Home Buying in 60624>Question Details

Jimzimmer, Home Buyer in 60624

Hello, can someone help clarify 203k repair requirements?

Asked by Jimzimmer, 60624 Wed Sep 15, 2010

I'm under contract and have a 203k streamline - I'm trying to figure out who ultimately decides what repairs are required in order to pass the FHA guidelines.. and do those guidelines differ if it's a 203k vs regular FHA loan?

My underwriter is telling me that the inspector I hired (who is a 203k consultant/inspector) informed them that all items on the report are required repairs, but I doubt such things like "worn carpets, missing ceiling tile on drop down ceiling, cracked glass in window, cracked pavement etc) Then the inspector tells me that it's the under-writer & appraiser who decide what needs to be repaired.. where do I have a say in the process b/c I think they're trying to fix as much as possible just to drive up the cost
thought there were general guidelines that applied to all FHA loans as references in the following hud letter.
ty

http://www.city-data.com/forum/attachments/mortgages/68284d1…

Help the community by answering this question:

Answers

10
BEST ANSWER
Hi Jim, I can see where you might be confused. Please keep in mind that FHA guidelines are intended to be the least stringent. Moreover, the Lenders themselves can alter the requirements at any time to protect their own interests as long as they are more stringent. I'm a 203k consultant and a general Contractor and fully aware of the recent mortgage letter diminishing the impact of an FHA inspection. Although I don't write down soiled carpets, I do follow most other items as they relate to health and safety. Further, the most important part of this whole procedure is that the consultant is not just preparing his report for you, like an ordinary home inspector, he is preparing it for those persons who make the ultimate decision in providing you your loan and insuring that the bank's investment is safe. The most important person that will get this will be the Appraiser because if the consultant misses any items that the Appraiser "feels" should be on that report and they're not, then your package will be rejected. The streamlined program was actually designed for very minor repairs and replacements not in excess of $15,000. Too many lenders and homeowners are contributing to the perversion of this program for several reasons. First, the buyers can act as their own general contractors and think by doing so they are saving money, in some instances this is true. The lenders on the other hand, don't have to use a consultant and can slip projects under the radar of his watchful eye. Keep in mind as in any profession, some consultants are better than others. My question to you is, if it's a streamline, why are you using a consultant? BTW, all the items you mentioned that the consultant wrote down are correct. Feel free to contact me with any questions.
2 votes Thank Flag Link Wed Sep 15, 2010
Hi Jim,

FHA has a handbook which details the Minimum Property Standards. However, lenders and 203(k) consultants are allowed to have overlay restrictions in addition to HUD/FHA's requirements that can make the standards even more restrictive. So, your lender has the final decision on what they will require to be done and most of the time, they take their advice directly from the 203(k) consultant that you hired. Remember, you have the right to hire any 203(k) consultant you want. You can find the list of 203(k) consultants here https://entp.hud.gov/idapp/html/f17cnsltdata.cfm .

You can also find the list of knowledgeable and experienced 203(k) contractors here at the contractor directory for the FHA 203(k) loan program http://203kContractors.com .

-----
203kContractors.com®
Contractor Directory for the FHA 203(k) Program
(480) 463-4663
Web Reference: http://203kContractors.com
1 vote Thank Flag Link Fri Sep 17, 2010
Dear Jim:

Since 1991, I been an approved 203k Consultant & approved 203k Contractor thru several banks that process 203k loans. I have executed several hundred 203k reports and I have been a 203k contractor as well. Please feel free to contact me so that I may give you all of your options.
FYI: Bank/Lenders will create their own set of rules utilizing the FHA 203k guidelines.The bank/lender where you originate your loan from does have the final say so and the consultant is the eyes & ears for the bank.

Sincerely,
John Moustis
President - Spartan Contracting Services
630-963-6020
Email: jmoustis@spartancontractor.com
1 vote Thank Flag Link Thu Sep 16, 2010
The experts at Prospect Mortgage can answer all of your specific questions about the types of repairs and renovations that you can undertake when you finance your home with a 203(k) Renovation Loan.

To give you an idea of the flexibility you have, the following charts list the projects that are allowable by the FHA with the Streamline K and Consultant K programs.

