HUD is the acronym for the U.S. Department of Housing and Urban Development. HUD offers low-cost dwellings and grants to assist families in getting decent housing. FHA, or the Federal Housing Administration, is a division of HUD that provides mortgage insurance for loans on single-family homes that are the main residences for eligible families.
A 203(k) consultant has been approved to operate as a consultant by submitting the requirements requested by HUD and the FHA. These requirements mainly consist of experience in the construction and home inspection industry that allows the consultant to function in the capacity required in the 203(k) rehabilitation loan process.
Once the requirements have been met, HUD certifies the individual as a "203(k) Consultant". This certification allows the individual to operate as a consultant on loans insured by the FHA. The consultant is issued a certification number and the consultant's position can be researched on the HUD website by either looking up the certification number or the consultant's name.
The loans are typically originated by an FHA approved lender and once the borrower has met the requirements for the loan and the property qualifies for the program, the loan is issued and the repairs and improvements can be completed. See below for the HUD website that lists all approved 203(k) lenders by area.
What Does a 203(k) Consultant Do?
There are two kinds of loans under the 203(k) loan program. The first one is the "203(k) Streamline" and this can be used for minor repairs and cosmetic upgrades, but not for more extensive repairs or repairs concerned with structural repairs and upgrades. This loan has a maximum amount of $35,000. A 203(k) Consultant is not required for this type of loan, however it is recommended to make the procedure smoother.
The regular 203(k) loan covers more extensive repairs, additions and structural upgrades. The maximum amount for this loan varies by neighborhood.
Look into maximum loan amount by area here: https://entp.hud.gov/idapp/html/hicostlook.cfm
Check lenders in your area here: http://www.hud.gov/ll/code/llslcrit.cfm
On a regular 203(k) loan, a 203(k) Loan Consultant is obligatory. A consultant is involved from the inception of the loan process and continues to be involved throughout the construction until all the work is complete. The consultant inspects the property to assess its condition and evaluates what sort of repairs must be made per the HUD guidelines, called "Minimum Property Standards". If any of these requirements are in need of repair, the loan must have a budget amount to cover those repairs.
Above and beyond the minimum repairs that are required, the homeowner can borrow extra money to make repairs such as rehabilitate a kitchen or bathroom, or constructing a new addition. The consultant works with the borrower, the lender and the contractor to ensure the budget covers all the required repairs per HUD, the desired repairs by the homeowner and the various fees, such as permit costs and contingency budget to cover unforeseen items. Along with this budget, the consultant prepares all the necessary paperwork required by FHA and the approved lender to help fund the loan.
Once the loan funds and the construction has started, the consultant will visit the property to verify that the construction is being done per the specifications initially agreed upon and to verify that the contractor's billing is in line with the progress on the project. At this point the consultant will prepare a progress billing and present that to the lender for further processing and payment.
When the project is finished, the consultant will visit the property to make sure all the work has been completed properly, per the specifications and to make sure the permits have been signed off by the building inspector of record. When all these requirements have been met, the consultant forwards the final paperwork and billing to the lender and the remaining funds from the loan are paid out.
The 203(k) loan program is an terrific program for home repairs and when you have an experienced lender, contractor and a good consultant involved, it makes the process smooth. The loan is, to a degree, more complicated than a standard loan, but if you are working with experienced people, you will likely not run into any issues.