As you well know, in today's Real Estate Market, buyers, Realtors' and lenders want to take the "path of least resistance" when it comes to putting a deal together using the FHA 203k program. Although sometimes daunting, it's easier than you think. Whether it's the Streamline or the Full program you can avoid all the usual pitfalls, delays and unnecessary fees associated with property selection and loan type if you just re-think the procedures you normally use.

Whether your clients are looking at REO’s, Short Sales or Foreclosures, there’s many steps required that pile up the fees without even knowing if the deal is “do-able”. First, after an offer has been accepted, there’s an Appraisal that costs about $375, then a Home Inspection that can be up to $350. After that, if it’s a Full 203k loan, an FHA Fee Inspector (203k Consultant) has to inspect the property which runs on average, about $600. Even if it’s a Streamline (under $35,000), there are many lenders that require the use of a Consultant because the process runs smoother and gives the lender the added confidence that nothing has been missed and that paperwork will be administrated properly. So, after it’s all said and done, the buyer has spent between $1,100 and $1,300 without actually knowing what the renovation cost will be! It doesn’t have to be that way.

In a time when buyers sometimes preview many homes before making an offer, or Realtors take listings that are potential 203k projects, it would be easier if most of the answers could be obtained BEFORE all that time and money is spent.

Most of the time buyers and sellers have many questions about the actual details of the 203k programs as it relates to the actual construction costs. That’s where a 203k Consultant comes in. Recently, we’ve been providing clients with a low cost alternative to all those “up front” costs, it’s called a Feasibility Analysis. A Feasibility Analysis is a quick inspection of the property by the 203k Consultant, with a “rough estimate” of work that will be necessary to comply with HUD requirements. In many cases the client can use the Feasibility Analysis to negotiate the purchase price for items that are in need of repair. The cost of the Feasibility Analysis is $200. In most cases, this is the best way to start out when a buyer is choosing a 203k loan. It quickly determines the extent of ancillary repairs and exposes possible structural deficiencies, which can require the buyer to spend more money on the renovation than anticipated. Once the buyer knows the extent of the rehabilitation, they can move forward with confidence.

The next step saves the buyer more money! Now that the budget has been established from the Feasibility Analysis, the 203k Consultant can perform the required, all-inclusive HUD/FHA Home Inspection and complete Work Write Up for one fee, eliminating the need for an additional Home Inspection. This direct approach eliminates wasting time and money on multiple properties that are not in the budget or exceed loan values.

“I trust the 'added value' of using a 203k Consultant in this way will bring clarity, confidence and structure as an antidote for the uncertainty and disillusion that sometimes finds its way into selecting the right home”.

The Consultant’s role as advisor to the Borrower
while protecting the interests of the Lender and HUD

It has never been a requirement of today's typical mortgage originator or underwriter to be an expert in the fields of home inspection or construction.  For the 203(k) program to be successful, it becomes necessary that someone be expert in these areas. That someone is the HUD Consultant.

To insure all required and requested renovation work is accounted for, the HUD Consultant also monitors compliance with FHA Property Standards. 

HUD Consultant prepares the following:

1. Feasibility Study that Categorically Examines the Structure While Reviewing 35 Areas of Concern
2. Plan Review to Examine the Customer's Bids in Light of a Site Visit and Review of the Home Inspection Report
3. Specification of Repair also known as the Work Write Up  

PROBLEM: Because of the detail and necessity of specific forms, a home buyer (or their contractor), might take 3 -6 months to do a proper work Write Up and cost estimate package.  This package must be fully completed to start the appraisal stage. Real Estate Purchase Contract time frames typically allow 60 days for closing, which means time is of the essence.

SOLUTION: By incorporating a HUD consultant into the process, everything can be readied in just 2 weeks

Work Write Up and Cost Estimate HUD Consultant    → Bidding Process with Contractors Borrower → Reviews Bids With Borrower HUD Consultant

The 203(k) Consultant was created to address the need for Direct Endorsement Lenders to better control time frames through the use of an individual who can: Site visit Formulate the work write-up while consolidating the functions of a home inspection Creation of the bid package The ideal Consultant has a construction background with advanced home inspection skills and remodeling experience. Their primary responsibility is to complete the home inspection and construction exhibits as soon as possible after the borrower signs a sales contract, so the lender can request the property appraisal. The consultant must be able to prepare a work Write Up and cost estimate without using a contractor to obtain bids. It is important for the consultant to use cost estimates that are reasonable for the area in which the property is located

FHA requires that the consultant who prepares the work Write Up and cost estimate needs to inspect the property to assure:  

• There are no rodents, dry-rot, termites and other infestation on the property;  
• There are no defects that will affect the health and safety of the occupants;  
• The adequacy of the existing structural, heating, plumbing, electrical and roofing systems; and  
• The upgrading of the dwellings thermal protection (where necessary).

The HUD/FHA Home Inspection Report should address any deficiencies that exist and certify the condition of all major systems: electrical; plumbing; heating; roofing and structural. A wood-boring insect report should be included for all loans if required by the lender.  For properties with private sewer and water, a septic certification and a private well analysis is required.  Your consultant will determine if additional professional expertise is needed to provide all the inspection services required to complete the report, AND make such recommendations at the time of inspection.

"The Home Inspection is the basis of a successful FHA 203(k) Mortgage."  As a part of the application process for an FHA 203(k) Rehabilitation Mortgage, a home inspection report on the current condition of the property is required.  In most cases, the Home Inspection Report will be the Direct Endorsement (DE) Underwriter's only "view" of the property in its as-is condition.  HUD is not looking for the consultant to make the house perfect, but only determine if the house needs to be repaired based on the above mentioned items.

It is essential that this inspection be carried out in the utmost professional and competent manner.