203k nightmare - The work isn't done and we're over budget

[Tamara Taylor]

Hello everyone,

I was very happy to buy my first REO at the end of 2015. The plan was to rehab the house, live in it for a while, sell in 1 - 2 years, make a profit and buy another investment property.

Mistake #1 - I hired a friend as my contractor for my 203k project. I had to fire him 5 months in because there was no way he would have completed the job by the deadline. I had given him $7500 (about 1/2 of the initial draw the bank gave me) to buy supplies. If he spent $1500 on materials I'd be surprised. Now I've hired a new contractor (203k certified) and with the money I have left, including the contingency, which I doubt the bank will give me, I am about $3000 over budget. 

Mistake #2 - I didn't get all the facts about a 203k loan beforehand. Apparently, all of the items listed on the original scope of work need to be done and nothing can change without some authorization from the bank. My question is, What happens if they aren't all done? Example: On the original scope, the fence in the back yard was to be removed and replaced with a new fence. I can't afford to have the new fence built ($1600). Will the bank withhold all of the money for the project or just the amount the $1600 for the fence?

I hope this make sense to someone and I appreciate any words of wisdom.

Thanks,

Tamara