Streamline K: Eligible and Ineligible Repairs (not all inclusive)

> Eligible:
* Repair/replacement roof, gutters and downspouts
* Repair/replacement/upgrade of existing HVAC systems
* Repair/replacement/upgrade of plumbing and electrical systems
* Repair/replacement of existing floors
* Minor remodeling, such as in the kitchen, which does not involve structural repairs
* Exterior and interior painting, including lead-based paint stabilization
* Weatherization, including storm windows and doors, insulation, weather stripping, etc.
* Repair/replacement/upgrade of appliances (may include free-standing ranges, refrigerators, washer/dryers, dishwashers and microwaves)
* Improvements for accessibility for persons with disabilities
* Basement finishing/remodeling/waterproofing (not requiring structural repairs)
* Repair/replace/add decks, patios and porches
* Window and door replacements and exterior wall re-siding
* Septic and/or well repair or replacement

> Ineligible:

* Major rehabilitation or major remodeling, such as relocation of a load-bearing wall
* New construction, including room addition
* Repairs of structural damage
* Repairs requiring detailed drawings or architectural exhibits
* Any rehabilitation activities that require more than two payments per specialized contractor
* Landscaping or similar site amenity improvements
* Work that would cause the borrower to be displaced from the property for more than 30 days during the time of rehabilitation
* Work items that would necessitate a consultant to develop a work write-up
* Any repair or improvement requiring a work schedule longer than six months
* Foundation work
* Pool repairs
* New tennis court
* Gazebo or bathhouse
* Additions or alterations to provide for commercial use
* Photo mural
* Television antenna or satellite dish
* New swimming pool
* Outdoor fireplace/hearth/barbecue pit
* Other types of luxury items
Reference Link: http://fha203kloan.org/
0 votes Thank Flag Link Thu May 7, 2015
From my experience with 203k loans, the best advice is to use a lender that offers assistance via third party with 203k processing.
This shortens the closing time by weeks. Try http://www.cfs-mortgage.com/203k for more information.
0 votes Thank Flag Link Sat May 25, 2013
Jimzimmer,

Sound like the advice you're getting is on point so far.

If you take into account why the 203K and Streamline 203K exist, then you start to understand why they are requiring what feels like minor repairs. HUD, as detailed in prior responses, has a very specific set of condition requirements that makes sure that the residence meets minimum environmental safety guideline. This is uniform across all HUD products.

For example, peeling paint in an area would require that the area be prepared and painted according to Federal EPA guidelines to remove the hazard. In a typical FHA mortgage (HUD administered), the appraiser would have observed the peeling paint condition and required that it be resolved prior to funding of the loan. 203K provides funding for a contractor to complete the repairs after a closing is made. This allows transactions, that would normally not be FHA eligible to meet the condition requirements, even if the property is being sold AS IS. In many cases in todays market, a seller is either financially unable, or unwilling to resolve FHA condition problems, and most are sold as-is. This causes the rise in the 203K loan's popularity in the current market.

As far as who decides, having a high quality, knowledgeable 203K lender is key to make the experience a good one. The loan officer should have no interest in what it will cost to renovate. The only time when I think there may be rooms for a conflict between the lender and the contractor's estimates is when a lender does process streamline loans, but not full 203K loans. In this case is may be possible for the lender to try to fit too much work under the streamlined loans ceiling. If they can't fit the work under the ceiling of the loan, they may loose your business to a firm that does full 203K's. In this case, you may not have enough money to actually do what needs to be done.

Hope this helps,

Wayne Beals
Keller Williams CCG
312-77BEALS
312-772-3257
wbeals@kw.com
http://www.waynebeals.com
Web Reference: http://WWW.WAYNEBEALS.COM
0 votes Thank Flag Link Wed Sep 15, 2010
Jimzimmer,

Sound like the advice you're getting is on point so far.

If you take into account why the 203K and Streamline 203K exist, then you start to understand why they are requiring what feels like minor repairs. HUD, as detailed in prior responses, has a very specific set of condition requirements that makes sure that the residence meets minimum environmental safety guideline. This is uniform across all HUD products.

For example, peeling paint in an area would require that the area be prepared and painted according to Federal EPA guidelines to remove the hazard. In a typical FHA mortgage (HUD administered), the appraiser would have observed the peeling paint condition and required that it be resolved prior to funding of the loan. 203K provides funding for a contractor to complete the repairs after a closing is made. This allows transactions, that would normally not be FHA eligible to meet the condition requirements, even if the property is being sold AS IS. In many cases in todays market, a seller is either financially unable, or unwilling to resolve FHA condition problems, and most are sold as-is. This causes the rise in the 203K loan's popularity in the current market.

