Until Dave has a chance to respond, from what I recall, I can tell you that you have to find a contractor (or contractors) to perform the repairs, and get written estimates before you get the loan, including architectural plans, etc.

If you do the work yourself, the cost of labor is still factored in, in case for some reason you can't complete it...and you need to hire someone to do so.

The loan is based upon the current value...and the projected value once rehab is completed (which is where the extra $$$ comes in)...and from what I recall, the contractor has to agree to work with a staggered payment plan...with inspections to verify the work is being done.
Certin things are not covered by the money..such as luxury items...

Below is a link...one does need to jump through quite a few hoops to qualify...but in some cases it may be worth it...

I'm sure Dave can tell you how smoothly (or not) the process works...and the pitfalls to watch out for...

Here is a link that might be useful: Rehab a Home w/HUD's 203(k)

logic gave you lots of good info .. a streamline 203k is a 203k that limits the repair costs at $35,000 or under. And there are restrictions regarding some of the types of repairs that can be made under the Streamline 203k program.

You need to find a lender and loan officer that does these regularly, as they can be complicated. But you end up with a rehabbed house and one mortgage.

Hi Danielle,
Good basic info above... but here's your biggest challenge;

Finding an FHA lender still willing to make these loans.

All of such lenders I have worked with have backed out, leaving only conventional (aka non-HUD) lenders who offer renovation financing.

In most scenarios, the best (only?) financing for ether a pre-foreclosure or REO purchase needing significant repairs is private-equity (aka "hard money") loans.

These are available at loan amounts up to 70% of what the value will be when you are finished with the renovation (aka "After Repair Value" or ARV.) You need decent credit and good reserves, and can at least bring in 5% of the acquisition & renovation costs. These are typically a 6 month loan (designed just to give you the time to get the place renovated,) and run 12-14% interest, and 2-6 discount points, plus standard 3rd party service provider costs.

You have to be fully credit pre-approved IN ADVANCE of the acquisition/renovation funding for whatever loan(s) you intend to use to replace the acquisition/renovation funding... pending only the final certification of completion and occupancy by the construction appraiser.

Hope this is helpful (for planning at least.)

Cheers,
Dave Donhoff
Leverage Planner

Sounds complicated and expensive.

Thanks for the info.

They are complicated, that's why I said to work with an experienced lender that will hold your hand thru the process. I don't think they are expensive .. you're talking about a rehab loan.

I do have to disagree with Dave, I work for a bank that does tons of 203K loans. So there are lenders like us out there.

Hi Pam,
Newp, you're not disagreeing w/me... remember, I said all the banks *I have worked with* weenied out.

Finding "lenders like you" is the hard part... you may or may not realize that there really are not very many doing so.

While its against GW TOS to self-promote... I believe it is kosher for non-principal outsiders to recommend.

PLEASE post me offline to remind me of your employer.
A) If you prefer I *NOT* disclose it I won't... no worries... however,
B) *I* want to know... *FOR ME!*

Thanks,
Dave Donhoff
Leverage Planner

*Update* we have been put together with a lender that deals with this type of loan and our mortgage broker says she will be with us every step of the way. Because the house is priced so low, costs aren't that bad. I don't really think they will "hurt" at all. Our offer is in, so now we wait.

Dan,
HUD does these loans up to $35,000 all the time. They even advertise it on their web sites, which properties qualify for them. Over half of them last time I checked.

good news dani ... just stay on top of everyone, and get regular updates. Thinsg will change, stuff happens, just keep on top of it.

Danielle,
I just signed the sales contract on a house for my daughter and a 203K streamline. I had very little trouble finding a lender who specializes in it. The house and cost of repairs was under 55K so I had to pay a little extra over the prevailing rate. Plus my daughters lack of credit put a bump in the rate. We've locked in a 6.1% rate when FHA is 5% today through Wells Fargo. I've contacted a couple of contractors who are willing to wait for their funds. Some would not. I figured if they could not trust the federal goverment for their payments, then I shouldn't trust their competance as a contractor. I'll let you know how it goes. The house is in Kansas City. I could refinance in a year if the rate goes down enough. This type of financing works great for me, far better than paying for repairs out of pocket (from my credit cards at 18%) then refinancing in a year. If there is any structural problems you won't qualify for the streamline. If your repairs are under 35K you won't need FHA inspections. There are separate rules for HUD's.

