If you are looking to get a 203K loan, whether streamline or standard, you need a contractor to the work. The only exception to this rule is if you have the experience yourself to do the job and you can prove it. But you also have to prove that you have the time to complete the work in less than 6 months. If you have a full-time job and the repairs are extensive, this could be hard to prove, which is why most homeowners use a contractor for the job. Before you hire just any 203K contractor, however, you need to know what they need to provide in order for the process to run smoothly.
Every contractor needs to provide proof of proper licensing for his profession. Every state and even county within that state will differ in what is required, so make sure that the contractor meets the minimum needs of your area. Hiring a contractor that is licensed works to your advantage anyways as it allows you the peace of mind knowing that the person has sufficient experience in the job he will perform as well as in business management. Since time and organization are crucial to the success of the 203K project, using a licensed contractor makes the process much less stressful.
The contractors you use will also need to provide proper proof o insurance. This means liability, workmen’s compensation, and/or property damage insurance. This protects the lender as well as yourself in the end. For example, if a subcontractor were to get hurt on the job, he could come after you as the homeowner for the costs of his medical bills and loss of wages if the proper insurance is not in place. Another example occurs when the contractor makes a mistake during the remodeling process and causes damage to your property. If he does not have insurance, you would be responsible for the damages, which could make it impossible to finish the work, putting the 203K loan at risk. At a minimum, lenders need liability and workmen’s compensation insurance to protect everyone involved.
If the work being done on the home is extensive, the lender might want to confirm that the lender can do a satisfactory job by contacting business references. Typically lenders ask for around 3 references. These can be other contractors that have worked with the one you are trying to employ or past customers that have had work done by the contractor that can vouch for his ethics, quality of work, timeliness, and organization. The lender is protecting you and themselves when asking for references, so don’t be offended when you have to ask the contractor for them. Most reputable contractors will have references ready to go – if you come across one that does not have references and does not want to provide them, you should proceed with caution.
Everything that is done with the 203K loan needs to be in writing, including the estimates for the work to be done on your home. A verbal agreement with the contractor is not enough as the lender needs to see line by line what the contractor is charging and what he agrees to do to the home. Because you are going to have to supply several estimates, the lender will be able to compare them side-by-side to see who is offering the best deal and what work they are offering to do. Some contractors will try to pull the wool over your eyes and only do a so-so job on the home while charging you full price. The lender and/or loan consultant, if you are using a full 203K will oversee the process so that you do not get taken advantage of during this overwhelming process.
Once the 203K contractor is chosen, an agreement needs to be drawn up and signed by both parties. This agreement will show the work that will be done, the timeframe in which it should be completed, the materials needed to complete the job, and the process for any change orders that may come up. When everything is in writing and submitted to the lender, everyone has to abide by the agreement in order to ensure that the process goes smoothly.
Shopping for a 203K contractor can seem like a lengthy process, but it is worth it in the end. There are many contractors out there that run scams, taking advantage of unsuspecting homeowners. The lenders that offer 203K loans will not allow that to happen to you though, which is why they are so strict with the entire process, requiring the five items above before approving anyone to do the work on your home with a 203K loan.