You have found the perfect home, but it needs some fixing up. If you don’t have the cash to make the changes, it can make it seem like your rehab project is down the toilet. It doesn’t have to be, though. The 203K program is a great way to purchase and fix up your home with one loan. If the projects required to make your home look just like you want it do not exceed $35,000 and they are not structural, you can even qualify for the Streamline 203K program, which makes the process even easier. Before you start making plans for your streamline 203K project, however, you need to understand how to find the right contractor.
Finding a Contractor
No matter which lender you use, you will not find a list of approved contractors with any lender or even HUD. It is up to you to find the contractor that meets HUD’s requirements, though. HUD does have certain specifications regarding proper licensing, supplying references, holding adequate insurance, and have the experience to perform the jobs successfully. This makes your search for a 203K contractor a little more difficult. As you interview various contractors, one of the most important questions you should ask is in regards to their experience with the 203K process. If they are unfamiliar, it is best to look for a contractor that has experience with it because there are plenty of requirements they need to meet. The actual documents the contractor must provide includes:
- Proof of any required licenses for the county and/or state you reside
- Proof of all insurance policies, including workmen’s comp in the event that an injury or accident were to happen onsite
- References from previous jobs
- Agreement with you regarding the work to be done
The 203K Lender’s Role in Choosing the Contractor
While the lender cannot make you choose a specific contractor, they do have a say in who you choose out of the few you have selected. Typically, it is best to submit several estimates to your lender from various contractors as the lender has the final say in which costs are reasonable and customary as well as acceptable for the loan’s purposes.
The lender will need to know several things including the exact changes that are to be made on the home; how they will be done; what materials will be used; how many subcontractors will be used; and the timeframe in which the job should be completed. Everything that the contractor says/promises must be in writing because the lender has to approve it and it becomes a part of the loan documents when you close on the loan. Everything is contingent upon the contractor’s work including how/when funds are disbursed and when the final inspection can occur.
Who Performs Inspections?
Because you do not need to use a loan consultant with a streamline 203K project, the inspections are up to the lender. The only time this is required, however, is when the job totals more than $15,000. If it is below this threshold, the lender leaves the inspections up to you. They will not disburse the final funds to the contractors until you say that you are happy with the work that was done and that it was done to the specifications of the contract. If the work exceeds $15,000 and is below $35,000, the lender must perform their own inspection before they release the final funds.
The best thing to do is consult with other people in your area that have done a streamline 203K project to see which contractors they used. Contractors that are used to the process will do a more efficient job and will not balk at the amount of work they must do in order to gain the approval for the lender. When you select your contractor and the lender approves him, you can get the process gong, including closing on the loan and getting the work done!