Role of FHA 203K Loan Consultant in a Renovation Loan

In this blog, we will cover and discuss the role of FHA 203k loan consultant in a renovation loan. The role of FHA 203k loan consultant is to help borrowers who have a Standard FHA 203k Loan with the major improvements that will be made to their home renovations. The key role of FHA 203k loan consultant is to perform a full inspection of the subject’s home. Their job is to check especially for any safety and health-related problems and/or issues that are part of the rehab project.

What is the Role of a HUD FHA 203k Loan Consultant?

The FHA 203k loan consultant is also called the HUD consultant. HUD Consultants are experts. They are professionals with experience and knowledge in all aspects of home improvements. They are familiar with the 203k mortgage loan program. They are on the HUD Approved list of general contractors. HUD Consultants will be responsible for inspecting the job prior to the contractor’s draws, and deny a draw request until further work is done. They are also responsible for doing a final inspection before a final contractor’s draw. The HUD Consultant will also be responsible for making sure that the contractor and sub-contractors submit lien waivers.

What Does HUD FHA 203k Loan Consultant Do For Homeowners

The role of FHA 203k loan consultant is to oversee the renovation process is done per HUD guidelines and standards. The role of FHA 203k loan consultant is to perform a Feasibility Study on the scope of work. The HUD Consultant will also be required to perform a Property Inspection Report on the subject property. Borrowers will be consulting with the HUD Consultant on the scope of work to be performed. The HUD Consultant will do a Work Write-up. They will be responsible for either doing the architectural sketch or subcontracting such work. Click here to apply for a FHA 203k for home owners  

The Role of FHA 203k Loan Consultant is To Verify All Materials Are Paid

The role of FHA 203k loan consultant is to oversee all materials and labor paid so there are no mechanics liens on the property. The HUD Consultant is the quarterback between the homeowner, the general contractors, and lenders. The HUD Consultant is responsible for the work to be done correctly, timely, and professionally. The role of FHA 203k loan consultant is to make sure that the construction funds are properly spent on the project. Their role is to protect borrowers’ and lenders’ interests.

What Are The Two Types of FHA 203K Loans?

There are two types of FHA 203k loans: Standard and Streamline FHA 203k Loans. The standard FHA 203k loan is a full-blown renovation loan program where there is no maximum budget on the scope of work that can be done. Cannot go beyond the maximum FHA loan limit. Can do structural changes and do second-story additions and side room additions. Can do a complete gut and rehab. Can have the home of your dreams and customize it. Basically, can have a custom home built to the homeowner’s needs and choice of layout, decor, millwork, siding, flooring, windows, roofing, and appliances.

What Are Standard FHA 203k Loans?

Standard FHA 203k loans are also known as Standard FHA 203K loans. Homebuyers with a Standard FHA 203k loan can do a full-blown rehab including structuring changes and room additions. Any work that can be done with a Streamlined 203k loan can be done with the full Standard FHA 203k loan. There is no construction budget. With Standard FHA 203K loans, there is no maximum budget on the renovation budget except for the loan limit and after repair value of the property. The subject property needs to appraise for the after repaired value.

FHA 203k Streamline Loan Requirements

Streamlined FHA 203k loans are acquisition and construction FHA loans that require minor repairs. The maximum construction budget for Streamlined FHA 203k loans is $35,000. Homebuyers buying foreclosed homes are perfect candidates for 203k Loans. This is because many foreclosures need minor cosmetic repairs. Cannot do structural repairs or room additions with Streamlined 203k loans. In the event, that homeowners need to do structural work and/or room addition and the work is under $35,000, they cannot go with a Streamlined 203k loan. This is because of the structural and/or room addition work and the need to go with the Standard 203k loan program. Get qualify for FHA 203k streamline loan

FHA 203k Streamline versus Standard FHA 203k Loans

FHA 203k loans are acquisition and construction loans all wrapped in one loan program. Again there are two types of FHA 203k Loan Programs.

• Streamlined FHA 203k loans
• Standard FHA 203k loans

What is the Contingency Reserve For FHA 203k Loans

FHA 203k loans require contingency reserve funds which it is set aside in the event something goes wrong with the rehab of the home. Here is how the contingency reserve on FHA 203k loan works:

• 10% to 20% of the construction budget amount is set aside as Contingency Reserve Funds
• The amount of Contingency Reserve Funds depends on the condition and age of the home
• The age of the property or the extent of the rehab project is taken into consideration
• If the property is older than 30 years old, at least 10% of Contingency Reserve Funds is set aside
• If the utilities on the subject property are shut off, then 15% of Contingency Reserve Funds are set aside
• If there are savings from a change order on a particular task will be swept into Contingency Reserve Funds
• Contingency Reserve Funds can be used for extra work
• Or change orders at the end of the FHA 203k Rehab Project

The Role of FHA 203k Loan Consultant for The Feasibility Study

The feasibility study is an overall estimation of the rehab project that needs to be performed and the estimated cost of the project.  The FHA 203k loan consultant charges $100.00 for this feasibility study which this cost can be financed. Feasibility studies are not for all FHA 203k Loans. It may or may not be required depending on the project.

The Duties and Cost of the HUD FHA 203k Loan Consultant 

The costs and duties of a HUD Consultant are regulated and limited on how much they can charge. The HUD Consultant needs to be approved by HUD. The HUD Consultant fees are normally $400 to $1,000. Costs depend on the costs of the repairs to the property. The HUD Consultant will also charge inspection fees. There are a maximum of 5 draws allowed on Standard 203k loans. The HUD Consultant needs to sign off on all contractor draw requests before the contractor and go and collect their draw request from the title company. The HUD Consultant can also charge a mileage fee

How are Contractors Compensated on FHA 203k Loans?

FHA 203k loan contractors who perform Standard 203k loans are paid as follows:

• Contractors who perform Standard 203k Loans are not paid upfront money like Streamlined FHA 203k Loan Contractors
• Contractors are paid their first check by requesting their first draw after the initial scope of work has been completed within the timeline scheduled and the project completed
• Contractors are allowed up to a maximum of 5 draws
• The role of FHA 203k loan consultant is to section the draw of the general contractor into five stages
• Each draw will be signed off by the HUD Consultant after the particular scope of work has been completed with the fifth and final draw being signed off when the whole project is completed
• For each draw a general contractor gets paid, a 10% Contingency Reserve will be deducted
• This Contingency Reserve hold back is to make sure that nothing goes wrong or that there are no-cost overruns with no last-minute surprises and that the project is completed within the construction budget

Mortgage borrowers any questions on either the streamlined or standard FHA 203k loan programs, please contact Gustan Cho Associates at 800-900-8569 or text for a faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, on evenings, weekends, and holidays. Click here to get connect with us even in holidays