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The FHA 203K Loan Process

If your not familiar with the FHA 203K loan process it can be quite a cumbersome, and tricky one!

Have you been told a property needs a cash buyer? This product is the solution to being able to obtain it without a cash purchase! This product is the one tool available in the market place with FHA rates that can be used to finance a property in need of repair. A large percentage of the business professionals prefer to steer clear of this product due to its’ complex layers, and added timeline needed to close. However, for the savvy and experienced Real Estate broker this product can be your best friend in a sea of properties requiring cash which would not be able to be financed without such a product.

In a nut shell it is a FHA product typically about 1/4 point higher than standard FHA rates. The minimum percentage down required stays at 3.5%. The average closing timeline is 45 to 60 days. Most individuals use this product as a short term strategy to obtain the property. Then 120 days after the repairs are completed a Streamline FHA Refinance is used to refinance the property into a lower rate.
I recommend this to my 203K clients to maximize the ability to obtain the property, and minimize the long term costs of the higher rate. If you were satisfied with the lender you used, asking them to assist may yield the most cost savings on the closing cost portion as it is a plain vanilla switch from one FHA product to another when you do a Streamline Refi. To embark on this path can truly be a nightmare if not paired with a team of skilled professionals fluent in 203K.
As an example I had a client recently who was told their lender could do a FHA 203K loan. Unfortunately, the client was committed to a lender who was using them as a guinea pig for their first go around with the product. Literally a nightmare waiting to happen! The loan took almost 90 days to close, one delay after another, more added costs than should have been there, and the buyer lost the tax credit as a result of all the delays pushing the closing past June 30th.

To AVOID SUCH A 203K Nightmare follow these tips:

​1. Pair yourself with a team of professionals experienced with these loans.

Try to verify if they have a minimum of 3-4 203K loans closed in the current 12 month period. This will ensure they are familiar with current guidelines of current banks funding these loans. In the primary loan market unless a firm will keep a 203K loan in an internal portfolio, then there are only about 3 major banks out there who will fund a 203K loan. This means lenders who work with these programs should know in advance who they will send the loan to, and be familiar with their current guidelines, underwriters (if in house or not…HUGE DIFFERENCE!)

2. Find a Real Estate/MTG Broker who deams themself a “Specialist”

and listen to their recommendations as they will truly save you time and money with the knowledge and value added experience they hold.

3. Make sure the team you’ve created stays in consistent communication on your behalf

always working for the same shared goal of the best terms and conditions possible for you, their mutual client and buyer.

4. Find out of you can choose the HUD Consultant for the transaction.

Some lenders let you pick from a list, others will tell you it is automatically selected by the lender with no buyer selections available. If you can pick the HUD Consultant contact a few firms to ask their basic cost structure for 203K Consulting, their timeline of availability booking out for inspections. Some lenders require a HUD Consultant be involved for all 203K loans. Others only require them for loans where the repairs exceed $35K.

5. Know the difference in a Streamline 203K loan

(under $35K in repairs) and a “Full K” as the 203K savy lenders call it. The more repairs, the longer the timeline needed to complete them.

6. Many individuals confuse this product thinking they can do the repairs themselves.

 Keep in mind to protect their interests the bank funding your 203K loan will require all licensed & insured professionals to complete all repairs to town codes with permits. They consider the borrower who works full time to not have the time or level of professional skill, including adequate insurance coverage, to be a risk they will not take on.

7. Be prepared to use a General Conctractor or Project Manager familiar with 203K loans.

 Additionally, they will have to carry the project costs for weeks or months at a time until draw disbursements are released. A contractor must agree to these terms and be aware of this or the work will not move along meeting the timelines set by the bank. The contractors selected must have no liens current or prior, and a strong financial and credit profile will be required to be validated and approved to do all repairs. Basically, each vendor needs to be approved by the bank to verify all estimates submitted for the repairs. I’ve heard of a builder being foreclosed and the buyer asking the builder to do the repairs since he knew the building best. Once the builders credit is pulled he will not be approved by the lender as a high risk and conflict of interest. Should the contractor you choose have personal credit issues, this could prevent their ability to be validated as well.

