The steps before and after closing a successful rehabilitation loan are listed below. Of course we will lead you through these steps as the loan process progresses.
Before Closing:
- Get pre-qualified!!! The pre-qualification will be one dollar amount that will include the purchase price plus the cost to complete the rehabilitation.
- Go visit properties with your agent. While visiting each of the properties you should have an understanding of what kinds of repairs you would like to perform.
- Make an offer on the property of your choice. The offer should include closing costs to be paid for by the seller.
- Once the offer is accepted then you will order a plan review with a 203k consultant. The plan review is simply a meeting at the property with the 203k consultant, contractor(s), Realtor, Loan Originator, and yourself. At the meeting you will discuss the repairs that you would like to make. In addition the consultant will point out repairs that need to be made to bring the property up to code in accordance with FHA/HUD guidelines.
- Contractors will provide you with bids based on the items discussed during the plan review and the 203k consultant will provide you with a specification of repairs which will line itemize the repairs and assign each one with a dollar amount. Please note that the contractor(s) may come in below or above the dollar amount assigned by the 203k consultant.
- Choose a contractor based on their bids AND ease to work with. Here is a great post on how to hire the right 203k contractor.
- An appraisal will be ordered at this point. The appraiser will appraise the property based on the repairs that will be made to it (for purchases, it is not as some have suggested two appraisals-only one).
- The loan application, appraisal, contractor information and specification of repairs are submitted to the lender for review.
- Close on the property!!! At closing the seller is paid for the purchase price of the property and an escrow account is established with the funds to perform the rehabilitation.
After Closing
- Work must commence within 30 days of closing but can be started as soon as you receive the keys to the property.
- As the work progresses the contractor will request payment for services rendered. When payment is required, the 203k consultant is called to visit the property to inspect the work that has been conducted. A request to draw from the escrow account is filed and a check issued for the amount of work completed that is paid to the contractor and yourself.
- Once the work has been fully completed then the rehabilitation portion of the loan is completed. Any remaining funds that were not used in the escrow account can be used to pay down the principal balance on the loan amount.
While it may seem complicated it is really a very smooth process as long as the various people involved provide information and documents in a timely fashion.
Contact a loan officer who has the experience and knowledge to provide an exceptionally smooth process for you, the buyer, and whose experience and knowledge of the FHA 203k mortgage loan is unsurpassed.
