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I'm closing on a 203k Streamline next week. I've been trying to close since July. I recently found out that I won't be getting my first draw at closing. Sigh....misinformed again by the broker. Wanting to get a jump on the draw process I called to inquire and found out that I need a permit first - well - in my county for the work that is being done I don't need 1. I had called the county when I was doing my feasability to makesure I considered county permit fees - they said to check with the contractor - they will know. The contractor said not needed this is replacement work with the demolition already completed. The lender said call the county I said my contractor said they aren't needed then they said you can't trust the contractors. For the love of Pete!
I can tell you it's extremely frustrating when you have to wait THAT long for the first disbursement - if you can't front that money yourself for materials, then you're up the creek without a paddle. We didn't find out about not getting that initial disbursement... until the day AFTER closing. "Oh, you forgot to sign this paper." The paper stating that they will not issue any money for a MINIMUM of 30 days - and no, that paper was not present at closing.
I'm pretty tolerant of many things... but the 203k process? NEVER. AGAIN.
My experience with a streamlined 203k was pretty horrendous. Considering that the restrictions on the streamlined are supposed to be looser than the non-streamlined... I was sold something vastly different than what a streamlined 203k should have been.
Key points:
- I wasn't allowed to perform any of the work myself. FHA has a "self-help plan" that allows the homeowner to perform some work themselves using the rehab money. The underwriters axed that provision and I was forced to use a contractor for everything. Technically, if I wanted to paint a room, a contractor had to do it. If I wanted to buy a microwave... contractor had to do it.
- Originally I was to provide only a general concept of what I was doing with the rehab money. Appliances could be kept general (just list fridge, $2000, oven $2000, cabinets $10k, etc). By the time the underwriters were through with me, I had to have exact plans and exact prices, down to the penny.
- I didn't receive my first disbursement (which I was told I would receive shortly after closing) until 60 days after closing.
- I didn't receive my final disbursement until 120 days after closing (and more than 45 days after work was completed).
Now, this is mostly a lender problem... but regardless, lenders have the capability of removing all the advantage of a 203k loan... so watch out.
Who was the lender? BofA? I'm contemplating this and the only consistent thing I've read is that BofA cannot handle this loan without causing hardship to the borrowers and contractors. On the other hand I've heard that Wells does a very good job of it. In any case I hear you need to work with a "dream team" of lender + 203K consultant + presumably lawyer to make this work without a hitch. Does anyone have any other start to finish observations about their experience? Is this typically a drag for the contractor and the kind of thing only the ones who can't get work will do?
While I personally have never used a 203(k), I know a few people who have. General consensus was that Wells is better than BofA at administering this type of loan...
I am currently in the process of a 203K. The nightmare started back in September. I would never and I mean NEVER go through this b.s. again. Don't walk away...run away from this type of loan. An extremely nit picky underwriter has made this process a complete debacle. The amount of paperwork they have you and the contractors fill out is ridiculous and then if something as simple as the color you want is left out they will not approve and request changes. Alright, so you make the changes they want, including wording everything to THEIR liking and then the construction start/end dates expire. Now go back to square one and redo all the paperwork again. 8 months later...5 times the roofers have had to redo the contract, each time it was something different the underwriter overlooked before or did not like the verbage...etc. And the rates are higher, my broker told me about .125%...but who knows, he could be screwing me over too.
We ALMOST got a 203K loan to rehab a home in a historic neighborhood. I was also told by several people that the rates are higher, so hopefully your broker isn't screwing you over. Immediately after going under contract, we hired a 203K consultant, even though we thought at the time that we would do a streamline and not need a consultant. Boy, are we glad we hired the consultant, who was a licensed general contractor. He told us to first get a termite inspection. We did, and it revealed previous termite damage, meaning we needed a full 203K vs. a streamline. A couple of days later, the consulant inspected the house and asked us what repairs we wanted in addition to assessing which ones were mandated by FHA. He pointed out asbestos tile in kitchen, asbestos insulation in attic, improper ceiling height and egress in attic addition, buried fuel pump in back yard that required removal, structural damage under home from termites and water leaks, and improper stopgap repairs that were made to the home by previous owner. The necessary repairs were much more extensive than we realized, and when we decided to renegotiate the price based on the repairs, another buyer made a full-price cash offer (thank goodness). So we were able to walk away from what could have been a disastrous move for us.
We were very happy with the consultant, his thorough inspection and report, and we felt like he was going to guide us through the complicated process. Being a contractor, he was able to give us knowledgeable estimates for all the repairs so we knew what we were getting into. When the deal fell through, he told us to consider the bill paid (we had already paid $450 of the $600 inspection and repair order). Now we're under contract for a move-in ready house, but if we decide to do any remodeling, guess who we'll call? Had we continued with the fixer-upper, we would not have been able to use the consultant as a contractor for a couple of years.
So if you're considering doing a 203K, DEFINITELY hire a consultant. FHA provides a list on its website.
If possible, use a local lender and consultant who have worked together in the past. Make sure the lender has an underwriter who's experienced with 203Ks, and ask around about contractors experienced with 203Ks.
While we were sad at the time, in hindsight we're delighted that deal fell through, and we believe the consultant saved us from spending $50,000 more than we wanted/expected to pay. And it only cost us $450.
I have to say now that all is said and done....my loan was immediately sold to M&T bank - they did an outstanding job with the draw process. I re-read the draw document and found that I could get the initial without the permit (bad idea). Everything that was in the loan is done....I still have a rather long list of to dos...but it's getting there.
Hey Nofun, I sent you a direct message, but I think you don't get emailed when you get messages. Maybe you will get an email with this reply. Check your DM. Thanks
In Monterrey CA. we just got a full 203k loan for 4.6% on 5/1Arm.
The property is 2 dwellings and about 3300 sqft on 2 acres.
780 to 820 FICA.
Our lender said it was an average 1% more than std FHA.
It was the only option to buy an REO that was not in good enough condition for FHA much less conventional loans.
203K has been a nightmare of paper work ... and dealing with "professionals" that seem to not really know, or not reveal all of the steps and costs.
Facts so far are:
1% extra loan costs
110 Days from acceptance of offer to close of escrow.
203k consultant fees .... $900
Appraisal fee ..... $900
Required Pest and House inspection costs .... $1000
Required Tenting for Termites ..... $6000
Per Diem and extension fees
for late COE caused but not piad buy lender..... $1300
Fees deducted from Buyers Agent for late COE .... $750
203k inspection fees .... expected 3x $200 for 3 draws ... $600
All of the closing cost and upfront loans costs ... $25K for $500k loan.
Expect 5% total costs ... about the amount of required down payment.
The 3.5% FHA minimum down is inflated up to this 5% by "other required upfront items".
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