FHA 203K Loans – The Process

How Does the 203K Loan Process Work?

FHA 203K Loans – The Process

There’s a lot of FHA 203K Loan info floating around the web these days, some of it is good, some of it is bad and some of it is just plain wrong.

As a renovation loan specialist my job is to guide you through the process with as much ease as possible. To accomplish that we need to fully understand and be able to explain each step of the 203K process. From underwriting guidelines, to contractor selection, to how the draw process works – our job is to explain it IN FULL

Luckily, we understand this loan and its intricacies better than anyone. Let’s walk through, step by step, a typical 203k purchase transaction.

1. Get Pre-Approved – This is ALWAYS the first step for ANY home purchase, FHA 203K is no different
2. Begin Gathering Loan Documentation – You should have provide basic income and asset docs for your pre-approval. However, getting a mortgage in 2011 is tedious. Start gathering the additional docs need for underwriting immediately.
3. Locate a Property – Call your renovation specialist. Make sure the property qualifies for the type of loan for which you have been pre-approved.
4. Make an Offer – Be sure and indicate FHA 203K as the loan product in the purchase contract
5. Offer Accepted – Pass along the purchase contract to your renovation loan specialists and any other items need for underwriting. You loan should go into underwriting at this point
6. Home Inspection – Everyone should ALWAYS get a home inspection. We use a licensed Home Inspector who is also a HUD Consultant. This allows us to find the problems in the property and determine any FHA required repair
7. Start Gathering Contractor Bids – Get as many as you like. Make sure they are DETAILED on the scope of work. Choose your contractor wisely! Need selection tips? Read our post on 203K CONTRACTOR SELECTION
8. Credit Approval – At this point underwriting should have conditionally approved your loan. They will probably have some more documentation that they need for final credit approval, gather it expeditiously!
9. Finalize Contractor Bid – You should have chosen a contractor by now and finalized the scope of work. Most lenders will have some documentation for the contractor to complete. Gather it, send it along with the bid to your renovation loan specialist
10. HUD Consultant’s Work Write Up – You can skip this step on a streamline 203K since a HUD Consultant is not required. You can also involve the HUD Consultant earlier in the process if you’d like, however they will not be able to provide their documentation until the scope of work has been finalized with the contractor.
11. Appraisal – Since 203K loans are based on AFTER REPAIR VALUE, we need the bid to proceed. The earlier you get the contractor bid to us the better. Be prepared, once the appraisal is received there may be additional items that you’ll be required to add to your contractor bid. Bid revisions after the appraisal are common.
12. Final Loan Approval – Your appraisal is in and looks great on value, your credit has been approved and you are ready to close!
13. Loan Closing – Head to the closing attorney or title company office and sign the closing documents. The house is yours, time to start your renovation.
14. Pull Permits – If you need permits, your contractor should get them immediately after your loan closing. In some cases the lender will want to see the permits BEFORE funds are disbursed so start this process ASAP.
15. First Draw Disbursed – If you are doing a streamline 203K you should get 50% of the funds about 5 business days from your closing. On the Consultant 203K follow the draw schedule provided in the Work Write Up. On both loans the funds are usually disbursed as a two party check. For more detailed info on how the draws work click on our post about The DRAW PROCESS
16. Final Inspection / Title Update – You’ve completed all the work and are ready to get your final draw. On the streamline 203K we’ll send the inspector out to make sure everything has been done as specified. If so we’ll run a final title update to make sure all the contractor’s have been paid and none have put a lien on your home. If everything is as planned we close out your renovation escrow and you have a standard FHA loan.

Depending on your particular property there may be some additional steps needed. If you are doing a major structural renovation you probably need architectural drawings. There also may be some additional inspections required by underwriting during the process. Although the list above is typical, each 203K renovation loan is unique and some of the steps in your loan may be in a different order.

Ready to get started?! If you are in Georgia, Alabama, Tennessee, South Carolina or Florida then click on our RENOVATION ADVISOR and we can get you your PRE-APPROVAL within 24 Hours