8. More on The HUD Consultant…Be prepared to be flexible.

The bank funding your loan will require at a minimum the property meets FHA guidelines. The role of the HUD consultant is truly to protect the borrower from any false information or inaccurate estimates from vendors/contractors. They use a set of industry standard pricing to determine estimates are in line with a norm for work to be completed. You may decide to do repairs above the minimum guidelines, and they must all be included in the HUD Consultants report.

Should you be embarking on a 203K Loan and have questions, or should you know someone seeking a property that would need a product like this to obtain it send them my way I have numerous references available! ​ I have many 203K inspections under my belt, and I have a great team of vendors and resources to help ensure as smooth of a 203K process as possible. I have multiple lenders I work with with a successful track record for these loan types. What matters most is being in capable hands of savvy 203K professionals!

Our Mold Remediation

Scopes of Work and Post Testing Services

If the mold inspection and mold testing of your property detects a mold problem, we will write a “scope of work” that outlines how the mold should be professionally re mediated. This scope of work document can be provided to companies that specialize and focus on professional mold remediation services. Once the mold has been completely and properly remediated, Residential Inspections, Inc. will perform a post inspection and testing to ensure that:

  • All mold remediation containment are properly built and dust and debris free
  • All mold growth is thoroughly cleaned and/or removed
  • All related building materials are dry
  • There are no current water leaks or intrusion
  • Airborne ambient mold spore samples and cross contamination samples collected meet accepted guidelines for clearance

Our Mold Remediation:

Buying or Selling Property?

▪ Don’t sell real property with undisclosed water or mold issues or risk selling property with a possible mold or moisture problem. Engage Mold Inspection Sciences to perform a thorough mold inspection to reduce your liability and exposure.

▪ Don’t consider buying property with existing mold problems. This could reduce the value of the property, subject the occupants to mold and moisture related health problems, force you to pay large mold remediation costs, and could make the property difficult to insure or sell down the road.

Mold Odor

You may have a mold problem in your home if you are smelling musty, moldy, or other unpleasant, dank odors. Roof Leaks and Mold Damaged, old, poorly installed or maintained roofs can lead to roof leaks and mold and other water related problem in a structure.

Poor Landscape Grading

An often overlooked source of water intrusion is improper exterior grading around the structure. Ground that tends to slope towards (rather than away from) a structure’s exterior, perimeter walls call allow water intrusion from rain and/or irrigation.
Poor ventilation of the crawlspace, cracks in the foundation, support beams contacting the soil, and rising dampness can all impact the foundation and lead to moisture intrusion and mold in the structure.

Plumbing Leaks and Damaged Fixtures

A good many plumbing leaks are obvious. However, many more are difficult to detect and can go undetected for a considerable time. These types of leaks, no matter how small, can lead to serious water intrusion and mold. Hidden water problems can lead to hidden mold problems. Bathtubs, toilets, and sinks must be in good working order, well caulked, and crack free. These bathroom and kitchen fixtures are one of the leading causes of water problems and mold.
Sprinklers that irrigate your lawn and flower beds must be aligned properly so that they don’t hit the side of your home and cause wet exterior walls, pooling, and ponding. All of these can lead to moisture and mold problems. Vegetation and Trees Contacting Exterior of Structure If trees, plants, and/or shrubs are in contact with your exterior walls, you might be allowing water into your home or business. This vegetation will block out sunlight required to dry exterior walls. Walls that are wet are a breeding ground for mold growth.

As a realtor what do you need to do now?

Does the property meet FHA Guidelines

Your certified HUD consultant will guide you on minimum standards/required repairs/homeowner upgrades allowed. (peeling paint, wood flooring in need of refinishing, inoperable windows, plumbing leaks are all typical concerns) appraiser has final say based on the appraisal of the property.

What determines streamline 203K vs. full 203K loan?

Streamline-cost of repairs – Repairs must be below $31,500 in total renovation cost with no structural work.
Full 203K Loan – There is no limit on cost of repairs/upgrades as long as it is supported by final appraisal value and your budget. Structural repairs are allowed.

What are the required repairs/upgrades?

The HUD consultant determines the repairs required to meet minimum HUD/FHA standards. Once these minimum standards are met then the homeowner can do just about anything except add a swimming pool or hot tub providing the appraisal can support the cost of repairs. What I call the must do vs. the wish list- both being budget driven.
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