FHA 203K Loan Consultant

FHA 203K Loan Consultant

While some home buyers are willing to pay more up-front for the seller to take care of any repairs on the home, the seller may refuse, or be unable to make the repairs and keep the home within the buyer’s budget and closing offer.

Other buyers may be happy to purchase a house that is disrepair so they can invest in the plot, building its value up, and improving the condition of it until it meets their goals. Often, these houses are later flipped or turned into rental homes.

Did you know that the inspectors at Pro-Spect are also licensed to be your 203K rehab consultant? Not only are we certified HUD consultant inspectors, but we can provide advice and direction based on the home’s condition and any repairs that are necessary.

Our services cover the Middle Tennessee region, with our primary service areas encompassing Franklin, Brentwood, and Nashville, TN. Give us a call today and see what we can do for you and your property at 615-610-9982.

What Is a Rehab Loan?

A rehab loan, also known as the FHA 203(k) rehab mortgage – or renovation fund – allows a buyer to finance the purchase and renovation of new housing with a single mortgage. This mortgage is provided by the Federal Housing Administration (FHA).

The borrowed amount reflects the estimated repairs, based on a consultant report, as well as the home’s purchase price. Typically, the repairs covered by the bank cannot exceed $35,000, but the actual limit depends on the amount you are approved for.

This means that the buyer can avoid applying for multiple loans to purchase and renovate the home in question. This can take months of frustration and financial planning and guesswork out of home renovation projects, allowing the buyer to finance the repairs through the same mortgage as the home purchase.

One loan, one closing, one happy buyer.

At the end of the application process, the buyer leaves with a mortgage which gives them the ability to finance the repairs of the housing and a better credit score than otherwise.

The team at Pro-Spect are licensed to provide FHA consultant services for rehab loans across the state. Our inspectors can create a report of necessary repairs on the property, draft an outline of the application for the lender’s underwriters, and provide ongoing advice. Once the loan is approved, we can provide reports to ensure the approved repairs are done properly and timely, all from one office.

What Do HUD Inspectors Do?
A Look at Renovation Property Home Inspections

HUD Inspectors are licensed under the U.S. Department of Housing and Urban Development (HUD.) This organization is closely linked with the FHA, and a consultant report is required if you are applying for a renovation mortgage.

This report will help you plan what repairs need to be made on the housing prior to purchase or application.

While homes that qualify under the FHA mortgage are sold in as-is conditions, the housing must still meet a couple of requirements to qualify for the sale, otherwise, it is considered unfit for inhabiting, even under the renovation mortgage. Our inspectors will perform a review checking for these areas of the home:

  • Kitchen The property must have a kitchen that is both functional and provides enough space for at least one individual to prepare meals. There must be enough space for basic appliances, and it must have accessibility to basic waste services, such as garbage collection, as the kitchen is one of the most waste-producing areas in the home.
  • Bathroom The bathrooms must have a flushable toilet and a set handwashing station. There must be a tub or shower in every bathroom to provide access to basic hygiene practices. Likewise, these bathrooms must be their own enclosed room with proper ventilation to prevent mold and mildew from growing, as the room will be exposed to moisture while the home is occupied.
  • Foundation An inspector will check the home’s structural integrity and foundation to ensure there are no major problems with either. Everything in the home that can clue the consultant in on structural problems must be inspected, such as the roof, gutters, stairways, handrails, and chimneys, if applicable.
  • Roofing The roof must be in decent repair, meaning there are no holes in the roof, and no signs of pre-existing leaks are found on the roof or in the attic. There must be proper ventilation out of the home, which will be inspected as a part of the roofing review.
  • Doors and Windows All doors and windows must be able to lock and provide a sealed home environment, safety, and security. The HUD consultant will also take the safety of the neighborhood around the home into consideration when inspecting the security of the home.
  • General Home Quality While general home quality is a broad subject, it is an important part of the HUD. Things such as street accessibility, smoke detectors on every level, home air quality, adequate heating, and safe running water are all evaluated by the HUD consultant.

    Some of the more hidden qualities of the home, such as the electrical and lighting system, lead-free paint, and the ability to handle basic home sanitization are all considered as well.

How Does the 203k Rehab Loan Work?

There are a few extra steps to 203K rehab than is required by other loans. This process should be taken into consideration, and it may be beneficial to alert the seller of the expected timeline.

1. Consultation

Pro-Spect Home Inspectors are licensed HUD inspectors and 203K consultants, able to inspect the building, provide advice, draft the outline, and ensure all repairs are done in a timely manner.

2. Approval

The lender may take some time to approve your application, as it must go through all the provided documentation to verify eligibility before moving forward.

3. Obtain Repair Bids

Once the application has been accepted, it’s time to find contractors to perform the necessary repairs and obtain bids on their services. This gives you the information you need to make a list of all change necessary, and a reliable understanding of contractor costs in your search for repairs.

4. Determine Final Amount

Once the contractors have given their bids, these are taken back to the lender so they can approve the final amount that you are eligible to receive under the loan.

5. Underwriting

The underwriting may now begin to finalize the loan and provide any additional loan conditions based on the contractor fee and necessary repairs found.

6. Process Closure

Once the underwriting terms are accepted, the loan is locked in. The buyer is now under contract with the lender for the full purchase price of the home and any repairs detailed in the underwriting. During this stage, an escrow account will be made, and the loan will be paid into the escrow account under the mortgage company.

7. Complete Repairs

The contractors who first bid on the repair service may now begin work on the home. Instead of the buyer paying the contractor for their work, the mortgage company will release a designated draw from an escrow account with funds from the bank.

8. Final Inspection

A final review must be made to determine that the housing is habitable after the repair work, and the repairs are satisfactory. Once the home passes this review, the buyer may move in.

Who is Eligible for A FHA 203K Loan?

Once the home has passed the HUD consultant report, there are a few qualifications that the buyer must pass to be eligible for the rehab funds.

The 203K rehab mortgage requires the buyer to meet the same qualifications as any other FHA. Fortunately, it is getting much easier for homebuyers to get accepted for FHA-backed funding, and first-time homebuyers are now being considered more than they were in the past.

  1. Your credit score must be a minimum of 620 according to FICO. The minimum is also dependent on your lender.
  2. Your debt-to-income ratio must not exceed 43% depending on the lender. You will be required to disclose all debts, open lines of credit, and sources of income during the application process.
  3. You will need to be able to provide a minimum down payment of 3.5%. This money may come from gift funds, but you must provide a letter documenting that no repayment of the funds is expected.
  4. You must be an owner-occupant of the property you intend to renovate, meaning you must intend to live in the home while you are renovating it.

The 203K consultants at Pro-Spect Home Inspections can guide you through the process and provide advice on your individual eligibility and on the property. Give us a call today at 615-610-9982.