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I agree from the government all the way down to the realtor is one big scam. I am in the process of buying a Fannie MAE foreclosure and have been trying to buy for the last two and half years, after telling people time and time again, this is all a scam I decided to give it a try. I followed a home that I had been watching come up for offer on Fannie’s site, tried speaking with them directly and met with a brick wall. The home finally was placed with a realtor and not just any realtor one I had tried to deal with once before and was mysteriously overbid and lost the home; so I call and set up an appointment to see the home, after speaking with the realtor showing me the home and telling her how much I loved the home she tells me “I can’t tell you what someone else bid, but I can tell you if you are too low. We set up a blank offer so I can fill it out at the last minute and you will get the house”.
The house in a foreclosure needs help but not bad, so I am forced to look at an FHA 203k (AND to all you who are thing about this loan beware), 3.5 % down the other blogger had it right “Yah Right”. First things first it is 3.5% of what your total mortgage is, including fees and upfront MIP which you will find out is out governments way of getting a little more out of you. Next you have the closing cost, opps you will also find out the government will stick you with both sides your and theirs “AND it will cost you.”. Last of the three areas is the pre-pays, I really don’t have a problem with these you have to pay these on any home you will purchase. The point being there is nothing low cost about this at all a 135,000.00 dollar house will cost you 20 to 30K to move in. Beware I am writing a paper that most will say no one will read but if I can save just a few from this hell it will be well worth it.
Hope to have it written by end of July don’t want to ruin the loan.
I agree from the government all the way down to the realtor is one big scam. I am in the process of buying a Fannie MAE foreclosure and have been trying to buy for the last two and half years, after telling people time and time again, this is all a scam I decided to give it a try. I followed a home that I had been watching come up for offer on Fannie’s site, tried speaking with them directly and met with a brick wall. The home finally was placed with a realtor and not just any realtor one I had tried to deal with once before and was mysteriously overbid and lost the home; so I call and set up an appointment to see the home, after speaking with the realtor showing me the home and telling her how much I loved the home she tells me “I can’t tell you what someone else bid, but I can tell you if you are too low. We set up a blank offer so I can fill it out at the last minute and you will get the house”.
The house in a foreclosure needs help but not bad, so I am forced to look at an FHA 203k (AND to all you who are thing about this loan beware), 3.5 % down the other blogger had it right “Yah Right”. First things first it is 3.5% of what your total mortgage is, including fees and upfront MIP which you will find out is out governments way of getting a little more out of you. Next you have the closing cost, opps you will also find out the government will stick you with both sides your and theirs “AND it will cost you.”. Last of the three areas is the pre-pays, I really don’t have a problem with these you have to pay these on any home you will purchase. The point being there is nothing low cost about this at all a 135,000.00 dollar house will cost you 20 to 30K to move in. Beware I am writing a paper that most will say no one will read but if I can save just a few from this hell it will be well worth it.
Hope to have it written by end of July don’t want to ruin the loan.
Can a few of the educated assist us, the consumer, by providing the specific links to understanding these bylaws?
Does FHA have a PDF with 500 pages of red-tape guidelines that can be helpful if read?
Are there any suggestions for finding a contractor that does these kinds of repairs?
If we send the inspector into a place is it better to not go the route of the 203k with that repair for a shower and $5000 for a shower can be very costly and can you reverse course to a traditional loan?
I'm ignorant and this is my first home buying experience so the other question that I have is do they get you at hello with the fees from an unethical standpoint? Is there a mortgage thread from this group that has a buyer beware of lenders set of guidelines.
FHA 203K Guide can be found on the HUD's site. It describes the program in quite a bit of detail, so it's a useful starting point.
The PDF of all the details can be found at the HUD site as well here.
The summary of things I learned through the process thus far:
The way I approached the 203K was to be pre-approved for a standard FHA loan with a higher interest rate. The rate is about 0.5% higher so if the going rate is 3.75% for FHA, ask to be qualified at 4.25% for DTI purposes. I was discouraged to switch between standard and renovation loan primarily due to paperwork and potential red flags it might send up from one lender (that I ultimately didn't go with). Going between 203K streamline and full, I was told, wouldn't be an issue. However, since I knew there was foundation work required, I went in knowing full well that it would be a full 203k, so I didn't test whether this was true.
Even if you want to approach the property with a streamline K, it is beneficial to higher a 203k consultant. Yes, they can be expensive at $400+ on a sliding scale depending on how much the monetary cost of improvements are going to be. Particularly if you're going with a standard FHA starting off, this can save you a lot of money in the short to mid-term. You may assume that the shower repair is all that's needed, but when the FHA inspector comes through, they may find additional issues to that must be addressed. In the meanwhile, the clock's been ticking away on your contingencies. By having a consultant ready the moment your contract is accepted and ratified, you spend a little up front, but you also find out quickly about the minimum required scope of work. If it's too much work, you can cancel out of your contract using the inspection contingency, and you've only spent a few hundred on inspection, rather than risking your good faith deposit waiting for the FHA appraisal and what not.