As far as who decides, having a high quality, knowledgeable 203K lender is key to make the experience a good one. The loan officer should have no interest in what it will cost to renovate. The only time when I think there may be rooms for a conflict between the lender and the contractor's estimates is when a lender does process streamline loans, but not full 203K loans. In this case is may be possible for the lender to try to fit too much work under the streamlined loans ceiling. If they can't fit the work under the ceiling of the loan, they may loose your business to a firm that does full 203K's. In this case, you may not have enough money to actually do what needs to be done.

Hope this helps,

Wayne Beals
Keller Williams CCG
312-77BEALS
312-772-3257
wbeals@kw.com
http://www.waynebeals.com
Web Reference: http://WWW.WAYNEBEALS.COM
0 votes Thank Flag Link Wed Sep 15, 2010
Jim,

I'm not going to reiterate the answers below, but both Matt and Dominic are right on. We have a vast amount of experience in FHA 203k loans in our office, and always prefer the regular FHA 203k because of the FHA plan inspector. Unfortunately, when it comes to the required repairs, you have no say. You can shop around for the best contractor at the best price, though. Any money left over in the repair escrow pays down your mortgage principal balance. Feel free to check out my and my boss' multiple posts on the FHA 203k at http://www.moneypress.com

Bradley Eggers
Senior Loan Originator
Ardain Mortgage
847-963-1000 (office)
847-744-0168 (cell)
bradley.eggers@ardain.com
0 votes Thank Flag Link Wed Sep 15, 2010
FHA repair guidelines are also subject to lender overlays. FHA may approve a non-permitted structure, but the lender's investor guidelines could cause an FHA loan to be denied for a non-permitted addition or remodel. Even doe FHA has their guidelines the lenders investors may require additional repairs to the property before agreeing to lend you the money. Below are a couple of short list that I follow when working with an FHA buyer. I hope they help!

Types of FHA Repairs That Must be Completed Prior to Closing an FHA Loan

Peeling paint in homes built before 1978.
Unpainted downspouts and broken rain gutters.
Rotting out-building in need of demolition.
Exterior doors that do not properly close and open.
Exposed wiring and uncovered junction boxes.
Major plumbing issues and leaks.
Inoperable HVAC systems.
Leaky or defective roofs, roofs with a life expectancy of less than 3 years, composition over shake.
Active and visible pest infestation.
Rotting window sills, eaves, and support columns on a porch.
Missing appliances that usually are sold with a home such as a stove.
Bedrooms without minimize-sized windows or bedroom windows with bars that do not release.
Foundation or structural defects.
Wet basements.
Evidence of standing water in the crawl space.
Inoperable kitchen appliances.
Empty swimming pools, pools without a working pump and pools with mosquito fish.
Ripped screens.
No pressure relief valve on water heater.
Leaning / broken fence.

Types of FHA Repairs That are Not Necessary to Fix Before Closing

Peeling paint in homes built after 1978.
Cracked glass in windows.
Minor plumbing defects such as a dripping faucet.
Missing handrails.
Damaged wall coverings in homes built after 1978.
Worn out carpeting or defective floor finishes.
Beat-up or damaged exterior doors that still open and close.
Trip hazards such as heaving sidewalks.
Removal of debris under the house.
Lousy workmanship.
Evidence of previous or inactive pest infestation.
Replacement of flat roofs.
Testing of wells, unless required by local jurisdictions or water is suspected of contamination.
0 votes Thank Flag Link Wed Sep 15, 2010
Jim,

You're right! You have no say in the matter. You did the right thing by hiring a 203k consultant. Now you have to LISTEN to him/her.

FHA Underwriters will consider all the things you listed as being health or safety hazards. Worn carpet? You could trip. Missing ceiling tile? Something could fall on your head. Cracked glass could signal water intrusion. Cracked pavement? You could trip.

The underwriter will take their cues from the appraiser, who notes whether or not there are any violations on the house, and puts that on the appraisal.

Good luck,

Matt Bukovy
Mecum Group - Wintrust Mortgage
Web Reference: http://www.mattbukovy.com
0 votes Thank Flag Link Wed Sep 15, 2010
Search Advice
Ask our community a question
Email me when…

Learn more

Copyright © 2015 Trulia, Inc. All rights reserved.   |  
Have a question? Visit our Help Center to find the answer