Home Ownership in Glenwood>Question Details

farrisgwendo…, Home Buyer in Glenwood, IL

why do most contractors do not want to deal with 203(k) financing renovations?

Asked by farrisgwendolyn1, Glenwood, IL Wed Jun 19, 2013

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- Contractors have to go through a decent amount of paperwork in order to get set up to do 203(k) loans.
- For each job they do there is a high burden of paperwork compared to the jobs they're used to. Fully itemized proposals, frequent revisions including for typographical issues, and compliance with all of FHA's policies pertaining to not just the paperwork but the work to be completed... and so on.
- They need the wherewithal, patience, and trust to float materials and labor costs until the job is 100% done and the escrow released. From the initial contact until pay day, you're looking at a bare minimum of four months and frequently longer.

It is crucial that contractors partner up with an experienced 203(k) loan originator who can prepare their expectations and guide them through the red tape, without the buyer's experience suffering as a result. With 203(k) rehabs, the paychecks are big and the money is guaranteed (once the closing occurs), so there is an upside. But getting set up and learning the process takes enough time and effort that it is not worth it for one or two deals - 203(k) rehabs would have to become a sizable part of that contractor's business to make it worth the extra effort.
0 votes Thank Flag Link Mon Jun 24, 2013
One reason I have been told is because it takes so long to get paid and they require so much paperwork to be completed and approved. But the real question is why are more lenders not doing this kind of loan. There are only a couple and it is very difficult.

With REO properties that can't meet the requirements for occupancy and banks refusing to do the work, and the villages often requiring the work to be done for occupancy - it is left to the buyer.
Something has to give.
0 votes Thank Flag Link Wed Jun 19, 2013
Because they don't get their money up front and 203k makes them jump through hoops. My advice to you is to make sure your lender is very well versed in the program, not just "approved" to do 203k.

A 203k pro should be able to refer you to contractors who do work on 203k loans.
0 votes Thank Flag Link Wed Jun 19, 2013
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