You want to rehab a home and think you can get a 203K loan to get it done. Chances are you will qualify if you have decent credit, good income, and the time to dedicate to this type of loan. The bad news is that you cannot do it on your own. There are certain professionals that are crucial to the process; in fact, without them, the loan would not go through or it would be a complete headache in the end.
Every loan requires an appraisal, at least for the most part. What sets the FHA 203K appraisal apart from any other appraisal is the requirement to use the approved contractor bids in the appraisal. What the appraiser is coming up with is not the current value of the home (which he might do anyways), but the new value after the proposed changes are made. This is the value that the bank needs in order to come up with the appropriate loan amount that you qualify for on the home you are purchasing. They are not going to loan you more than the home is worth and will require 3.5% down on the home in order to get started, so this value is very important and should be reached by a professional that is familiar with the 203K process.
In addition to the appraiser is the need for a professional home inspector. The inspector’s job is to go through the house and find everything that is wrong with it. You want this list from him, as daunting as it may be. This list will help you determine exactly what needs to be done to bring the home to code so that it can be insured by FHA as well as what money you will have left over in order to make any desired cosmetic changes to the home. A good inspector will point out things that must be changed as well as things that you could change in order to make things just a little better, even if they are not required to bring it up to code.
Any old contractor will not do when you are getting 203K financing. You need contractors that are familiar with the process and good at what they do. You want contractors that are honest, do as they promised, and will provide fair and accurate quotes. Contractors that will not pay their sub-contractors or that will not honor the work they promised to complete can wreck the entire process for you and be a very big headache in the end. Do your research, interview as many contractors as you can, and ask for reliable referrals so that you can protect yourself in the end.
HUD Loan Consultant
The one thing that sets the 203K loan apart from any other type of loan is the need for a loan consultant. This professional oversees the entire process. The consultant will go through the home, much as the inspector would, and give you his input on what should be changed, how it should be changed, and what it should cost. He will help you get bids on the changes to be done; handle the contracts and dealings with the contractors; and oversee the funds that are disbursed ensuring that everything is done as it should be. Any issues that come up will be handled by the consultant as he is your go-between with the contractors and the lenders, helping you to alleviate some of the headaches involved with this type of loan.