Sunday, October 12, 2014

I Want to Do Some of the Work on My 203k Project - Can I?

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Can I do some of the work on my construction project to save money?

A question we get asked all the time. A borrower wants to see if it possible to gain some "Sweat Equity" so they want to do the painting, or they are a sheet metal specialist and want to do the heating and AC work to save money. 

The HUD Guideline says we, as consultants, must have enough in the construction bids to cover these items regardless of who does them. Therefore if the borrower wants to do the painting and the painting number in the bid specification says $3,000, the borrower thinks he can do it for $2,500 and save $500. 

That certainly sounds logical but... and this is a big but.... not a big butt. Sorry. In any case they quite often fail to take into account that the contractor has a profit and overhead number attached to the painting. It isn't all just paint and labor.  The contractor may be paying $2500 to a licensed contractor to do that painting and added his profit and overhead on top of that which is customary. 

The owner thought he would save $500 in this scenario but in fact all he saved was the contractor's profit and overhead which isn't up for bargaining. Even then, the rule for "self help" is that the labor the borrower is imputing cannot be paid out to the borrower so in fact they might save the labor which would pay down on the mortgage but the contractor's overhead and profit will stay with the contractor.

Most lenders want the borrower to be a licensed contractor before they can do "self help". Even then they make it difficult to the point it doesn't makes any sense to do "self help".