Be realistic with them on the time to close. The Streamlined is going to take at least 60 days to close, so remind the borrower of this fact.Step 2: Borrowers determine the work they want completed.
There may be issues that come up on the appraisal, but these cannot be known until the appraisal is done. The appraisal cannot be completed without the bids.Step 3: Select a reliable contractor.
The reality is that the contractor is going to get paid 50 percent of the bid at the closing of the loan and the other 50 percent at the completion of the entire project. This means that if there are several contractors working on the project, they will not get paid in full until the last contractor finishes work. Home Depot and Lowe’s offer fantastic Renovation Partners now that they are well versed in the 203(k) process. They also will step in and make certain that a project is complete.
Step 4: Get complete bids from each contractor.
Only one general contractor can be used if preferred. However, many projects will require a roofer, a painter, a kitchen remodeler, and so on. If there is one general contractor, it will oversee the entire project. Whoever the borrower chooses, make sure that you have gone over the paperwork with them in detail. There only needs to be one final bid for each job to be completed. For example, what this means is that if carpeting is being done, then the carpeting bid needs to include the amount of carpet, type of carpet and labor cost. The more detailed, the better! The borrower can get estimates from several contractors but will only select one contractor, either as a general contractor or as a contractor for each job that is being done. Once bids are obtained, the loan can be submitted to the lender and the appraisal can be ordered.
Step 5: Submitting to the lender.
There are several lenders specializing in the 203(k) loan. Once the lender is selected, the standard FHA items will need to be completed, such as your case number. Remember to order as a 203(k), not a 203(b) when ordering the case number. Contractor bids are submitted along with your paperwork at this time. After submitting the file to the lender, the appraisal can then be ordered; remember to follow all regulatory TIL disclosure timing and imposing a fee rules. The appraiser will take the bids to the appraisal. This way, the work that is being completed can be seen and an after-improved value can be provided. This will be the value for your LTV.
Step 6: Loan is funded.
Once the standard underwriting steps are completed the borrowers will then proceed to start on the project. If working with a lender that is funding 50 percent of the funds at closing, then the borrowers will likely receive a two-party check at closing that they can sign over to their contractor(s). Remember, if they have multiple contractors they will have multiple checks, one for each contractor.
Step 7: Work begins.
The work must begin within 30 days of closing and must be completed within six months. There are no exceptions to this and although there is no 203(k) police force checking this, be sure to inform the borrowers to stay on task. If you have ever completed a remodeling job, you know how long it can take!
Step 8: Work is completed.
Once the work is complete, the borrower will notify the servicing lender that the work is finished. Lenders often will sell their paper, so inform the borrowers that they will receive a welcome letter from their lender informing them of who to call when they have completed their work. Because it can take close to 45 to 60 days for some loans to be sold to a lender, prepare the borrowers for the delay in case they complete their work before their loan is placed with a servicing lender.
Step 9: The appraiser checks the work.
The appraiser will inspect the property to make sure the work is complete. The appraiser will also notify the servicing lender of the status, sign off on the project and issue a completion report.
Step 10: Cleared title.
The servicing lender will determine that there are no liens.
Once the servicing lender has determined that the work is complete and the title is clear, the remaining 50 percent will be issued to the contractors. Again, it is important to remember that each contractor will receive 50 percent of their bid at the closing of the loan and the other 50 percent of their bid at the completion of the entire project.
Be sure to check out other 203(k) loan articles in this section.
Article by Ginger Bell
