Anybody Know the Best Banks for 203K in LA?

Question

Hello everyone,

My name is Vanessa from Los Angeles,CA. I am a new member to the Bigger Pockets community and a first time investor!  I have been educating myself on real estate investing through books, and podcasts for the past couple of months. I am getting ready to purchase my new investment property as a house hack and plan on using a 203K loan. Anybody have any suggestions on which banks are the he best to use in LA? I heard from a couple of people that smaller banks and credit unions are the way to go, therefore I wanted to see if anybody here can lead me towards the right direction. Any help would be much appreciated.

Thanks!

Brad Sneckner · Answer

Hi Vanessa! I'm actually a residential lender. What is your reasoning for wanting to use a 203k loan? Are you intending you purchase a property that is not liveable in it's current condition? Or just don't want to pay the rehab costs out of pocket? There are a few things to know about 203k loans:

There are "scope-of-work" plans that will be needed, and there is a HUD consultant (an FHA designated overseer of the project) that has to sign off on each stage of the project before draws can be issued to the contractors. Additionally, the contractors have to be approved by FHA, and be willing to receive those draws only after various stages of the project are complete. You'll want to research approved contractors in your area and contact them to see what their capacity is to complete the project.

The cost of the HUD consultant, appraisal, and plans are typically required upfront, probably between $2k-3k depending on the project.

If you have any other questions, I'm happy to help!

Matthew Porcaro · Answer

@Brad Sneckner

The reason I brought it up is it’s a very common misconception that holds people back.

Any licensed, bonded, and insured contractor can qualify.

You would want that all anyway, for my flips everyone I use is licensed and insured. Never worth saving a few bucks and taking the risk.

These requirements are in place not only for the lender but for the borrower.

To many people use crap contractors and they get allured by cheap prices and end up having them walk off the job or fail to complete it because they ran out of funds.

Matthew Porcaro · Answer

@Brad Sneckner

What’s an approved contractor?

Paul Welden · Answer

@Vanessa D Guzman

I would check out the 2 lender directories on HUD.gov which will give you the lenders with the most 203k experience.

If you want help finding or navigating them, let me know.

Brad Sneckner · Answer

@Matthew Porcaro The contractor typically has to fill out some documents to be approved (you can't have your best friend's brother do the work because you're buddies). But I misspoke still... The HUD consultant has to be an FHA-approved person, but the contractor I think is LENDER approved so they'll have to go through a process for that if they aren't already on the "good guy" list.

Paul Welden · Answer

Certainly don't want to use any licensed, insured contractor because they won't necessarily understand all the nuances and paperwork and payment structure of the 203k.

The "vetting process" that most lenders have for contractors is insufficient where they typically only verify license and insurance and never verify the contractor's knowledge and understanding of the 203k or that the contractor could afford to work with the 203k payment structure.

And the HUD/FHA approval process for 203k Consultants is even worse. If you are a home inspector or general contractor with 3 years experience and can write a document describing how you would inspect a home and do a cost estimate, HUD will allow you to become a 203k Consultant ... with no education, no training, no testing ... NOTHING. So, don't think that because the 203k Consultant is on the HUD/FHA roster that they actually know what they are doing. This is why HUD/FHA requires the lender to select the 203k Consultant and be responsible for them.

Avoid a bad 203k by first selecting the best 203k-experienced lender who will select the best 203k-experienced 203k Consultant.

Avoid "crap contractors" and "handyman contractors" by using contractors who have the designation as a Certified 203k Contractor. They've all been properly educated on HUD/FHA guidelines for the 203k and have sufficient financials to support the start up costs and ongoing expenses for the 203k.You're only as strong as your weakest link --- select your partners wisely.

Vanessa D Guzman · Answer

@Paul Welden

Paul, Thank you for all the Information. Good to know that even the HUD/FHA approval for Consultants and Contractor is not always the way to go. This thought me that I need to find a good lender thats knows their way around the 203k loan thoroughly!

Vanessa

Vanessa D Guzman · Answer

@Brad Sneckner

Hi Brad! Precisely, I don't want to pay the rehab cost out of pocket. I am aware the process is tediously overseen by the lender which is what makes the process ideal in my case as I am a first time investor. My partner and I are looking for someone that is experienced and knowledgeable in the 203k loan. Most importantly they can guide us as it will be our first time. We are nervous but very excited!

Thank you for all the info!

Vanessa

Brad Sneckner · Answer

@Matthew Porcaro Absolutely. I've had clients want to use "handyman" type construction guys and that's a risky plan. But the contractor typically does still have to go through a vetting process with the lender.

Vanessa D Guzman · Answer

@Matthew Porcaro

Matt, Thanks for breaking the misconceptions. Where there is a will, there is a way!

Vanessa

Anybody Know the Best Banks for 203K in LA?

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