A 203(k) consultant is like a football team’s offensive coordinator – a point guard that runs plays on basketball court and a star infielder – all in one. Seem like an exaggeration? When it comes to 203(k) consultants the comparison is accurate: these professionals really can be the most valuable member of the team that helps out when you buy a home and make major repairs with a standard FHA 203K renovation loan – also called a Consultant K* loan.
When you buy a property that needs structural repairs and/or needs repairs in excess of $35,000, you are talking about projects that may require professional experience and expertise in construction, architecture, building codes and more. Most homebuyers do not have the level of knowledge and experience required to oversee such a major undertaking. That’s why you need a good 203K consultant.
Most 203K consultants are licensed home inspectors, general contractors, and sometimes architects. (Licensing requirements vary by state.) They must submit various documents that prove their expertise to HUD – the Department of Housing and Urban Development. The requirements are fairly rigorous, and only HUD-approved consultants are listed on the official FHA 203K Consultant Roster.
You can search online for a HUD-approved 203K consultant. But, a better idea may be to ask a licensed mortgage loan originator with a lot of experience in renovation lending for a few names of consultants in your area. The mortgage loan originator and lender have probably worked on dozens of 203K rehab loans in your area, and they should be able to suggest consultants that match your renovation project type, as well as your customer service needs. For example, some homebuyers will want to be very involved during the repair and rehab work and so, a consultant with a matching communication style may be important. Other homebuyers may not want or need as much interaction.
Here’s a look at the highlights of what a 203(k) consultant does during the home purchase transaction.
If you decide to buy a home and it needs some updates, repairs or renovations, a 203(k) consultant would inspect the property and talk with you about both the repairs that will be required to meet HUD’s Minimum Property Standards and the optional renovations you would like to make beyond the required items.
The consultant then prepares paperwork that the lender uses to determine the loan amount and underwrite the loan. This paperwork typically includes the feasibility report, architectural plans, and a work write-up that reflects specifications on all of the repairs that will be done, including:
- cost of materials and cost of labor for each repair,
- a recommended “contingency funds” amount to be set aside in case there are cost overruns,
- a recommended inspection schedule, showing the times during construction when the Consultant will inspect the work performed and completed
If the lender needs additional paperwork – for example, a termite inspection report or certification that a roof is structurally sound – the consultant and lender work together to coordinate ordering these reports and making any needed changes or adjustments to various documents, if additional repairs are needed.
A 203K consultant also performs valuable services after the loan closes and repairs begin. When your 203(k) loan closes, a Repair Escrow Account is set up. The consultant inspects repairs as they are completed and, provided the work is satisfactory, tells the lender that funds can be released from the Escrow Account to pay the contractor. On major projects, this inspection and drawing of funds from escrow to pay for completed work typically happens as often as five times, before the final inspection and final payment.
A 203K consultant can help you throughout your home renovation project, providing valuable insight and support when you are working with a general contractor. Again, it’s important to choose a Consultant who is a good match for you.
One final thing: consultant fees. Ask your mortgage loan originator whether the 203(k) consultant’s fees can be rolled into your 203(k) loan. The fees consultants can charge are uniform amounts that are set by HUD, and fees are based on the total dollar amount of the repairs that are made. Typically, you will pay for an initial feasibility study, if needed, out of your own pocket, and the lender may allow you to finance any additional fee amounts.
HomeBridge and its licensed mortgage loan originators are renovation lending experts. Contact us for any and all questions about 203(k) consultants, Consultant K loans and other options that help you buy and renovate a home.