All Forum Posts by: Marcela Correa

A few weeks back I had a client complain of closing costs being higher than expected on a 203k. The best thing you can do is reach out to other banks and get estimates from them. I know in the DC area Movement Bank, MVB Bank and First Home are all active on 203ks. Not sure if they cover Virginia Beach. PM me and I can give you contact info for a loan officer that will be able to answer general questions.

Hi Gary,

I am always on the lookout for potential suppliers as I drive around. I stop into any place that seems to wholesale materials and ask for prices.

I also walk into houses that are being rehabbed and try to speak to the investors, contractors, subs, and day laborers. It's possible to learn a lot from all these individuals if you treat them with respect and offer your own services wherever possible.

Good luck,

Marcela

Agreed with @Mitch VanDeveer and @Nick Stango . I cannot emphasize enough how important it is to do ALL of the due diligence that they listed.

I'm a GC in DC and we also ask for a deposit but it varies based on the size of the job. Even if I have a line of credit, it's not my clients' place to dictate how I should use the money that's available to me.  It sounds like you want to work with this guy but still have some hesitation. Why not be honest with him and say you want to build the relationship but on this first project maybe you split the 30% into two 15% payments that take place relatively close to each other? Then work together to define the milestones that will trigger each payment for the life of the project.

We're approved with 5 banks as 203k contractors. In our experience, banks require either 10% or 15% contingency. We haven't seen anything greater than that. 

We utilize the contingency more on smaller jobs. On projects where the scope is full gut and rebuild, there are few surprises that can come up so the contingency may go untouched. Whereas on a project where clients are keeping a lot of the existing systems and layout, you may run into surprises behind any one wall you open up and the place may need more repairs than expected. For example, someone wants to keep the kitchen and dining room layout but they want a pass thru window in between. We budget for labor and materials. Then once we open the wall, we find there's a duct/pipe/whatever running right thru the space we were going to open. The client may decide to use the contingency to renovate whatever's in the way so he can still have the pass thru.

@Nicole Brush

Oh...and schedule access with a realtor for a whole morning or afternoon and schedule contractor site visits back to back. Your 203k lender can provide the names of several contractors that they recommend. Some people schedule them to be in simultaneously to save time but I think you miss the opportunity to get mode feedback on the property and the renovations, ask multiple times the number of questions, and create a rapport that could lead to a discount later on. 

 HI Nicole,

Fannie Mae has a renovation loan that's similar to the 203k called HomeStyle. It allows you to roll in mortgage and rehab. It requires a higher downpayment than the 203k but I believe there is no PMI. Not many banks are doing it but you can find parameters on the loan online and then you can call around to banks to see if any of them are carrying the product.

Banks in the DC-MD-VA area charge 1% origination fee for commercial loans (that include acquisition and construction).

Agreed with @J Scott. I would also ask any neighbors who have properties with similar location/grading to your target whether they've had water seepage. Best person to ask is the owner, if that's possible. 

The maximum amount of your loan is based on how much you qualify for based on your income, assets, etc, the appraised value of the home, and the number of units you will have at then end of the renovation. For example, you may qualify for x amount for a single family home but you'll qualify for more if it's going to be converted to two units because then the lender counts the rental income from the second unit. Under a 203k you can borrow up to 110% of the appraised ARV of the home (assuming your income is not the issue).

Once you have your max loan amount, then your max renovation budget will be your loan amount less the acquisition cost of the property. How much you actually choose to spend is up to you.

The part where this gets tricky is that you have to have a renovation budget to order the appraisal. So you'll have to do your research or work with your contractor and realtor on a scope that brings you within market comps without having the cost of the repairs push you way over what you expect the appraised value to be. 

I hope this wasn't convoluted. Your lender and the 203k consultant that you're required to hire should also be able to answer any specific questions you have.

 Hi Cierra, 

I happened to land on this pas post of yours and am wondering if you did research Mojo and/or Landvoice and whether you might share your thoughts on them? 

Best,

Marcela...GC and investor from Washington, DC