FINALLY!!! Closed on my 203K.

60 Replies

I plan to write a very detailed blog on my 1st experience using a 203k loan, but for now, I wanted to shout at the top of my lungs, that I FINALLY closed July 3, 2014 on my latest acquisition.  A 2 unit - each unit, 3BD, 1BA, 2 car garage (divided), full basement  with laundry for each.  Contract was accepted 3/11/2014, so it has been a very, very long process. Details to come!

@Arthur Banks  

CONGRATS on your closing--I am in the market to use an FHA 203k as well, so I am looking forward to your blog of how things progress.

Maybe you could start now? If you had an accepted purchase agreement on 3/11/14, what has taken so long to get everything finalized? What is your purchase price and renovation costs? Anything you could provide would be great for those of us looking to do the same. Looking forward to learning from you.

What took so long? Where do I start? HUD, the contractor, the mortgage company, the realtor. I even made mistakes. Each of these pieces had a part in the delay. I'll share just a bit. Initially, HUD cancelled and relisted the property because I missed initialing one box on the offer. After my offer was accepted again, they wanted $1 over the original offer. The processor at the mortgage company was new to 203k so she made mistakes. The contractor took over a week to get references. I purchased for $75K. We're expecting $30K in repairs. (Can't have over $35K for streamline 203K). These are just a few things which I will detail soon. If I can suggest anything (because I don't know how soon I'd start and finish my blog), I'd say make sure your lender and contractor are familiar with the process. Make sure your contractor is willing to go back and forth with the lender.

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@Arthur Banks - you said it best.  Your lender needs to have experience. While it is important to have an experienced contractor the lender can train any contractor if they know what they are doing.  FHA 203k and renovation loans are all I do at my company and the truth is they do not need to be as hard as they are but you need to do your DD on the people involved in your transaction and there levels of experience.  

I am personally planning to take the time to write more often about these products so that other BP members do not have to go through this same type of troubles.  

The FHA 203k loan is a great product and can really do a lot of good when done correctly.

Congrats! 

So, here goes....   I won't detail everything as I plan to blog about it as I go through the rehab Yes, @Nicole Pettis  I'm going to write a blog :)

I saw the property the day it hit as a reactivated listing 2/6/14 and I quickly ran the numbers using the BP calculator. I immediately called my agent, confirmed what I estimated rents would be and we agreed we should submit a full price offer. Looking at Redfin I could see it had been pending and relisted several times for almost a year, so I didn't want to fool around with bidding less. Plus the numbers worked. Less than a week later they accepted the bid. Well, somehow we missed initialing ONE paragraph and they cancelled and relisted. So we had to wait until it was relisted and resubmit the offer. Next day, we resubmitted but this time they wanted $1 over the previous bid. Yes, ONE WHOLE DOLLAR. Fine. Whatever. This was 2/28/14. Finally got the signed contract 3/11/14. 

During the time I was waiting on the signed contract, I was getting contractors bids. Finally decided to go with the contractor my agent has used for other clients. Since this was the first time I've had to use a general contractor (GC) I was a little green on what his responsibilities were. I ended up finding a hardwood floor guy, HVAC & plumber myself. I also drew up the scope of work (SOW) and priced all the finish materials. The "GC" submitted his labor only bid, I added the other trades bids and there was my budget. 

Long story short, the lender needed to approve the contractor. Now, mind you, I asked the "GC" had he done 203k loan before even getting his bid. The bid was submitted at $21K. I needed to stay under $30K because the bank would hold back about $5K for contingencies.  For streamline 203k, the repairs could not exceed $35k otherwise I would need a full 203k which would require me to use a consultant at an extra cost (in hindsight that might not have been a bad investment - you'll see why). To be approved, the contractor needed to submit 3 business references. These had to be anyone he's paid or had credit with, but it could not be from a big box store like Home Depot or Menards. So if he sub'd a plumber or roofer or had credit with a local store.  Well, this guy could only provide 1 reference. Needless to say he could not get approved.  So guess what. I had to start all over with finding a contractor. At this time it's end of April. It took a couple more weeks to find a new contractor as no one could/would come within budget.  Found a "203K" contractor and started the whole process again with submitting bid and going through approval process. 

To wrap this up, the new contractor submitted his bid, but he didn't line itemize his bid. Bank said nothing. Continued with the approval process. He submitted his 3 business references. Well the bank came back and said the business need to have been in business for at least 2 years. Didn't say that initially. And they said, "Oh by the way the new requirement is the contractor needs to submit 5 references of his work too. Didn't say that initially. I can't understand why they didn't have this info upfront document. By this time I had missed the closing date and had to request an extension. This one was free. Somewhere in the process the appraiser added to the SOW and they finally stated they require the bid to be line itemized labor and material PER ROOM. Didn't say that initially. So the bid had to be revised. It took some time for the contractor to get the business and personal references. Back and forth I missed another deadline. This time $375 for a 2 week extension. HUD stated on the 3rd extension NO MORE EXTENSIONS in bold letters just like that. Well, you guessed it, I had to request a 4th. 3 - 2 week extensions at $375 a pop! The 4th I had to request the day of closing because it was still in underwriting and the very next day it was approved. That didn't stop HUD from taking my $375. Although they did refund a portion at closing.  Oh, I almost forgot even though we had garage roof repair on the bid, they underwriter wanted a Roof Certificate!!! Only to come back later and say "Oh, you don't need it. I see you're repairing the roof." I asked the lender why so many mistakes, her reply "I'm new to this whole process." Yeah, that's what I wanted to hear.  I almost lost this deal to all the missed deadlines and errors and plan old feet dragging.  I'm sure I missed some stuff as I'm trying to run out the door now. If I can say anything, make sure you ask questions.  See the things I had to go thru and ask if their process is the same. Find out exactly what the lender needs. Make sure you have a contractor willing to go back and forth with the bank. I will say, now that I've gone through and the contractor is approved it SHOULD be smooth sailing for the next one. It's rough when so much is in the hands of everyone else and you can only sit by.  Feel free to ask me any questions.

Sorry for the book!

@Rolanda Eldridge  It was definitely a long road to this point. Still not over. Long way to go. Had city inspection today. Lucked out and only need plumbing permit. So I will be saving some money on the expected permit costs. The GC has his own plumber and he said he'd do the job less 15% of what I was quoted. So if he keeps to that, I've saved some money there. Which will come in handy as we under estimated the flooring by quite a bit.

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@Arthur Banks  Congrats!  I am SO excited for you!  I know this has been a long process but glad you got it closed.  We will have to have a celebratory drink at the next Chicago Meetup!

Arthur, congrats and well done!!

Also, this is very helpful, as I  too am planning on making my first  purchase with a 203k loan and this will come in handy.

Keep us posted on your progress.

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