203K problems after closing

[Justin C Huggins]

I recently closed on a 203K loan and after all the paper work finally thought I was done once I closed.  About a week after closing I heard from my contractor and he had not received any funds to start the project.  My loan officer said he should have received the first disbursement payment once he signed his portion of the closing docs.  I specifically asked the loan officer during the bid process how the loan worked and if the contractor could receive upfront costs for materials.  He specifically told me that the renovation team could provide upfront disbursement.  Well now after closing the renovation team is saying they cannot provide any upfront costs.  Also, my contractor will not start any work without at least some kind of funds upfront.  On top of this, the contractor has not signed all of his portion of the 203k packet, only partially and I have already closed the loan.  Basically this has been a huge mess and feel like I been lied too.  Is there anyway I can get out of this, such as them just applying the renovation portion of the loan to the principle and refinancing?  Any suggestions, as of right now this is going nowhere.

[Justin C Huggins]

@Craig Murray It is now underway, but has been a nonstop headache. The contractor will complete certain steps, has to schedule the HUD inspector then gets paid a week later. I have known the contractor for along time and he mentioned that it is taking him much longer and more time just having to deal with all the red tape. The 203K limited, which is 30K or less, just gives 50% upfront to the contractor and then 50% upon completion, which is much more than simple than the full 203K. If you do decide to go through with the full 203K loan or limited, the advise I wish I was given was find a contractor that is already familiar with the 203K and has done one before. A big part of the issues I am facing are the contractor and myself are not familiar with all the procedures involved and somewhat unclear at times and the paperwork is endless. The interest rate isn't that great, so probably have to refinance anyways. If at all possible, I would just shoot to buy the property and then get a separate loan for renovation. You will probably have to refinance either way, as 203K are roughly 1% higher than ordinary loan.