My husband and I had an offer accepted on a property. We are approved for a 203k loan. My husband is a licensed General Contractor (in Maryland) who has rehabbed houses for others (even 203k houses). I'm wondering if he can do the work on our 203k property. It is a streamlined 203k loan. I've heard that he could do the renovation but could only be reimbursed for material (not labor) costs. I haven't been able to find this documented anywhere. Can someone who is knowledgeable please provide some insight or possibly a reference? Also, the house is in another state (NC). Not sure if that makes a difference. Thanks in advance for any input.
The short answer is some lenders will allow it and some will not. Technically FHA will allow it provided there is no payment out of the loan for Labor to the Borrower/GC. Usually to protect the lender there may be imposed a requirement of a larger 20% Contingency Reserve off the base budget. Or perhaps require a "back up" contractor submitting a proposal for same budget who can step in should the Borrower/GC have too much work doing his regular job earning money to pay the mortgage to also do his own 203k work. Its all about being sure the house can get completed, on budget with funds in the 203k so that a Borrower and Lender never end up with a unfinished house because the Borrower/GC had too much work in his regular job or got sick etc. I have helped clients do this so happy to answer questions.
More specifically to you though since house is located in NC and husband seems to be licensed as a GC in just Maryland the lender would require whatever local GC license is need in NC to truly as a GC. Failing that most lenders will allow up to 3 sub-contractors on a 203K without a GC at all. Meaning Borrower acts as a GC. But on a larger project with the need for multiple subs beyond 3 then it becomes an Exception the lender has to make on a case by case basis. If there are strong reserves, a 20% contingency reserve it should be ok. Happy to help if I can.
When we did the 203K on our daughter's house, I was able to serve as the project manager as long as there were no more than 5 subs, and the project was going to cost under a certain amount. Once it went over 5, you had to get a GC to manage the project and facilitate the work of the subs. Of course, I could not accept any payment for being the project manager. I just served as such to cut down on costs to pass through to our daughter.
The point being.....I think FHA wants to have an arms length relationship between you and the money being used for renovations to ensure that the work is completed properly and funds are used appropriately.
I can't speak to using the funds for materials, and not charging labor, but that certainly makes sense. Maybe if the 5 sub spots were your material suppliers, FHA might approve...??? Can't hurt to ask the questions.
The short answer is some lenders will allow it and some will not. Technically FHA will allow it provided there is no payment out of the loan for Labor to the Borrower/GC. Usually to protect the lender there may be imposed a requirement of a larger 20% Contingency Reserve off the base budget. Or perhaps require a "back up" contractor submitting a proposal for same budget who can step in should the Borrower/GC have too much work doing his regular job earning money to pay the mortgage to also do his own 203k work. Its all about being sure the house can get completed, on budget with funds in the 203k so that a Borrower and Lender never end up with a unfinished house because the Borrower/GC had too much work in his regular job or got sick etc. I have helped clients do this so happy to answer questions.
More specifically to you though since house is located in NC and husband seems to be licensed as a GC in just Maryland the lender would require whatever local GC license is need in NC to truly as a GC. Failing that most lenders will allow up to 3 sub-contractors on a 203K without a GC at all. Meaning Borrower acts as a GC. But on a larger project with the need for multiple subs beyond 3 then it becomes an Exception the lender has to make on a case by case basis. If there are strong reserves, a 20% contingency reserve it should be ok. Happy to help if I can.
@Perry Farella Thank you for your response. I spoke with 2 different lenders today and one would allow it and one would not. It was exactly as you said. The lender who allows it just asks for your qualifications (licenses, insurance, references, etc).
OK. Just be sue the lender who allows it doesn't place other restrictions like a back up contractor proposal, limit on size of project, limit on no structural changes like removing walls etc. Check in advance.