The loan consultant plays a vital role in the 203K loan. In most cases, the process would be much more difficult without one. Think of the loan consultant as your coach in a game – he helps you plan your strategies and then oversees each play to make sure everything goes according to plan. Because of the close relationship, you must have with this professional, you get to choose the consultant that you use for your transaction. Most lenders have knowledge of the loan consultants that work well with borrowers – ask your lender for a referral if you do not have a loan consultant ready to go on your loan.
Who are 203K Loan Consultants?
203K loan consultants usually have a background in contract work, but they can come from a variety of backgrounds including architecture, home inspections, and actual contractual work. They are the professionals that have the experience to look at a house and know what work is feasible and not feasible. They also have a solid understanding of the loan process and what you need to do in order to get your loan approved. They are a jack of all trades when it comes to rehab and mortgages, giving you the best of all worlds.
What does the FHA Loan Consultant Do?
The loan consultant has many roles in the 203K loan process. It is up to you on how much you let him do. His fees will obviously differ depending on what you use him for, but the most common ways to use a consultant include:
- Inspection of the home before you sign a contract to determine its safety and soundness to determine what work would be required to be completed in order to purchase it
- Inspection of the home for any optional renovations or repairs that would make it better
- Preparation of the paperwork to submit to the lender to determine the loan amount you would be applicable to receive (feasibility report)
- Negotiates costs with the contractor if you wish him to do so
- Oversees the work write-up to ensure that it meets the requirements of the lender as well as protects your best interests
- Goes over any type of architectural plans required for the renovations
- Ensures that the cost of repairs is within the normal range for your area and the work to be done
- Comes up with a fair contingency reserve amount to ensure that you are covered in the event of an emergency based on the work that is proposed
- Creates an inspection schedule to oversee the work and ensure that everything is being done on time
- Orders any additional evaluations the lender requires to determine the safety and soundness of the home
- Provides the approval for funds to be disbursed once the loan closes and the work starts; the consultant will conduct inspections prior to providing approval for disbursement
The loan consultant is your go-between with the lender and contractors, helping to simplify the process and make it go as smoothly as possible. You can choose the type of involvement you wish to have with the consultant – some people want to be involved in every step, while others prefer to take a backseat to the process and just see the finished result. The type of involvement you wish to have will help determine the right consultant for you.
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Choosing the FHA Consultant
Typically, the lender will help guide you to a few helpful consultants, especially if the lender has experience in the 203K process. If you choose a lender that has not closed a lot of these loans, however, the lender might not be as helpful in finding a consultant. In this case, you can consult the FHA’s approved list of consultants. This is a general list of consultants that wish to be listed on the FHA’s list – it is not a requirement for consultants. The list can be found here, where you can search by city and state to find consultants in your area. Since the consultant plays such an important role in the 203K loan process, it is important to interview several consultants to see which one fits with your personality and your desired level of involvement.
The 203K Consultant Fees
Every service comes with a fee, including the loan consultant. The fees are pretty straightforward and set by HUD, with the exception of those that charge a flat fee, rather than fees based on the amount of the repairs. HUD provides the following schedule:
- Repairs between $5,000 to $7,500 are $400
- Repairs between $7,501 to $15,000 are $500
- Repairs between $15,001 to $30,000 are $600
- Repairs between $30,001 to $50,000 are $700
- Repairs between $50,001 to $75,000 are $800
- Repairs between $75,001 to $100,000 are $900
- Repairs over $100,000 are $1,000
There can also be a fee for the feasibility study and any other services the loan consultant provides. Some lenders allow borrowers to roll the loan consultant fees into the loan, with the exception of the feasibility study, while others require that the fees get paid out of the borrower’s pocket. Shopping around with different lenders will help you determine which options are available to you.
The 203K loan consultant plays a very important role in your process of purchasing a home that requires fixing up. This is especially true if the renovations are extensive, requiring architectural plans, or the home does not meet code and will need extensive work to get to that point. Talk with a loan consultant can help you determine what you need and what it will cost. The full 203K requires the use of the consultant, but the extent to which you use one is a personal decision. The end result, however, is a home that is fixed up the way you want it with the disbursements and all paperwork completed in a timely and organized manner. The loan consultant is worth the fees that they charge to help you get the job done!