"HUD does these loans up to $35,000 all the time. They even advertise it on their web sites, which properties qualify for them. Over half of them last time I checked."

better check some more.
HUD is NOT involved in retail lending.
You still need someone to originate the loan before HUD will purchase it.

You are right.
My point was that there are still sources for doing these types of loans. I beleive FHA underwrites these loans.

I'm in the middle of a 203K project. In a nutshell it's been a horrendous ordeal. The 203K program is a great government program designed to help homeowners fix up existing structures, but all I can say is beware - In my experience our local governments aren't at all on board with the program... and neither are the banks now-a-days.

The process involves lots of red tape, if you don't have the stomach for it, don't even cosider a 203K loan.

Local Government:
It took us 2 1/2 of our 6 months to get our building permit from the county. Needless to say we've had to file a program extension. With that said it would be great if the government provided homeowners with access to liaisons who would work on their behalf to speed the process along.

Bank:
We're having issues getting our draws from the bank. Our hud inspector is wonderful and has approved all of our draws, once they get submitted to underwriting etc... the bank keeps coming back to us requesting all kinds of additional requrirements and documentation. It seems that in the midst of the world's current financial crisis they're very hesitant about disbursing draw money so they feel that they can change the rules and requirements as they go. We're currenlty battling for our 3rd draw and overall I'd say we've easily spent about 2 months total time waiting for money. Keep in mind we pay for this money each month in our mortgage and have clearly met the requirements outlined in our scope of work.

You either have to have REALLY understanding contractors who don't care when they get paid, or REALLY deep pockets to pay contractors/ or for the cost of repairs up front.

For us, we've put out A LOT of money upfront and have only recouped about 15% of it.

Also, one more thing they don't tell you... or maybe they do and it never sunk in for me. When they disburse draws, they always hold back 10%, just something to keep in mind if you need to pay your contractors.

We just put an offer in on a home that we will get 203k financing for. I would love more information about the process during the renovation from people who are actually using the loan. please send any information to pemac23@yahoo.com (an email address that can withstand any junk mail i also get sent).

This is a note to you working with contractors. Please get lien releases from any/all contractors that come on your property or bring materials on your property. Request paid notices from the company that the contractor buys from. Sometimes a contractor will purchase lumber from a company, sign a statment that they will be paid after the contractor gets your money, but never does. You pay the contractor, they do not pay the supplier and boom-a lien is put on your property and you end up paying twice. When we built, it was written into the contract that every contractor brought a paid receipt with them from the supplier and then we had them sign a lien release stating that the materials were paid for.

The HUD website is difficult to navigate initially, try 203K in their search and it is explained fairly clearly on how it works. Work is actually completed in stages, and cash is dispersed in increments. Wells does 203K however their rates are tall. Thankfully there's no Carfax for houses since we've gotten conventional loans on some real beaters.

Can someone tell me what the process is for getting an extension of time to complete repairs on a 203k loan? I am reaching the deadline, and have hit some major snags.
Thanks!

Can someone tell me how the contractor gets paid. Who pays for the up front materials?

Hello. I am a licensed general contractor and have a contract to buy my first home. If I go 203k, is there any possible way to get paid for my labor? If this is how I make my living and pay my bills, how can they expect for me to absorb the labor cost?

I recently started rehabing our house with the 203K financing. What a nightmare it is to work through this process.
If I could give one piece of advice, find a realtor and a bank that have extensive knowledge of this program. I didn't have either. You don't even know what questions to ask when you are getting into this.
There are 2 different 203K programs, the streamline (easier of the 2) and the straight, which is what we got sucked into, due to a crack in the motar of the basement wall, outside.
ASK ASK ASK questions, is the best piece of advice I can give. Make sure all parties involved in your purchase, realtor and bank know how this program works. Or walk away from it. If I would have been given ALL the information, I would never have gotten into this.

DonâÂÂt also forget that Streamline K loans contractors typically receive 50% of the total amount agreed upon for their work when renovations or repairs begin. The remaining due amount is paid after the final inspection when the work is complete. There are a lot more to know and understand about buying and renovating a home with one convenient loan. I suggest that you take specialists from loan institution like Prospect Mortgage. But remember, choose highly trained and knowledgeable loan officer, and have the expertise to make your 203(k) Renovation Loan work for you.