All Forum Posts by: Matthew Porcaro

@Brad Sneckner

What’s an approved contractor?

I'm really sorry to hear that man, there's just a dropped ball on a couple of things, but I would definitely get a lawyer involved ASAP. 

As for the 203k consultant releasing funds for a project that wasn't completed, you can report that consultant to the HOC. https://www.hud.gov/program_of...

Let them know the situation that there was some shady dealings, and you could technically go after the 203k consultant as well. 

Just make sure you have pictures and proof of everything. 

Also, not to pick on ya, but never just take the 203k consultant's word for it. You definitely need boots on the ground and to see the work yourself throughout the process.

The unfortunate reality is even though this person is supposed to be checking, ultimately no one cares about the project as much as you do, and sometimes if you want things done right you need to take it into your own hands. 

I was at every 203k draw inspection for this reason.

That said, you live and learn, and hopefully it was towards the end of the project, but I think you definitely have some grounds for legal cases against both parties. 

Best of luck man!

The caveat to the non-owner occupied HomeStyle loan is that it can only be a single family, that's why I asked. Sorry, should have clarified. 

With some other properties under your belt, it might be worth pitching this deal to a bunch of smaller banks and credit unions. If you pitch it right, many avid bankers would be willing to work out a customized mortgage offer for you!

@Jacob Lapp

Is the next deal a multi as well?

You could potentially do a HomeStyle instead. It’ll require 15% down payment instead of 3.5%, but you won’t have to occupy it.

You still get to wrap in reno costs into the loan as well!

Great question! Your residency starts as soon as you purchase, even though you might not be physically living there. It's your primary main residence, whether you occupy or not. 

Hope that clarifies!

Hey Emmanuel - all great questions! This strategy is a valuable one, especially in this hot market. I think it's more important than ever to be prudent, and look to build equity rather than overpay and be under water from the gate which we're seeing a lot of right now. 

To answer each question:

Does the 3.5% still apply to this loan?

Yes, since it's an FHA you only require a minimum of 3.5% of the total purchase + renovation costs. The down payment requirement is the same no matter how many units your property is, up to 4.

Is there certain types of construction that this doesn’t cover?

In general, it covers most conventional renovation items. What it doesn't cover is new builds on purchased land, etc. But alterations, renovations, additions, etc. are all covered. 

Just don't try building like, a tennis court or giant pool house or something haha. It's renovations within reason. ("Reason" could be determined by the lenders renovation lending dept)

Is there a “certification” or some sort of special license that a contractor needs to work on a house under a 203K loan?

Nope! Any licensed, insured, and bonded contractors can qualify to be your contractor for the project. It absolutely helps if they've done it before, or are familiar with the process, but it's not at all necessary. What's more important is to make sure that you vet them out by calling their references, checking their reviews online, or getting personal referrals from friends or colleagues. 

Biggest newbie mistake is to go with the cheapest guy, or only getting one bid, with nothing to compare to.

Start vetting contractors now, have a pool to pick from when you're in contract and call on all of them to come give you an estimate. Some won't show, some will be too busy, so you need to have a couple at any given time. You don't want to get caught without one when the time comes. 

While the house is being rehabilitated, will I need to start making mortgage payments while it’s under construction or does it start once the house is done?

No! There's an option in the 203k loan that allows you to wrap up to 6 months of mortgage payments into the principal of the loan. This was something that my lender had no idea I could do, and unfortunately I got stuck with the payments on mine, for a house I couldn't live in.

That's why its SO important to have a lender that is very well versed in these loans on your team. 

Do refrigerators, ovens, and other appliances fall under this loan?

Yep!

Any random advice you would give with this loan? Recommend or run far away from it?

The biggest separator of people that have a great experience or a bad experience is their team. You need experienced renovation loan professionals. Your lender, consultant, contractor, realtor - it's important they have exposure to these loans, or in the very least a great track record in every other part of their business. 

Don't settle for anything less than stellar. 

If they don't understand them, they'll attempt to give you advice, and usually it's unwarranted or unverified. 

This holds true in all aspects of real estate, not just the 203k loan. 

Hope this all helps!

@Dereck Clark

No you can't combine FHA with hard money.

You can combine it with down payment assistance programs, but honestly it just creates another complexity to the loan that will make it very difficult for you to close.

@Phat T tran

The bank is going to require a licensed and insured contractor to complete the project.

Remember, the bank is giving you the funds to purchase the property, so they want to ensure that the work is done and done right.

That’s why they require you to have contractors that are experienced.

As much as there’s some work that you could probably do yourself, the bank doesn’t want to take the risk that you’re inexperienced and don’t complete the work correctly for code compliance, etc.

I’d work on finding contractors immediately, and making sure they get approved by your bank.

@Joseph Devito

Hi Joe, welcome to BP!

203k or other renovation loans like it are great for wrapping in renovation costs into the mortgage. As long as you plan to occupy the property, it’s a great product to use for a live-in flip property where you can build a respectable chunk of equity!

The way a 203k works is you use your contractors proposal as the added reno cost tacked onto the mortgage.

That money goes into escrow, and gets released in draws throughout the project after your 203k hud consultant comes in to make inspections.

It’s a great way to minimize your out of pocket costs while maximizing the possibility of equity returns!

@Nick Powers

Congrats on the deal! Hope it goes well for you!

There's no such thing as an FHA approved contractor. Any licensed, insured, and bonded contractor can work for you. They're ultimately vetted by your bank.

I’d work on sourcing multiple contractors ASAP, and while that’s happening, get your 203k hud consultant in the property to do a feasibility and SOR.

The SOR is a scope or work that will also give you a rough idea of budget. Then, you have a set scope of work that you can easily shop out to multiple contractors to make sure the bids are apples to apples.

You want to find the best contractors you can afford. This loan isn’t friendly for fly-by-night guys. They need their ducks in a row, they need to be bonded, and they preferably should have someone to do paperwork for them.

Too often people get locked into one contractor and they feel rushed by the loan officer, so they just go with the lowest hanging fruit contractor and end up getting beat down the road for not have any comparisons to other better contractors they could have used.

Best of luck! This loan was a huge jumpstart for me and so many others that get their start in the REI game!