When you do an FHA 203K Loan as either a purchase or a refinance, and have over 35K in renovations, either structural or not, you have to have a HUD Consultant, approved by FHA to monitor your rehab project, but more importantly, sign off on the initial general contractor bid, before the loan goes into underwriting. The HUD Consultants job, is to make sure the project is in line with HUD “minimum requirements” for FHA to insure your loan.
Currently, I am doing an FHA 203K purchase in Wash Park, and the buyer has currently received 3 or 4 bids for his renovation of $120,000. Needless to say, the bids were all over the map with regards to price. It is the job of the HUD Consultant to not only make sure the bids are in line with the scope of the work, according to minimum FHA requirements, but to also make sure the borrower is not getting ripped off, which in this case, he potentially was.
The bid for the electrical renovation was $13,000. The bid for the windows was $4000, both of which were extremely excessive, and the latter, the General Contractor chose expensive Pella brand windows, versus standard windows.
Lucky for us, the FHA Consultant on this job, who also has to be lender approved, was the General Contractor for 15 years building homes for Habitat for Humanity. He acts like “big brother” on these renovations, and will charge around $200 for the inital bid review, and around $100 each time he comes to follow up with the project before each draw request gets funded by the lender.
Think about this for a second. With all the craze in “fixing and flipping” properties, many people try to brave this on there on, and lose big in the process, due to projects going way over bid.
FHA 203K is by far the safest renovation loan out there, because of the following.
1. You get low interest rates for 30 year term versus 6-9 month note for private money renovation lending.
2. You can refinance in 60 days with the initial lender into conventional financing, and if the equity is there, refinance out of the FHA loan, which carries mortage insurance.
3. You have “big brother” HUD consultant watching the entire project, and saving you time and money in the process.
If you have any questions or concerns about the FHA 203K Loan, please give us a call at 720 -524-3215