Home Buying in Palatine>Question Details

David, Home Buyer in 60067

203(k) Loans - Has anyone been through the process or knows anything about them?

Asked by David, 60067 Wed Dec 3, 2008

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David, the 1st person you should contact with respect to using the 203K program is the 203K consultant. He/she can dispel those fears by helping you budget, plan and inspection the property for function and investment. That by far is the primary role of the consultant.

Secondarily the consultant will monitor the construction phases, report his/her findings to your financial institution and will help insure the mortgage lending affiliate that their money is in fact being spent for the purpose stated on the "Work Write-up".

The appraised value of the property will be dependent on the planned improvements. For this reason the consultant is a very early key player and team member.
0 votes Thank Flag Link Sat Dec 6, 2008
I advise you to interview those in your area. As with any service that relies on an individual's experience level background is imperative. I personally have spent over 34 years in residential construction with the past 5 years as a licensed home inspector. I am also a NAHB Green Building Verifier and help promote energy efficient construction practices.

Ask for references from past clients and lending companies who have worked with the consultant.

FHA 203K Loan - How the Program Can Be Used:

This program can be used to accomplish rehabilitation and/or improvement of an existing one-to-four unit dwelling in one of three ways:

· To purchase a dwelling and the land on which the dwelling is located and rehabilitate it.

· To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.

· To refinance existing indebtedness and rehabilitate a dwelling;

To purchase a dwelling and the land on which the dwelling is located and rehabilitate it, and to refinance existing indebtedness and rehabilitate such a dwelling, the mortgage must be a first lien on the property and the loan proceeds (other than rehabilitation funds) must be available before the rehabilitation begins.

To purchase a dwelling on another site, move it onto a new foundation and rehabilitate it, the mortgage must be a first lien on the property; however, loan proceeds for the moving of the house cannot be made available until the unit is attached to the new foundation.

Visit this website for the consultant roster: https://entp.hud.gov/idapp/html/f17cnsltdata.cfm
Visit this website for more information about the 203K program: http://www.fhainfo.com/fha203k3.htm

Gary Smith
Mississippi #A0740
2 votes Thank Flag Link Sat Dec 6, 2008
One other thing to remember when it comes to rehab work.

You mentioned that some of the components have already been removed. At least some demolition and removal costs have been handled for you. That should lower your budget a tad bit.

Also, when considering replace appliances look into Energy Star Rated products. You may qualify for more savings via tax deductions by installing qualified energy efficient products.

gs
1 vote Thank Flag Link Sat Dec 6, 2008
Yeah I looked at the streamlined at the beginning, but there are definitely more then 35K worth of repairs...

There's really nothing in the kitchen right now (the cabinets, sinks, stoves, etc have been removed) nor anything in the bathrooms (tub, shower, sink, vanity, toilet, etc are gone) and we would need to refinish the floors, and thats just the beginning. Its a significant process either way and we would need a higher coverage that the streamlined doesn't offer.

I don't necessarily mind the paper work as long as its not confusing, misleading, and bureaucratic for bureaucracy sake.

Also thanks for all the insights, I'm actually shocked that such good information has been exchanged online. Its a new medium and its good to see the real estate industry so accepting of it. Makes the process a little less painful.
1 vote Thank Flag Link Sat Dec 6, 2008
I am in the middle of a FHA nightmare because of my current contractor. The great part is that he is finishing up the work this week. Anyone know a general contractor who is licensed and insured in Rhode Island? I have a straight forward basement drywall job and need it done to finish out my FHA project.

