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It takes a team to guide borrowers
through an FHA 203(k) adventure
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value. The worksheet also includes the
following costs or fees:
■ n Repairs. The costs of repairs are
based on a contractor bid for the
Streamline, or on a contractor bid and
a specification of repairs or work write-
up prepared by the required renovation
consultant for a Full 203(k) loan.
■ n Contingency. Home remodels typically run into unforeseen work discovered during the renovation, so the form
provides for a contingency reserve of
10 percent to 20 percent of the cost
■ n Inspections. The cost of inspections
to confirm that repairs and/or renovations have been done in a workmanlike
manner is included in the form.
■ n Title updates. The cost of title updates
is also included to make sure no me-
chanics liens remain on the property as
the work progresses and gets completed.
■ n Loan payments. As many as six
months of mortgage payments may be
placed in escrow if the home is uninhabitable during a Full 203(k) renovation.
■ n Architectural plans. Any architectural costs for plans and specifications
are included when doing a Full 203(k)
■ n Consultant fee. An FHA 203(k) consultant is required on a Full 203(k) loan.
■ n Permits. Many repairs will require
permits and the cost for these must be
included in the worksheet.
■ n Escrow administration. A supplemental origination fee may be stipulated
for lenders to administer the renovation
■ n Discount points. The maximum
mortgage worksheet allows for a portion of the discount points charged on
the total loan to be financed as part of
the cost of repairs.
Hire a good guide
The most adventurous part on the
203(k) is dealing with contractor bids
and consultant work write-ups in conjunction with the after-improved value
appraisal. Contractors and borrowers
don’t always incorporate all the needed
work on their Streamline applications,
so appraisers may call for more work,
which can then require a change to the
What happens if the after-improved
value isn’t sufficient to support the repairs the borrower wants or needs?
What happens if an appraiser calling
for more work impacts the value of the
home or the borrower’s ability to qualify? These scenarios lead to revisions,
which can be like putting a square peg
into a round hole. The entire loan process could go back to the beginning.
A good knowledge base on the 203(k)
product by all parties is essential.
One advantage of the Full 203(k)
loan is the requirement of a consultant
who knows minimum property standards. This can drastically cut down on
the number of revisions required on
the bids. Working with renovation
consultants or contractors well-versed
in housing standards and the requirements of 203(k) renovation loans can
help mortgage originators guide their
clients through underwriting to a successful closing.
For those borrowers up for an adventure, there’s nothing like buying a house
that no one wants, adding their own
touches to create a home and ending up
with equity to boot. Many satisfied borrowers have gone through the 203(k)
process. Some embrace it fully and understand the perils and pitfalls they may
encounter. Others, however, are unprepared for what lies ahead. It is the job of
mortgage brokers and bankers to pull
together a team of renovation experts
to guide these clients through the FHA
203(k) adventure. n