Saturday, July 26, 2014

Pitfalls of "Self Help" on a Renovation Loan, FHA 203k or HomeStyle

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It seems that everyone we know thinks they are a painter...

Self Help and the FHA 203k is not a good idea as much as you might think you can do something and save money... you don't save money. The FHA 203k consultant must build in enough money for a professional to do the work and you can only do it if you are a licensed contractor in the state where the home is.

If you should get the contractor to allow you to do that work under his/her license they aren't going to let you have all the money in that category, they must keep their profit and overhead.

Every time I see a "side deal" between the contractor and home owner it always seems to go sideways. The contractor wants to be a "good guy" and if allowing the borrower to do this makes him seem like a "good guy" he may be tempted.

The owner thinks they will get the entire amount in that category failing to realize the contractor has a bid from a professional painter for less than that amount by the profit and overhead. The home owner then rarely completes the task in a timely manner... in this example of interior paint, the contractor may be ready to lay the flooring and the painting isn't complete...

The contractor has the right to lay the flooring and then it becomes the owner's responsibility to tarp the floor coverings. It is just a mess looking for a place to happen.

Lets look at the HUD guideline... We must maintain enough money in the bid item to cover a contractor to complete the task in the case the original contractor or, in this case, the borrower doesn't complete it in a timely manner. The lender can force the work to be done. If, on the other hand there isn't enough money to do that job built into the bid it can't be done and you are in violation of the guideline.

The guideline also says the contractor must warranty his work, so if he lets the owner do the painting or any other task, he still has to warrant the work. Contractors must warrant the work for one year, most do it for two years and some use the 2-10 warrantee program that warrants the work for ten years.