Wrapping the remodeling costs of your home into your first mortgage is possible with the FHA 203K loan. This program enables you to have the money necessary to purchase/refinance your home and make the changes you want to make, including structural changes all in one loan. If you want to knock down an entire room and make it something completely different – you can include it! There are very few restrictions as to what the 203K loan offers, but the one restriction is that you use a loan consultant. Many people look at this as a negative to the FHA loan process and opt for other avenues instead, but when you understand what the loan consultant can do for you, your mind might change quickly.
Negotiating the FHA 203(K) Loan Options
Negotiating is a large part of the remodeling process. You have several contractors, vendors, and other people to deal with on a daily basis. People are going to constantly be trying to get more money out of you or get you to agree to certain deals. If you do not have the expertise in building or remodeling a home, you might not know what is acceptable and what is not. This is where the loan consultant can step in and handle it for you. Once you know the changes you want to make for your home, the loan consultant negotiates with the various contractors to get you the best deal financially as well as the most experienced contractors available. An experienced consultant will have seen the good and bad in the industry and knows who you should steer clear of or what signs to look for in a scam. In the end, he has your back while he takes the job of negotiation off of your shoulders.
Create the Feasibility Analysis
The feasibility analysis is a necessary component of the FHA 203K loan. This analysis helps the lender determine the appropriate loan amount for you based not only on your qualifying factors, but on the changes that must be made to the home. The analysis, which is drawn up by the consultant, includes a list of repairs that must be done in order to make the home meet FHA’s code; for example, if there are termites or mold, these things will need to be rectified in order for the loan to go through. The consultant also includes repairs that he thinks are necessary based on his expertise. These are often structural or mechanical issues – such as replacing a faulty furnace or repairing the plumbing. The final component of the feasibility analysis is the desired repairs which you discuss with the consultant. These may be structural or cosmetic in nature; they are not limited as they are up to your discretion.
This analysis is then provided to the lender who determines your loan amount. While you and the consultant still need to get contractor estimates for the work that should be done, the lender can use the analysis to determine the amount of money you will have available to you so that you can make adjustments accordingly. The changes that will bring the home up to code are non-negotiable, but beyond that the lender can decide which changes will take next precedence between what the consultant recommends and what you desire.
Helping you Make Decisions
Sometimes falling in love with a home can cloud your judgement. Even if the home is not worth the money or will not provide you with a decent return on your investment after the repairs are made, you might find yourself wanting it no matter what. You can use the loan consultant to give you a non-biased opinion on the home. His expertise in the industry can help you determine how long it will take you to make your money back and if it is a good investment based on your future plans – whether you plan on staying in the home long-term or not. In addition, he can help you decide which repairs are the most beneficial for your home. Even if you have your heart set on building a 3 season room, but the consultant thinks that updating the appliances and plumbing would be a better option, he can show the reasoning behind his choices and then you can decide from there. Basically, what the loan consultant does is prevent you from making spontaneous decisions that force you to have buyer’s remorse in the near future.
Paying for a loan consultant on a FHA 203K loan might seem like just another added expense, but there are many things he can do for you that can save you money in the long run. If nothing else, he can help take some of the burden off of you when it comes time to do the work on your home. The 203K loan requires plenty of paperwork, follow up, and discussions, all of which the consultant can handle for you if you wish.