Donna
0 votes Thank Flag Link Thu Jan 19, 2012
Yes, I am both an approved FHA/HUD 203k Contractor in the Chicagoland area and a 203k Consultant . I've been involved with the program since 1991.
Please visit my website or call me at 630-963-6020
Thank you
John Moustis
President of Spartan Construction & Design, Inc.
0 votes Thank Flag Link Fri Sep 10, 2010
I recently completed a transaction in Tucson, AZ doing a FHA 203K. Not all bank or lenders do them. My buyers used Wells Fargo. If you plan on doing a 203K, I recommend you do at least a 45 day closing and use only approved venders to do the repairs. That alone will save you lots of time.
Good luck
Rich Lecinski
Long Realty Company
Tucson, AZ
520-834-4663
http://rlecinski.longrealty.com
0 votes Thank Flag Link Sun Jun 7, 2009
I am also interested in a 203K loan for a mixed use property in Chicago. I would love some referrals of experienced lenders with mixed use building and 203k Loans.
0 votes Thank Flag Link Sun May 31, 2009
there are some real good answers here. I've been providing information nationally on this subject since 1995 and have been a consultant on a lot of them, an appraiser on many, and can offer perspective from either of those vantage points. I will say from what I read below that everyone is telling you that you need to place yourself into an existing 'team' of 203k professionals. This is very good advice. You don't want to be someone elses experiment. Gary Smith below says it very well. He obviously has a team or two in his local. Good job Gary. I also have teams all over the country but heavy in CA, NC, and several other states where I have trained consultants over the years. I enjoy seeing people when they finally 'see the 203k potential'. My favorite is a mixed use building because you can actually have up to four residential units over 1-4 store fronts. We have experience with borrowers who barely qualify and using the EEM (Energy Efficient Mortgage) features of the 203k to pull it back in line. We have closed for loan amounts in excess of the "Maximum Mortgage Amount" again by utilizing the EEM. You can actually get a loan for up to 110% of the 'after improved' value appraisal. Every realtor and agent needs this in their arsenal.
Web Reference: http://www.203kOnLine.com
0 votes Thank Flag Link Tue Apr 14, 2009
Hi David, I have not have the opportunity to represent a purchaser/buyer
using this type of loan. However, I've have heard about it. This type of loan
203(k) will allow the buyer/purchaser to use part of the monies/funds for
repairs and renovation. This type of loan is being used more due to the
As is back owned and short sales that is currently on the market.

Lot of this properties are in need some of serious repairs.

I hope I have answered your question, the best of luck!
0 votes Thank Flag Link Wed Mar 18, 2009
Whoops! I missed one of your questions in the discussion thread. You asked:

"Are all the 203k consultants the same or are there ones you want to watch out for?"

All 203(k) consultants are NOT the same! I recall a 203(k) transaction that I did many years ago in Bethlehem, PA. It was the my very FIRST experience with a 203(k) loand, the very FIRST GMAC 203(k) loan placed nationally, it involved about $40,000 in repairs overall, and it was a HUD home.

The consultant turned the transaction into a nightmare on many levels and almost bankrupt the general contractor. It was the mortgage company's FIRST experience with a 203(k) loan and their help was minimal.

Deadlines with HUD Homes transactions are critical. Still, the consultant had a problem reconciling his numbers and held up the transaction for TWO WEEKS to reconcile a TWENTY-FIVE CENT discrepancy on his spreadsheet!

His had outrageous estimates ... I remember he costed a walkway handrail at $2,000 when the contractor's bid for labor and materials was less than $100. It took a week to convince the consultant that the lower charge was reasonable and accurate.

On a final inspection he added a closet in the living room as a required piece of work ... he NEVER included it prior to that date ... and then he found sundry other things that he "forgot" to include in his initial estimate of required work ... and it became necessary for the contractor to complete these jobs before he could be paid. Following that experience I seriously vetted all FHA 203(k) loan consultants prior to working with a transaction involving that type of loan. UNKNOWNS are ill advised.
0 votes Thank Flag Link Sat Dec 6, 2008
There are two types of FHA 203(k) loans - Streamline 203(k) and the original 203(k). I've handled both over the years. My strongest recommendation is that you find a lender who has a proven track record with this loan product ... ask for references! (Not all FHA lenders offer 203(k) financing. There is a LOT of paperwork involved with this type of loan.)

The Streamline product is easier to execute, less expensive, and is often accomplished without the need to hire an FHA 203(k) consultant.

I published a blog post, "Easy As 1 - 2 - 3 Rehab Financing" that you can find at the link below.
0 votes Thank Flag Link Sat Dec 6, 2008
Excellent that is good to know. I was never sure to what extent the consultant consults so its a big relief to know that they are integral to the process.

Are all the 203k consultants the same or are there ones you want to watch out for?

Thanks,
David
0 votes Thank Flag Link Sat Dec 6, 2008
David,

Have your agent contact me. I am happy to share the lender info with him or her.
0 votes Thank Flag Link Fri Dec 5, 2008
Anna - thanks for the insight I'll probably contact him in the next week or so.

Gary - I might take you up on that offer. It would be good to know what the consultants are looking for and what to expect along those terms. Part of our fear is to start going forward and putting money into getting blue prints, plans, inspections started only to find out our expectations were way off. Granted MS and IL are different states, but I'm sure some of the regulation (wiring, insulation, etc) has national codes.

Wayne - I would definitely be interesting in getting in touch with the lender. We have agent working with us, but I tend not to like people 'doing the research for me'. Much rather find out and get detailed explanations to my questions from the source then second hand. The private loan would also be an interest as well. The reality is the house has to have significant work done, so any program that would mortgage the house at the closing price and provide $50k-$80k for repairs is what we are looking for.

