Finally closed a 203K loan and it has been a long ride...
I posted this elsewhere but thought it might be good to post here. My hope, like most others, is that it helps someone else to not give up no matter how frustrating.
So, here goes....
I saw the property, (2 unit 3BD/1BA each, 2 car garage, full basement with separate storage and utilities) the day it hit the MLS as a reactivated listing 2/6/14 and I quickly ran the numbers using the BP Buy and Hold 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.com 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. Seeing it had been off and on the MLS for just about a year, I was concerned. But realizing it was a HUD deal I realized it could be any number of reasons it had been on and off. Less than a week later they accepted the bid. Well, somehow we missed initialing ONE paragraph and they cancelled. So we had to wait until it was relisted and resubmit the offer. Next day, we successfully resubmitted but this time they wanted $1 over the previous bid, which again was full asking. 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.
Now begins the 203k process
The lender needed to approve the contractor. Now, mind you, I asked this "GC" had he done a 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). The consultant is the go-between the contractor and bank. My understanding is he/she would getting any and everything needed from bank to contractor to bank. 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. In the between time I had my inspection and some items were required to be included in the bid. By 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 the approval process.
The new contractor submitted his bid which included the inspectors finds, but he didn't line itemize his bid. Bank said nothing. Continued with the approval process. He submitted his 3 business references as per request. 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 in a document or something. 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 decided to make mention that they require the bid to be line itemized labor and material separated 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. More back and forth. I had to have a 3rd extension as I missed another deadline. HUD stated on the this extension NO MORE EXTENSIONS in big, bold letters just like that. It is so frustrating when the reason I missed deadlines was due to someone else and I have to eat the cost. Since I was having great success, guess what. You guessed it, I had to request a 4th extension. This time because the contractor couldn't seem to understand the bank wanted the bid itemized. So I did it along with the loan officer. 3 - two week extensions at $375 a pop! The 4th one I had to request the day of closing sitting outside the title company because the loan was still in underwriting. The very next day, the loan was clear to close. That didn't stop HUD from taking my $375. Although they did refund a portion at closing. Oh, I almost forgot. Another hang up was that even though we had garage roof repair on the bid, the underwriter wanted a Roof Certificate!!! Only to come back later and say "Oh, you don't need it. I see by your bid that 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 plain old feet dragging. I'm sure I missed some stuff as this was the short version. If I can say anything, make sure you ask questions. See the things I had to go thru and ask exactly what their process is. Make sure you find out if you're working with a rookie. Find out exactly what the lender needs. Make sure you have a contractor willing to go back and forth with the bank. Make sure your contractor is a contractor and not a handyman. All in all, it was a learning experience. Albeit a frustrating one, but I chalk it up to as part of my learning as I travel this road called Real Estate investing.
Sorry for the book!