Role of a Consultant in 203(K) Rehab Financing Through FHA
Home buyers planning on securing FHA 203k financing must work closely with 203k consultants to co-ordinate the various steps involved throughout the process.
If the residential property being considered for purchase by the buyer is in need of repairs and the scope of the work to be done exceeds beyond the 203k streamline guidelines, then the following essential steps involves the involvement of a HUD-accepted 203k consultant.
Initial Site Visit
Call up a local 203k consultant listed on the HUD consultant roster and schedule an appointment for the site visit. The entire list of approved 203k consultant list in each state can be accessed through the HUD website.
Upon visiting the site, the consultant will perform a thorough examination of the property and provides with an assessment about the project’s feasibility under the 203k loan requirements. If the consultant determines that the project is indeed feasible, a formal agreement is signed and the buyer pays a retainer fee. The exact fee to be paid depends on the cost of the proposed repair work. The HUD stipulated fee amounts to be paid to the consultant can be figured out using the general fee schedule.
Architectural Exhibits, Detailed Work Write-up and Cost Estimates
Based on the initial site visit and inputs from buyer regarding their renovation plans, the 203k consultant will prepare a concise document regarding the project’s scope and specifications. Architectural exhibits along with a detailed cost breakdown for each of the repair tasks will also be included. Additionally, the 203k consultant will also prepare lender packages and contractor bid packages that contain everything mentioned above. Finally, draw request forms based on the work plan to be followed will be prepared.
Once the detailed work write-up is completed, a copy of the complete package with all the required documents is submitted to the lender, contractor and the borrower.
Choosing a Contractor
The borrower will then invite bids from contractors to complete the work listed in the consultant write-up. Before you proceed with the contractor bid process, make sure your 203k lender agrees to it. Most active 203k lenders may have pre-screened list of eligible contractors and they may stipulate that the work is done through one of them. If not, they may have a set of requirements for a contractor handling the rehab work. It is highly advisable to work with a contractor who is well aware of the 203k guidelines and understand the steps involved in it. If you are going to be working with a new contractor who has no prior experience, make them understand the draw process and the work completion schedule as determined by the 203k consultant in the write-up package.
Once a contractor is selected and the loan conditions are satisfied, your 203k lender will schedule a closing that is convenient for you and the seller. After all the loan documentation has been signed, funds for repair work will be escrowed. From this point onward, the renovation work can commence.
Draw Request Inspections
The 1st draw will process once the consultant determines that all the necessary permits have been issued from the local authorities. Depending on the completion of the work identified in write-up as per determined schedule, the consultant will make subsequent inspection visits and issues the 2nd and 3rd draw amounts.
After the 4th draw request, a punch list containing any unfinished, outstanding tasks is handed down by the 203k consultant to the contractor. The 5th draw, held as a retainage is issued after the final inspection. At this point, the project will be successfully completed with no unfinished tasks. A 203k lien release form that absolves both the borrower and the lender is entered between the buyer and the contractor. If necessary, certain warranties regarding the completed work may also be entered between both the parties.