One of my problems with the 203k is that it doesn't seem clear the exact time line of events. My main problem is not knowing when certain things take place or how. For example when does the 203k consultant come in and what needs to be completed before he can finalize the before - after price? How are blueprints, designs, etc compiled before the 7 days before closing when your allow to inspect the house? Does the 203k loan get approved before the closing or is there some lingering unknown at the time of closing? To me it seems like there is only so much that can be done without having the ability to inspect the house and only being able to do it 7 days before closing seems fairly risky. Not to mention we would also have to get village approval as well before renovation can start.

I guess what I really need is a pre-approval analysis and determination if this is the right option or if its to high risk. Too many homes are foreclosing and I want to make financially sure its a viable option before sinking too much out of pocket money into it.

I've already compiled a rough (+/- 1') blue prints base on some measurements we took when we visited the house, with some wiring and plumbing schematics that I was able to see. I also have a decent write up of what needs to be altered and vague cost analysis. Kinda hard to underestimate on the house as well, since the work that would need to be done covers pretty much every thing except the flooring, exterior walls, and some of the wiring, plumbing, windows, and interior walls.

Can the 203K consultant do the inspection prior to the 7 day window or better yet before an offer is even made?

I love the idea (don't like the waiting for another inspection before money is issued), but there doesn't seem to be that much information or people that have gone though it out there.

Thanks again for all the input, its been very helpful so far.
0 votes Thank Flag Link Thu Dec 4, 2008
203k loans are great. You have to be careful to work with an experienced lender and make sure your contractor is clear about the draw schedule before you move forward.

I met a lender last week that offers a very competitive private loan (portfolio) product, which has less paperwork and similar terms. If you're looking into a 203K you should talk to them as well.

I am happy to put you in touch with them.

Best of Luck
0 votes Thank Flag Link Thu Dec 4, 2008
David- Anna Niklarz is spot on. The 203K loan has been changed , it is my understanding that you need to provide estimates from licensed contractors. when funds are disbursed checks are made out directly to that the contractors, not to the homeowner. I agree whole heartedly these are excellent loans if the property you are considering is a fix up and you need extra cash. You need to talk to an expert in FHA loans, and Art La Valle with Platinum Mortgage is the man you need to talk to. 1) because he has specialized in FHA financing for many years, and 2) Platinum Mortgage is local and has in house under writers to ease the process. Give Art a call at (847) 987-4356.
Web Reference: http://www.susankklatt.com
0 votes Thank Flag Link Wed Dec 3, 2008
...The 203K loan has been changed a little recently, in past you where able to do your own work or provide estimates and hire someone other than submitted estimates at time of loan application. However at this moment , I believe, you need to provide estimates from licensed contractors and the checks are made out directly to that (those) contractors, not to the homeowner - but again, you need to talk to an expert in FHA loans, call Art... or e-mail him: artl1@ephmc.com
Web Reference: http://www.AnnaNiklarz.com
0 votes Thank Flag Link Wed Dec 3, 2008
The HUD 203K program is easy to enter and yes you can do some of the work on your own but you'll be required to budget your labor and include that figure into the overall budget. I am a 203K consultant in Central MS and will be happy to answer questions. see me at: http://www.garynsmith.net.

1-877-809-6139 toll free
http://www.greenbuildinginspector.com
Accredited NAHB Green Building Verifier

Gary Smith
Web Reference: http://www.garynsmith.net
0 votes Thank Flag Link Wed Dec 3, 2008
Yes, these are excellent loans if the property you are considering is a fix up and you need extra cash. You need to work with an expert in FHA loans, I am strongly recommending Platinum Mortgage, Art LaValle, (847) 987-4356, he has put many of my buyers into their new homes when others couldn't, Art is excellent!
If you have any other questions or concerns, don't hesitate to call or e-mail.
Anna
(847) 255-1000
aniklarz@remax.net
Web Reference: http://www.AnnaNiklarz.com
0 votes Thank Flag Link Wed Dec 3, 2008
I've read the main HUD website about them, but finding out details and statistics would be great. i.e. if a house sells for $200k and needs $60k of work and you've been pre-approved for around $270-280k would this play out.

Also any information on if some work is done by owner instead of contractor how does payout occur.

If anyone has gone through the ropes or knows a good resource it would be greatly appreciated.

Thanks
0 votes Thank Flag Link Wed Dec 3, 2008
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