The Section 203(k) Loan Program is administered by the Federal
Housing Administration (FHA), and is the department's primary
program for the rehabilitation and repair of single family properties.
FHA operates the program through FHA-approved lending institutions. The lender submits an application to have the subject property appraised and the buyer's credit approved. Find a list of Approved Colorado Lenders.
As an approved 203(k) consultant, Eagle Eye Inspections performs feasibility studies, Specification of repairs, and periodic inspections, working with both borrowers and lenders throughout the rehabilitation/repair process.
What's unique about the 203(k) loan?
Most lenders will not usually approve a loan unless the condition and value of the property provides adequate loan security. When rehabilitation is involved, a
lender typically requires the improvements to be finished before a
long-term mortgage is approved.
The home buyer usually has to:
1. obtain financing to purchase the home
2. obtain additional financing to perform the rehabilitation work
3. secure a permanent mortgage when the work is completed
The 203(k) program was designed to make this process easier. The
borrower obtains just one mortgage loan, at a long-term fixed (or
adjustable) rate, to finance both the acquisition and the rehabilitation
of the property. To provide funds for the rehabilitation, the mortgage
amount is based on the projected value of the property once the rehabilitation work is completed, taking into account the cost of labor and materials.
How does the 203K program work (short version)?
STEP 1: Find a property that you are interested in purchasing.
The rules to keep in mind are:
· The property must be a one- to four-family dwelling that has been completed for at least one year
· All newly constructed units must be attached to the existing
dwelling (cooperative units are not eligible)
· Homes that have been demolished, or will be razed as part of
the rehabilitation work, are eligible provided some of the
existing foundation system remains in place.
· An existing house (or modular unit) on another site can be
moved onto the mortgaged property.
· Only internal work qualifies for a condominium.
· The house must have at least $5,000 in repairs.
Luxury items (such as …) cannot be included as a cost of rehabilitation, however, the homeowner can use the 203(k) program to finance such items as painting, room additions, decks and other items even if the home does not need any other improvements. All health, safety and energy conservation items must be addressed prior to completing general home improvements. See list of eligible items to meet $5,000 minimum requirements.
STEP 2: Find a lender that provides a renovation type loan (203K). Currently, the two most active lenders are Wells Fargo and Bank of America, although, there are several other banks/lenders that will do this type of renovation loan. If you have a local lender, I recommend checking with your local bank first. We also can supply you with a list of lenders we work with in the Denver and Northern Colorado area.
STEP 3: Contact Eagle Eye Inspections, LLC. We have been approved by HUD as a certified 203K consultant. We cover Denver, the Front Range (including mountain areas) and northern Colorado. We will perform an initial feasibility study of the property and/or specification of repairs document, which will be used by the bank along with other references to determine the market value of the property.
We will work to ensure all required 203k documents required by the bank are prepared for your loan closing by working with the contractor you have selected and the lender. When using an FHA consultant, you will significantly reduce the time to closing and will also fulfill the requirement of having a plan reviewer.
STEP 4: After the loan has closed and the necessary funds have been placed in escrow, the renovation work may begin. Most banks will require a general contractor to supervise the project. In some cases, if the client has the proper qualifications/experience, they may supervise the program themselves under a Self Help Agreement with the bank.
Eagle Eye Inspections LLC, as the HUD-approved inspector, can perform draw inspections as the renovation progresses to ensure the quality and progress of the work, as well as to complete and submit the proper paper work to release the renovation money from escrow. A maximum of four draw inspections plus a final inspection is allowed.