Tuesday, April 10, 2012

FHA-HUD 203(k) Loan Program

One of the biggest misconceptions about the FHA 203K loan process is that it is a difficult and time consuming. It is only difficult if your loan officer and realtor are inexperienced with the process. As far as being time consuming, whenever you involve third party consultants and contractors you increase the amount of time a loan takes to close. However, on most renovations there is no reason the process cannot be completed in 30-45 days. I have seen them close in 20 days from the initial consultation to closing. This is true on both the traditional 203(k) and the 203K Streamline. Although the streamline does not require a HUD 203K Consultant, I have found myself consulting on them. At the end of the day, it is still construction and if a homeowner lacks the skill and/or construction background and knowledge, then it is key to have a consultant working in your corner to assure the process remains smooth to completion.

To better understand the process you need to understand there are two different kinds of FHA 203K loans:

The FHA 203K Streamline. This loan is for repairs under $35,000 that do not involve any kind of structural renovations. For Streamline 203K's, the lender may release 35-50% upfront and 50% when the work is completed. The lender will require a final inspection to make sure the work is complete. However, be sure that the maximum of $35,000 is enough to complete the work you want to have done. You do not want to run short of funds before the work is actually done. This can sometimes happen with unforeseen damages during the construction process. In some cases you may only go back to the lender for an additional $2,000. This is depend on your lender and the circumstances.

Full FHA 203K: loans exceeding $35,000 in repairs, the process becomes slightly more intricate. Many times on these when you are doing more extensive repair you will want to involve a 203(k) consultant. He is the key to the project's success. Primarily, the 203(k) consultant is all that is required. The Consultants role is clearly defined at the initial consultation. Obviously, the process can vary from loan to loan and the need to retain an Architect or engineer could arise depending on the complexity of the project.

End Result of the 203K Process

The end result of any process can rarely be guaranteed, but when done correctly a 203K purchase loan with an experienced 203(k) consultant, loan officer and knowledgeable Realtor, home buyers can successfully use a 203K financing to create a custom designed home with substantial equity from day one. And don't forget, you can refinance your existing loan with the 203(k). The key to the success is the 203(k) consultant.

The 203(k) consultant you select should have met the minimum of three years experience as a remodeling contractor, general contractor or home inspector and be listed on the 203(k) Consultants roster at HUD.gov

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