The FHA 203K loan enables you to purchase/refinance a home as well as fix it up either structurally or cosmetically. There are numerous ways you can use this loan. If you are purchasing a home that needs to be fixed up, you can use this loan to make it look the way you want. If you are refinancing your home and wish to put an addition on it or you wish to change the color of the exterior of your home, you can do it with the 203K loan. Because this loan operates a little differently than a standard FHA loan, it is important to know how is involved in the process so that you understand what you are getting yourself into.
FHA 203K Lender
The lender is the obvious piece of the puzzle with the 203K loan. The lender oversees pretty much every aspect of this loan process. Anyone involved in the process down the road will have some contact with the lender, including the people that do the work on your home. The lender sets the guidelines regarding the requirements necessary to qualify for the loan, which contractors are able to work on your home, what they can charge, and when the loan must close and the work be done. All contracts must get approved by the lender and the work to be done must also get approved. In essence, the lender has the final say in everything that occurs with this loan.
Every loan needs an appraiser, unless you are using the FHA streamline refinance program. The appraiser determines the value of the home to help the lender see if there is enough collateral for them to provide the loan the borrower requests. With the 203K loan, however, the appraiser has a different role. He still has to determine the value of the home as it is now, but he also has to predict the future value of the home after the contractors complete the work. This is in stark contrast to a standard appraisal. For example, in some cases, the initial appraisal will not even meet the requirements to let a loan go through. If, for example, the plumbing was bad in the home, an FHA loan would not be suitable for the property. With the 203K loan, however, the plumbing repairs can be included in the loan, enabling the financing to go through.
Typically, the work you intend to do on a new or currently owned home must be done by a contractor. There are very few exceptions to this rule unless you have the necessary experience and tools to do the work on your own and in the timeframe that the lender requires, which is usually no longer than 6 months. The contractors you choose to do the work on your home must be approved by the lender in the end. If you shop around with various contractors, you will need to get estimates from each one along with their qualifying information and present it to the lender. The lender then has the final say in who you choose to do the work on your own. If you obtain just one estimate and it is within the guidelines of the lender and the contractor has the necessary licensing and insurance to do the work, then you will likely be able to use the contractor you chose. The contractor will have to sign a contract with the lender stating that he will do the intended work within a specific time frame and for the agreed upon charges before work can begin.
203K Loan Consultant
Another unique aspect of the 203K loan is the need for a loan consultant. This person oversees all aspects of your 203k loan, taking the burden off of your shoulders. He will do as much as you need him to do. If you are inexperienced in shopping for contractors or negotiating with them, the loan consultant can do it for you. The loan consultant will also oversee the work being done on the home, ensuring that it is done up to code and within the timeframe designated on the contract. The loan consultant can also help guide you through the 203k lending process, working as the liaison between you and the lender. The only time you do not need a loan consultant is when you use a streamline 203K loan, which means you are not making any structural changes to your home and that the costs of the changes do not total more than $35,000.
It may seem like there are a lot of people involved in the 203k loan, but they make the process as seamless as possible. This is especially true if you have a loan consultant that can pretty much oversee everything for you. In the end, you are left with a home that you love, that is up to code, and worth more than when you started and all you are left with is one mortgage payment to pay each month.