the value of the renovation creating a circular reference between loan and value requiring desired improvements be eliminated. The net result of this is frustration and disappointment onto the borrower before the project even begins.
Closing out these loans is sometimes equally difficult and it's not uncommon for them to go far beyond the allotted six months (6) completion time. More egregiously, it's not uncommon for contractors to abandon projects at midpoint leaving borrowers with little or no recourse. Recently I was called in to provide an inspection on a Limited 203K from 2018, which had not closed out for various reasons.
While it is my belief that this program is invaluable for homeownership, I would recommend that the department reinstate the $15,000 loan limit without the use of a HUD Consultant.
Fred Sweezer Sr