When you do an FHA 203K Loan as either a purchase or a refinance, and have over 35K in renovations, either structural or not, you have to have a HUD Consultant, approved by FHA to monitor your rehab project, but more importantly, sign off on the initial general contractor bid, before the loan goes into underwriting. The HUD Consultants job, is to make sure the project is in line with HUD “minimum requirements” for FHA to insure your loan.
There is a purchase in Wash Park that I am currently doing a FHA 203K on and the buyer has currently received 3 or 4 bids. He has a $120,000 renovation. It’s the HUD Consultants responsibility to make sure the bids are in lined up with the scope of the renovations, according to minimum FHA requirements. Needless to say, the bids were all over the map with regards to price so it’s the job of the HUD Consultant to make sure the borrower is not getting ripped off, which in this case, he potentially was.
The General Contractor chose expensive Pella brand windows, Instead of standard windows with a bid of $4000 for those and the electrical renovation bid was $13,000 both of which were extremely excessive.
As luck would have it, the FHA Consultant on this job who as I say has to be lender approved was the General Contractor for 15 years building homes for Habitat for Humanity. He charges around $200 for an initial bid review, and around $100 every time he comes to follow up with any project before each draw request gets funded by the lender. The lender approved FHA Consultant acts as a Big Brother in place to monitor these renovations.
Think about this for a second. With all the craze in “fixing and flipping” properties, many people try to brave this on their own, and lose big in the process, due to projects going way over bid.
FHA 203K is by far the safest renovation loan out there, because of the following.
1. Instead of the usual 6-9 term note for private money renovation lending, you get a low interest rates for a 30 year term with a FHA 203K Loan.
2. Refinance in 60 days with the initial lender into conventional financing. You can also refinance out of the FHA loan if the equity is there. This will carry mortage insurance.
3. Big Brother or the HUD consultant who is watching the entire project will save you money and time through out the process.
I hope I have shed light on the role of the HUD Consultant and how he acts as a Big Brother when it comes to a FHA Rehab Loan and why that FHA Loan is the safest renovation loan available.
Brian Quigley
Contact our Colorado FHA Loan Officer TODAY to ensure your FHA Loan gets done right.
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