Real Estate Investor · Waukegan, IL · Member since 2013 · 367 posts · 80 votes
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!
Specialist · Marlton, NJ · Member since 2014 · 92 posts · 55 votes
12y
@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 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.
Real Estate Investor · Waukegan, IL · Member since 2013 · 367 posts · 80 votes
12y
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.
Flipper/Rehabber · St. Louis, MO · Member since 2008 · 489 posts · 300 votes
12y
@Arthur Banks Congratulations! Way to stick with it and have some perseverance! Sorry to hear it was such a rough road, but you made it and now have your first property!!
Specialist · Marlton, NJ · Member since 2014 · 92 posts · 55 votes
12y
@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.
Real Estate Investor · Waukegan, IL · Member since 2013 · 367 posts · 80 votes
12y
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.
Investor/Realtor · Hoover, AL · Member since 2010 · 1k+ posts · 459 votes
12y
@Arthur Banks ...Well Done!..Perseverance produces results...If it was easy everyone would do it..."You're Stronger Than You Know".....Thanks for the inspiration!!!
Real Estate Investor · Waukegan, IL · Member since 2013 · 367 posts · 80 votes
12y
@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.
Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
12y
@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!
Investor · Chicago, IL · Member since 2014 · 169 posts · 29 votes
12y
@Arthur Banks First off, congratulations! Second, thanks for sharing your hardships. I'm considering a 203k for my first deal and this is great information.
Cincinnati, OH · Member since 2013 · 1k+ posts · 1k+ votes
12y
@Arthur Banks Congrats on this deal! I looked into a 203K once for a property once and decided to go in a different direction, so good to read about your experience for future reference.
Investor · SE Wisconsin/NE Illinois · Member since 2012 · 109 posts · 57 votes
12y
July 3 is a very lucky day as its also my birthday, but Arthur, CONGRATS @Arthur Banks on that paperwork going through. I know you've been working through that for awhile
Real Estate Investor · Waukegan, IL · Member since 2013 · 367 posts · 80 votes
12y
Week #1
So as a refresher, I closed Thursday, July 3, 2014. Went immediately to city hall to get water paid and switched over. Well, since the property had been vacant for more than 30 days I needed a city inspector walk thru. $200. Cost just don't stop. Set up the appointment for the following Wednesday, July 9 at 9 a.m. and called the contractor to have him meet us there.
Week #2
Wednesday, July 9, 2014 8 a.m.
I talked to the mortgage company that is funding the repairs and learned they are waiting on mortgage company to send docs that are needed to purchase. I didn't know that the loan would be purchased. I knew banks often sell, but didn't realize that was happening so soon and we were waiting on docs so they could actually purchase and release money once permits were obtained.
9 a.m
The inspector finally shows at 9:30 a.m. While waiting for the inspector, the contractor suggests the needed permits will be 10% of the cost of repair. I shake my head in disbelief because I only budgeted $300 for permits. The estimated repair is $29,250 labor and material. (No major work, mostly cosmetic except for replacing stolen copper from basement, garage roof repair and installing a new furnace). Somehow I don't believe that and this raises another red flag. While I'm at it, I may as well say this sub declined to take the project initially. It wasn't until after the loan officer found out he was the sub and she spoke with the GC did he come on-board. Anyways, since that day I hadn't really felt comfortable with the sub. One of those, "I'm not sure if he knows what he's doing" feelings. Listen to your gut people. You'll see why. The inspector walks the property and stated only the plumbing and HVAC would need permits. About $100-$150 for both. Depending on the cost of the plumbing. So it works like this... $50 up to $3000 plumbing repair. Then jumps to $93 for $3100 and above. Yeah, makes no sense to me either. Not sure what the cost is between $3000.01 and $3000.99. During the walk thru the sub kept asking the inspector "what about this?" I told the sub to shut up. Finally the inspector said "Look, I can make you do a bunch of things but I'm not asking for it. It's an easy job just be sensible and fix what should be fixed."
If you recall I had already had a plumber lined up from when the first contractor couldn't get approved. But the GC had his own and called to see if he could come give estimate and get permit. I met the plumber and he stated he'd do the job 15% under what I was quoted because the GC gives him a lot of work. He had no idea what I was quoted. He said he would send me that evening whatever I needed and if I could go get permit it would save time. No problem. The evening came and went.
Thursday, July 10 9 a.m.
I called the plumber and he said he sent it to the sub. Called the sub, no answer, no call back. Talked to GC that afternoon and he said he would check with the sub and call me back. Ok, no problem. He's good about calling back and usually does so within the hour if not by end of day.
Friday, July 11
No call back from GC the whole day. Left 2 messages. Need only the plumber permit as the HVAC guy said he's pull his needed permit himself.
Week #3
Monday, July 14
7:30 a.m. I leave another message for the GC. Now, I go into "what-if" mode. I call another contractor (a guy from church that I found out after closing is not just a handyman but has a full on construction company) and set up a time for him to come out to give me an estimate. You know, just in case something is up. What happens next blows my mind. He says that morning he was just looking at the pics I posted on linkedin from a Fix & Flip Tour I posted Saturday and had been praying he continues to get work. No sooner than I hang up, I check email and I had received an email from the current contractor that he quit and didn't want to do the job. His reason, he wasn't happy how the process went and normally a consultant is used. I'm floored because we are beyond that point and need only to get permits and get the funds (50% material and 50% for labor once job complete and inspected) and work can begin.
4:30 p.m.
Meet with contractor, complete thorough walk thru and says he will have bid by end of week. Talk to the loan officer and explain that the current contractor quit. She advised to wait to hear from her.
Tuesday, July 15
Loan officer is still awaiting on how to proceed and concerned the loan may not be bought out.
Wednesday, July 10:18 a.m.
Loan officer calls and states the buying mortgage company is fine with the issue and states it happens and they are in the process of approving new contractor but he must do the job using my current numbers since the loan has already closed.
That's it for now. Keep you posted.
Sorry for the book, but as you can tell it's been a long few days. Documenting was last on my mind.
Real Estate Investor · Oak Park, IL · Member since 2014 · 19 posts · 2 votes
12y
@Arthur Banks You are a patient man! Thanks for posting about your experience. I'm thinking about doing a 203k for my first deal, and the lessons in your posts are very helpful. How has the last month gone?
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