Step by Step instructions of the FHA 203(k)
wishes to purchase or refinance an owner occupied house in need of
should be pre-qualified by (Skip Confer) before entering
into any real estate transaction.
Toll free: (866) 372-0404
borrower will have to decide whether they will hire a General Contactor to
complete the repairs or act as their own general contractor and/or do the
repairs themselves. It is
recommended that the borrower somehow obtain a rough idea of how much the
repairs will cost.
on the purchase price/value of the property plus the estimated repair
costs, the borrower should check with the loan officer to make sure that
they would qualify for the necessary FHA 203(k) mortgage.
completes mortgage application including FHA 203(k) forms and pays
- A HUD
licensed Consultant is contracted and meets the borrower at the property
to complete a Work Write-up of the repairs for the property.
repairs will be listed on the Work Write-up as:
“Mandatory”- repairs must be completed to bring the property
up to HUD’s minimum standards.
“Desired”- repairs the borrower would like.
of repairs must be at least $5,000.00.
the Consultant indicates the property will be uninhabitable during the
mortgage payments may be included in the amount financed for the number
of months indicated by the Consultant and may not exceed a 6-month
borrower wishes to act as their own general contractor and/or do the
repairs themselves, they must demonstrate to the Consultant their
capability to do so. Written
bids, estimates and copies of licenses will be required from contractor
for any work the borrower plans to contract out.
indicates HUD required contingence amount used as insurance against cost overruns:
10% for borrower using a licensed General Contractor.
15% for HUD repossession and homes without electric at time of
20% if the consultant feels the rehab is extensive.
pays the Consultant directly a fee of $400-$1000 depending on the cost of
the repairs in the work write-up.
receiving a copy of the Work Write-up, the loan officer will complete a
new “203(k) Maximum Mortgage Worksheet” and again check that the borrower
qualifies for the mortgage.
- An FHA
appraisal is ordered based on the repairs to be completed.
processing of the mortgage application going on simultaneously during this
receiving the appraisal it is checked to make sure the mortgage amount is
not more than 110% of the appraised value.
mortgage application is sent to underwriting and any conditions met and
returned to underwrite.
(if needed), homeowners insurance, pest inspection (if needed), well and
septic inspections and all contractor bids and licenses collected.
for the repairs and inspection work is held in escrow by the lender.
must begin within 30 days of the closing with no delays for more than 30
days or else Flagstar may consider the loan in default and hire
contractors to complete the work. All repairs must be completed 6 months
from the date of loan closing.
change to the Work Write-up or a change of General Contractor will require
the lender’s prior approval.
will be required to make timely monthly payments while the repairs are
requests are required to access the money held in escrow by Flagstar:
number of draws is 5.
Consultant and General Contractor (if applicable) must sign Draw Request.
to be paid must supply a signed Waiver of Lien and a copy of builder’s
or General Contractor calls the Consultant to do an inspection of the
work covered by the Draw Request.
WILL ONLY BE RELEASED FOR COMPLETED WORK!!!
is a 10% holdback on each Draw Request to assure repairs are properly
completed and for lien protection.
savings on repair work may be used to cover cost overruns in other areas,
or be used for additional repair work after a change order has been
approved by the Consultant and Underwriter.
all repairs are satisfactorily completed the borrower must complete a
“Letter of Completion” and all work is paid for, any money left in escrow
will be applied towards the principal of the mortgage.