Are there any circumstances where a contractor may begin/complete work prior to closing on the house using an FHA 203K streamline loan?

Asked by 1st Timer, Houston, TX Mon Feb 6, 2012

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Chris Schill…, Agent, Houston, TX
Wed Feb 8, 2012
Congratulations on being a first timer and taking on a remodel as well!

The short answer is no. There are no instances where you can begin work on a home that you do not own until you have closed and funded. If closing is when you sign the papers, funding is when the money is wire transferred from your lender/bank to the title company....who then wires that money to the owners. Most of the closing I have been a part of recently have a "table funding" which means that the funds have already been transferred from your lender to the title company for distribution. All the title company needs is an authorization number to complete this distribution. The delays that can and do happen with funding normally occur:

1. Closings late in the day (anything after 3pm they may not be get a wire transfer out or in by cut off from the wire department/ Generally 4pm)
2. Closings at the end of the month. (everyone is rushing to get them in)
3. Closing late in the day on Fridays

Fridays can be the worst.....if you miss it or there is a glitch in getting the paperwork approved, someone at the lender is on vacation...and you miss having the file approved once you sign by the lender, you may push your "funding" to the next business day.......which is Monday or even Tuesday if Monday happens to be a national/bank holiday.

So my advice is to close early in the day and stay away from Friday if possible.....Thursdays work great!

Best of Luck to you!

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Chris Schilling, ABR, GRI, CRS, GREEN
Real Estate Broker
Turbo Realty
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Dawn Fore, Agent, Cypress, TX
Tue Feb 7, 2012
I checked with two of the more experienced lenders I work with in case there were exceptions that I was unaware of, but they both said no. The work must be done after closing, after the 203K loan has funded.

If you get the bids and choose your contractors prior to closing, you could have them all scheduled and set to go very quickly after closing. I would recommend that you choose contractors that people you know have used and had good experiences with. And as Realtors, we often can give you some direction on local companies that our own clients have used and recommended. This is extremely important in any renovation or home improvement project you are planning. I believe 45 days is plenty of time to get the items completed that you mention in your post.

Good luck!
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Rosemarie Fu…, Agent, Pearland, TX
Mon Feb 6, 2012
Generally 203K loans are for major renovatons. The money is held in escrow at closing and the work would be done after closing. The money is then paid from the escrow account directly to the contractor. If you need minor repairs as you stated, windows, carpeting, appliances, it would be to your advantage to negotiate a contract where the you offer more money and have the seller pay 6% of your closing costs thereby leaving you with the cash to do the minor repairs. Of course that woud assume that the house would appraise for a greater amount and that the market analysis supports the price that you would be offering. For example: if you are looking at a home that is priced at $100,000 and the analysis that your agent has done for you shows that the house most likely could appraise for $120,000 ,and assuming that you are putting the minimum down (3.5% FHA) you would need your down payment of $4200. You would then be financing $115,800. At 4.5% interest rate, the cost is $5.07 per thousand so the difference in your payment for $120,000 vs. $100,000 would be $100 per month (principle and interest - $587 vs $489). You would have $7200 to spend on appliances and carpet. The windows may have to wait until next year. Ask your agent about this. If you don't have a buyer's agent you can call me and I can help you out.

Rosemarie Furnari
Realty Associates
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1st Timer, Home Buyer, Houston, TX
Mon Feb 6, 2012
I found a house I would like to buy that needs minor repair/updating (ie. carpet, windows, appliances, etc.) However, I need the house to be move-in ready in about 45 days.
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Shelly Long, Agent, Sacramento, CA
Mon Feb 6, 2012

Not in my experience, unfortunately. However, it depends upon exactly what you're trying to accomplish. Can you elaborate?

Shelly Long
916-806-HOME (4663)
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