EmailCall

Mortgage Guide

How to get a home loan

How 203k consultants take the hard work out of home renovations


If you’re considering buying a home and making renovations, you’ll need a home inspector to look at the property. And we won’t be the first to tell you home renovations can go south quickly. Contractors may gouge you for additional cash and delay or put the project on hold if they aren’t as adequate as you assumed. If you’re the one overseeing the project and paying directly out of pocket, your renovation can turn into a nightmare.

This is when an FHA 203k consultant becomes your best friend. Not only does a 203k loan combine your mortgage and renovation repairs into one loan to reduce out of pocket costs, but also your 203k consultant serves as your home inspector, sets realistic pricing, verifies the work is done correctly, and handles the approval of payments from the loan to the contractor.

In this blog, we’ll explain the value of a 203k consultant and why your home purchase and renovation may be perfect for a 203k loan.

When should you consider using a 203k loan and consultant?

If the estimated home improvement costs are more than $35,000, you should highly consider a 203k loan. You can bundle up your home purchase and renovation costs into one loan. There are a couple of common scenarios when a home buyer will want to use a 203k loan:

  • Often during the home inspection, the home inspector’s report will show you need to fix multiple items on the home in order to bring the building up to code that you didn’t anticipate.. Suddenly, your renovation budget is much smaller. Rather than spending more directly out of pocket, you could move your mortgage into an FHA 203k loan.
  • You’re planning on buying a home that needs some renovations but nothing terribly substantially. However, the house may be dated and will need work in the near future. Instead of pushing off that work or waiting until you have more cash on hand, you can convert the financing into a standard 203k loan and get the projects done right away. A 203k consultant can look at the home and create a plan for you.

What’s the difference between a home inspector and a 203k consultant?

A home inspector examines the condition of the house, pointing out existing problems and possible future ones. They provide their objective opinion about the home and create an inspection report to summarize any safety hazards and deficiencies requiring major expenses to correct.

If you decided you wanted to move ahead with a 203k loan, a 203k consultant also reviews the property as well as explains what is required to meet HUD’s Minimum Property Standards for the 203k loan.

However, why have two different professionals look at your property and charge two different fees when you could have one do it all? 203k consultants do much more than you realize and take some of the most painstaking parts of home renovations out of your hands.

Some 203k consultants can also serve as your home inspector.

With a little research, you can find a 203k consultant that is also a licensed home inspector. These individuals often have additional areas of expertise such as engineering and general contracting. And since they are a 203k consultant, that means they are HUD-approved as well.

In Chicago, Chuck Walton, the President of The HouseDoctors Property Inspections, serves as both the 203k consultant and home inspector for home buyers. This saves his customers both time and money. These hybrid-professionals will inspect the property and talk with you about both the repairs that will be required to meet HUD’s Minimum Property Standards and the optional renovations you would like to make beyond the required items.

But that’s not all. Consider a 203k consultant your personal project manager. They will bridge the gap between you and the contractor. Most home buyers don’t have the knowledge to manage a project that requires extensive knowledge of building codes and construction. Let the professional do the hard part for you.

A 203k consultant handles significant paperwork.

As explained by Homebridge, the consultant also handles a great deal of paperwork for you. They will work with the mortgage lender to determine the loan amount and complete paperwork such as the feasibility report, architectural plans, and a work write-up reflecting specifications on all the repairs that need to be done, which includes:

  • Cost of materials and cost of labor for each repair.
  • A recommended “contingency funds” amount to be set aside in case there are cost overruns.
  • An inspection schedule, showing the times during construction when the consultant will inspect the work performed and completed.

203k consultants will make sure you don’t spend too much.

After a 203k consultant inspects the property, they will make a list of all the items that need to be updated/repaired for the home and the projects you’d like completed. In addition, they will also give you a price range for how much each item should cost you. For example, if you needed to replace some windows, they will list a range based on the type or quality of materials you can use.

This is very important. Because - later on - you’ll have contractors place bids to be selected to complete the work. You’ll be able to compare contractors' bids to the range your 203k consultant gave you to make sure you aren’t being taken advantage of.

“Contractors can take you from $35,000 to $60,000 quickly,” says Walton. “As a 203k consultant, we’re there to set realistic pricing and make sure you don’t overpay for anything.”

In addition, your 203k consultant can provide recommendations on the type and quality of materials to use for each repair to help you stay within budget.

203k consultants verify all the work is done correctly and handle payments to the contractor.

One of the biggest challenges homeowners face during a renovation is making sure the work is completed properly through communication with the contractor. Qualified contractors are difficult to find. And the good ones are often booked up.

With a 203k consultant on your side, you won’t have to be the one following up on the project to make sure everything meets both your requests and what is up to code. It’s the consultant’s job to make sure each repair is completed as asked. This saves you from having to deal with a contractor who isn’t finishing the agreed upon work.

Another extremely valuable service by the 203k consultant is their control over when the contractor is paid. When your 203k loan closes, your consultant sets up a Repair Escrow Account. The consultant will visit the property, review each project is completed, and draw funds from the account to pay the contractor for the completed work. This is done approximately 3-5 times depending on the project. The consultant will also complete a final inspection to draw the final payment.

203k consultants separate your renovation list into “needs” and “wants.”

When you’re completing a home renovation, it’s very easy to have add-ons as the project is completed. Although your consultant will have a contingency budget, they will make sure you don’t overspend based on the loan amount.

In their report, they will break down the construction into a “needs” and “wants” list. Some of the repairs are necessary to get your home up to code. While others on the list may be items you want personally.

“Home buyers get very excited during the construction portion of the project,” says Walton. “We’ll be a few weeks in and suddenly they may decide they actually want to make upgrades to the kitchen when that was never in the plan. That’s when I step in and suggest maybe saving that for later.”

It’s always best to complete the agreed upon scope of work first. When that’s done, you can then consider doing additional projects down the line. Your consultant will make sure you don’t exceed your budget.

Want to see if a 203k loan is right for your home purchase?

The first step is getting in contact with a mortgage lender to see if your home purchase with fit the FHA requirements for a 203k loan.

Next, you should find a qualified 203k consultant. If you’re in the greater Chicago area, you can contact Chuck Walton of The HouseDoctors at 312-504-2200 or chuck@thehousedocpro.com. However, all HUD-approved 203k Consultants can be found on HUD’s website.

NewCastle is here to help. Reach out through the chat or comment below with any questions!

Get Started with Your 203k Loan

You may also like:



The complete guide to home inspections

Home inspections are one of the most important parts of buying or selling a home. The inspection report directly affects...

What’s the difference between interest rate and APR?

If you’re applying for a mortgage, the two most important numbers affecting your home loan costs are the interest rate a...

What are prepaid items on a mortgage?

Prepaid items on your mortgage sound like they should be straight forward. But you’re not alone if you’re a little puzzl...

Subscribe

Buying a home and don't know where to start?

 

Our weekly email will supply you with homebuyer and mortgage basics to make the process simple.

Quick. Anonymous. Free. Search Rates