My personal opinion is about mortgage loans is the FHA Renovation Loan Program is the most exciting loan program available, There are so many exciting things about this program so it becomes very complex and that is why it is very important that anyone involved with this program really understands.
By taking the time upfront to learn this program is will save a lot of problems during processing and closing. Once the loan closes, the Borrower and the Contractor must be on one accord or there can really be problems. The Borrower and the Contractor must sign the FHA Homeowner/Contractor Agreement Form. This form has 15 different sections that should be thoroughly understood by everyone involved with the loan.
Here I touch on some of the sections that I feel are very important:
- The Contractor must provide a copy of the permit before he/she is paid.
- The Contractor must provide a proof of payment to be reimbursed.
- The owner must pay for any necessary easements
- If a permit is required for the easement, it must be provided to the underwriter.
- The General Contractor must supervise all the work that is performed on the job. The Contractor is responsible for all Sub Contractors. Sometimes a borrower will want a specific sub-contractor such as a painter, that decision can not be made solely by the buyer. The General Contractor is responsible for all Sub-contractors and has the right to accept or reject the buyer's request. The Contractor is responsible for all work done on the project.
- The borrower does not have to allow the Contractor to use as Sub-contractor that he/she finds objectionable.
- Usually the Contractor will pick up all materials and have them delivered to the site. If this is not the case the you must make sure that you have a written agreement of what is to be done.
Removal of Debris
- Cleaning up the debris from the construction site is the responsibility of the Contractor right? Wrong, it should be spelled out who is responsible for the removal. There is a cost to removing the debris and if the costs were not in the first work write-up, it needs to be spelled out on this form. It can cause problems during the renovation phase. The city can fine either the homeowner or the contractor for any debris that is left on the property.
- This section is very important for the Borrower and the Contractor to understand. When and if a dispute arises, then the dispute may be settled by binding arbitration. Arbitration is very expensive and the Arbitrators are from the Construction Industry Arbitration Rules of the American Arbitration Association. Both parties can agree in writing to other methods to solve the problem, but there may be an Underwriter that will require the Arbitration. Arbitration can resolve problems faster than the Courts. Personally, I would not want Arbitration if the arbitrators are Contractors.
- The work must begin within 30 days of closing, unless delays have been caused by the weather.
The FHA Renovation Loan Program is the most exciting loan program on the market, anyone involved with this loan should be educated. Educate yourself.
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