Regarding the contractor, it's best to select, imho, a contractor that knows the process. Based on credit rating, liquid assets, and liability insurance, MANY contractors will qualify to be your 203k contractor. However, due to the entire process, even if the cost is slightly higher, someone knowledgeable with the process will be far less of a headache, particularly when it comes to disbursement and change order issues.
There have been news articles that cover fixer uppers and 203k renovation loans at the local, state, and country level from time to time. Try looking through your local newspaper archives to see if there has been such an article and whether a particular contractor(s) has been interviewed. I found that to be a great starting point for my area. Your consultant should also be able to recommend multiple contractors, but in some cases, the contractor may do a blind bid; however, they generally tend to be versed on the 203K process.
Costs run a wide range... Consultant related
Consultant inspection (reasonable consultant fees described in the links I posted)
10% contingency on top of the estimated repair costs (so if estimate is $100k, renovation portion will be $110k of mortgage)
-or-
20% contingency on top of estimated repair costs if utilities are off at time of 203k consultant inspection
-or-
15%/20% buyer selectable contingency if elligible for 10% contingency (for example, if you might want to have funds left over at end to do some additional renovation)
Draw inspection fee of about $2-300/draw
Mileage charge
Bank related
Higher interest rate by about 0.5%
Up to 1.5% additional origination fee (though the lenders I spoke with said they didn't charge this)
203K Appraisal fee (not sure if the cost is higher than a standard FHA appraisal)
There might be a few other "nickel and dime" fees, but I have yet to encounter them.
The main thing is, the buyer needs to study the program relatively well and needs to vet the people who will be on your "team". I think I spent about a month interviewing loan officers, contractors, consultant to find the right match. Overall, for me, it went pretty smooth from contract acceptance to right before closing...about 40 days, with the bank dragging things along at the end.
Beware of the 203k loan. I am in the process of closing one and encountered some pretty shady behavior, and I believe this is a result of the 203k consultant receiving a fee based on 1% of the repair cost. My 203k consultant during the walk-through kept pressuring me to add non-essential items to the scope of work, and I had to keep telling him no. Eventually I started getting confused what was required and what was optional, so the scope ended up having large cost, non-essential items like rewiring the house. Next, I got 4 bids from contractors. 3 of them came in at nearly the same ridiculously high price, which seemed very suspicious. Then the 4th came back quite a bit lower, and the contractor informed me that the 203k consultant was questioning his bid and pressuring him to pad the numbers. I am now in the process of switching 203k consultants and trying to fix the scope of work, all in a tight timeline. At this point, if I don't close on the house, it will have been a huge waste of time and effort. If you must go with the 203k, I would recommend having the contractors have no contact whatsoever with the 203k consultant, if that is possible.
Absolutely hire your own contractors! I had 3 contractors that I chose personally, and none of them had contact directly with the consultant.
I told the contractors what needed to be done, got the bids (2 were near identical, and 1 was very high), and submitted the winning bid of my choice. The consultant was only there to make sure I was including items that were necessary per the 203k and that the bid wasn't out of proportion to the work being done.
I'd almost suggest getting a new consultant, too, but that may be a big set back. See if you can get him/her to back off a bit.
there is a lot of paperwork & time needed for this type of loan...I had no problem with it...I had a good realtor that knew her stuff! she already knew the 203k specialist/lending agent name & even suggested this type of loan...both her & the lending agent & everyone that helped made it very easy for me...buying a house takes time just as anything good...be patient & get ur paperwork straight & it will all work out!
I just pretty much went with home depot for most of the repairs(they are prequalified so that does make it easier)...had a roofer & an electrician come in also...but very simple
Dang, a tiptoe through time.....In 2011, there was only one sherriff in town, B of A and all others ran their 203k's thru BofA. BofA was so backed up, they were 4 and 5 months behind on their 1st draw. And of course, if the homeowner uses their own cash, they cannot use loan proceeds to pay themselves back.
The good news....Everyone is now giving BofA wide berth, so it's hard for them to seriously screw these loans up. (Note: I said seriously, because they will still screw it up, it's in their DNA).
Today there is no reason a 203k streamline should take more than 3 weeks, if everything is turned in at loan app.
I have been trying to close a 203K loan since Dec 2008! The bank is making this quite a process for us. I have already paid a 203K consultant $1,000 and paid an appraiser $500. My contractor is so fed up with all the paperwork, he is charging me an additional $3,000. Alll this, and I have yet to see any money from the 203K loan. I have met the bank's conditions and done everything they want. They say I"m approved and are removing conditions but those "take time". This definitely seems like a scam to me! Meanwhile, I'm midway through renovation, totally out of money and have no place to live. Any advice?
1) The Program does not allow the contractor to charge an additional $3,000
2) Mid-way through renovation? That is NOT how the program works! The work cannot begin until the loan is closed. If you would have done the program right in the first place, you would not have this problem.
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