FHA 203K Process and the Steps to FHA 203K Success
FHA 203K Process and the Steps to FHA 203K Success
The FHA 203K Process breaks down into a series of steps that enable the homebuyer or homeowner to determine the cost of the desired renovations, how these renovation will improve the property's market value and how their desired renovations will effect their FHA 203K financing options.
The order of events with the FHA 203K are typically as follows...
Review the Feasibility of the Project
the extent of the work and a rough estimate of the cost
expected market value of the property after the project is complete
Execute a Sales Contract
contract should be contingent of FHA 203K approval
the FHA 203K is available for Purchases and Refinances, so if your project is a refinance, we obviously do not need this step
Determine which FHA 203K program is applicable
Streamline : Cost of work is $35,000 or less and the work is not complex
obtain a General Contractor's Bid
Standard : Cost of work is greater than $35,000 and the work is complex
obtain a General Contactor's Bid
select a HUD Consultant
a list of HUD 203K Consultants can be found here... https://entp.hud.gov/idapp/html/f17cnsltdata.cfm
Submit application and Contractor Bid to your FHA 203K lender
the lender will need the Contractor Bid with the initial application to accurately calculate the total 203K loan amount
Lender processes approval and orders Appraisal
just like any mortgage application, lender reviews credit, income, assets and home value
unlike other mortgage applications, the appraisal is based on the current value of the property plus the proposed work per the contractor bid. Essentially the lender is lending on "Subject To" value, "Subject To" value is the value of the property after the work has been completed.
Loan Closes and Renovation Funds are Released
If this is a Purchase, the seller is paid and buyer takes ownership. If this is a Refinance, the previous mortgage is paid off and the new mortgage takes its place. How the renovation funds are disbursed depends on whether this is a Streamline or Standard FHA 203K.
Streamline : Funds for materials are released to Contractor and remaining funds are released upon completion and inspection of work
Standard : A Draw Schedule is set up to pay for inspected work as it is completed
Each of these disbursement schedules allow for inspections to ensure the contracted work is being completed in the manner proposed on the submitted Contractor Bid and to protect the investment of the borrower and lender alike.
Project is Now Complete!
Homeowners enjoys their newly renovated and updated home with its increased property value and a low fixed FHA mortgage rate.