All Forum Posts by: Paul Welden

@Donald N.

As @William Sing mentioned, check out the Certified 203k Contractor Directory. There appear to be quite a few servicing Chicagoland. 

@Ethan Romero

I looked on the Certified 203k Contractor Directory website and could not find any contractors in Las Cruses. 

According to HUD, any contractor that meets the jurisdictional requirements to perform residential remodeling is allowed to do work for you on the 203k.

The borrower actually approves the contractor but the lender is responsible for determining that your selected contractor is acceptable to do the work by verifying the contractor's license, insurance, and experience. 

But even this lender process does not educate the contractor on the different versions of the 203k along with its unique timelines, guidelines, paperwork, payment structure, bidding format, etc. 

Like @Wayne Brooks stated, picking a good contractor is {one of} the most important part{s} of the 203k (I think selecting the right lender is #1). 

So, maybe selecting a contractor who has been educated and certified by a private company is actually a good thing that really matters. 

You're only as strong as your weakest link .... select your partners wisely. 

Hope this helps! 

@Nathan Grabau

The contingency reserve is required on all Standard 203k's ... it's non-negotiable (Reference HUD SFH 4000.1).

I don't think 203k's are a ripoff for people who don't have all the cash/resources available to do extensive renovations. And the $45k in closing costs you refer to factors in a lot of costs that are typically rolled into the loan and not "out of pocket" expense. 

Flipping is not permitted on 203k's ... So, I seriously doubt @Jeannie Nelson is doing that. 

Hope this helps! 

@Eudith Vacio

I think you meant you did the Limited 203k, as opposed to the Streamline 203k, which was eliminated back in Sept 2015. 

And regarding the HUD consultant, you are correct they are only required on the Standard 203k but should be used also on the Limited 203k so that everyone, including the contractor, knows what will be required by FHA. It's about an extra $600 fee on the Limited 203k but well worth it for the info you receive.

Congrats on your 203k loan! 

Great to hear when they work out well.

@Jeannie Nelson

The closing costs seem reasonable for a 203k because it factors in your ~$20k contingency reserve for the rehab, but the broker fee of $6691 is expensive! But that's because you selected a mortgage broker instead of a direct lender and thank goodness for the lender credit to offset it. 

And you have an ~$8700 transfer tax that is NOT required in every place in the country. 

The LE appears to be reasonable for a 203k, IMHO. 

@Joseph Turano brought up a few items of serious concern, most of which can be easily resolved. 

The contractor portion is solved by using contractors with the accreditation as a Certified 203k Contractor. And @Joseph Turano is correct that your GC is NOT going to walk every property with you unless you pay them. This is one of the reasons the HUD FHA 203k Consultant exists. They can do a quick feasibility analysis to help you understand a very basic scope of work, but when you need more a detailed report, they will do a WWU/SOR that can be used for your 203k loan, and this WWU/SOR will also include a cost estimate that can be used to help gauge contractor's bids.

And thank goodness that the Standard 203k requires a contingency reserve to be automatically included with your 203k loan (10%-20%), but the Limited 203k does not. So, if you do a Limited 203k, just make certain the rehab pricing stops at $30k to allow room for the contingency reserve and other loan fees. 

And the Fannie Mae Homestyle along with the Freddie Mac CHOICERenovation loans are the conventional mortgage cousins of the FHA 203k.

Hope this helps!  

@Joseph Turano

I think it's always a good idea to use contractors for the 203k that have verified experience with the 203k or have at least completed a comprehensive education program on the 203k and also have their license, insurance, and financials vetted and verified. 

There are contractors who have earned an accreditation called a and those contractors may be your best option for what you want to do. 

When you get a property under contract where you're doing a 203k, you 1st want to get the HUD FHA 203k Consultant (selected by your lender) out to the property right away. This person does the FHA 203k inspection, determines what's required, takes into account what you want done in addition to the FHA requirements, and develops a scope of work and cost estimate.

Then, after you have that report from the 203k Consultant, you can give that report to contractors for "bidding."

But if you get a contractor with a price lower than the 203k Consultant's price, the 203k Consultant is NOT required to adjust/lower their price.

But if the 203k Consultant is experienced, then the price in their report will be equal to or very close to the contractor price.

There is a pretty good step by step process on how to efficiently do a 203k on the FAQ's at 203kContractors.com. 

Hope this helps! 

@Michael Sellers

Great question!

The FHA 203k max loan limits are based on what the final product will be .... not what it currently is.

Example, if you are buying a duplex but are doing a 203k to make it a 4-plex, your max 203k loan limit is based on the 4-unit dollar amount, not the 2-unit dollar amount. 

Reference HUD SFH 4000.1

Hope this helps! 

@Drew Sygit is correct. 

I assumed @Jerry Booker was referring to a live-in rental or MF property. 

Fannie Mae Homestyle and Freddie Mac CHOICERenovation loans are options for NOO rehab mortgages.

@Jerry Booker

HUD has 2 online databases of lenders who have 203k experience.... HUD FHA Lender List and the 203k Endorsement Summary Report. If you want help using them, let me know. 

In Chicagoland, there are 12 lenders with physical offices near you that have done at least 1 FHA 203k in the past 12 months and an additional 37 lenders that may not have offices nearby but have done at least 1 FHA 203k since October 2021.

I don't think you need to know your ARV in advance, but rather a general idea of the ARV range, which can be easy for any REALTOR to tell you by looking at comps. You certainly do not want to over-improve for the area, but in this market where property values are increasing at a fast pace, there may not be many issues with an appraisal. Also, FHA 203k Loans allow you to exceed the improved appraised value by 10% and still close the loan.

@John Warren is absolutely correct regarding the contractor who needs to be well capitalized. There are contractors who have the accreditation as a Certified 203k Contractor, which is obtained after completing a 203k education course and a strict vetting process, including verification of the contractor's financials. In addition, @John Warren is also correct that you need a very good team to do a 203k, which consists of a 203k-experienced lender and a . 

Hope this helps!