The 203k Loan Process
203k Loan Process: In Part 1, we shared details concerning what your realty agent and a home loan professional need to know throughout the pre-qualification, purchase deal, and closing process when dealing with FHA 203k loans.
We have highlighted the main actions of how the 203k loan process works. Listed below is a general reference guide.
Step 4-- Work Write-up, Cost Estimate, and HUD Case #
A feasibility study and preliminary expense estimate are inputs to create the Specification of Repairs (SOR) with a professional's assistance. After fine-tuning and figuring out the specification of repairs, the Contractor submits the quote for repair work.
At this point, the lending institution will ask for the HUD Case number, and the project will now quickly move to the appraisal stage.
Keep in mind: HUD does not need a Consultant on a
Streamlined 203k loan (a rehabilitation with small repair work that amounts to less than $35,000 and does not include structural repair work). However, the experience and value of the expert's recommendations can frequently conserve more than the costs charged for the service.
Step 5-- Lender Prepares/Issues Firm Commitment Application
After the Contractor and the appraisal quote are accepted, the lending institution will release a Conditional Commitment and Statement of
Appraised Value. The purpose is to establish the optimum insurable home loan amount for the residential property.
Action 6 - The Mortgage Loan Closing
Notation To Real Estate Agents - This is a standard closing where the buyers would sign the completed loan documents and the close of escrow (COE) date is fulfilled, which is also when the real estate agents are compensated and have technically completed the transaction. To fulfill the COE deadline with as little stress and anxiety as possible, we ask our representatives to let us drive the bus from steps 4-6.
Notation To Buyers - The mortgage closing is where the loan provider prepares the Rehab Loan Agreement and other pre-closing documents required for the home mortgage loan closing. The Agreement is executed by both mortgage lender and borrower and develops loan conditions under which the mortgage lender will release the funds from the Rehab Escrow Account.
A few of these conditions include the building draw schedule, fees schedule, work item change orders, and identity of interest statement.
Action 7 - Construction Begins
Home loan proceeds are paid out at closing, and the Rehab Escrow Account is established. Construction might begin immediately and need to start within 30 days of closing.
Step 8 - Funds are Released from Rehab Escrow Account
According to the Rehab Loan Agreement, funds are paid out to numerous contractors. The work write-up is made through-composed modification orders and is typically examined by the Consultant or Lender's Fee Inspector. A last release of the funds validates the successful completion of the rehab.
Summary
The blog post outlines the steps involved in the FHA 203k loan process. After the pre-qualification, purchase deal, and closing process discussed in Part 1, the next steps are:
Step 4) A feasibility study and preliminary cost estimate are used to create the Specification of Repairs (SOR), which the contractor submits a quote for. The lender then requests a HUD Case number to move to the appraisal stage. For Streamlined 203k loans under $35,000, a consultant is not required, though their expertise can still provide value.
Step 5) Once the contractor and appraisal quotes are accepted, the lender issues a Conditional Commitment and Statement of Appraised Value to establish the maximum insurable loan amount.
Step 6) At the mortgage closing, the Rehab Loan Agreement outlining terms like the draw schedule and change orders is executed between the lender and borrower.
Step 7) Construction can then begin immediately or within 30 days of closing.
Step 8) Funds from the Rehab Escrow Account are released to contractors per the Rehab Loan Agreement as the work progresses, validated by the consultant or lender inspector.
