203K loan or Similar loan process

6 Replies

Hey everyone,

We are planning to use the 203K or Homestyle Renovation loan on our next primary property purchase. My question is when does the contractor come into play when determining cost of renovation and mortgage loan amount?

@Gerrett Houston  thanks for posting! Always great to hear from a fellow Texan. Bigger Pockets does have some good state specific forums and Texas is their most active forum. Feel free to post there if you ever need some more "local" advice about things.

And you should have a contractor set to go BEFORE you even find your house.  You will need that bid to provide to your lender before the appraisal can be performed but you'll need that bid to see what you will need to offer on the home.  If the purchase price + rehab is way over the value, then it would not be prudent to make an offer at the purchase price for that home. So having your bid will tell you what you should be offering based on your realtor's comps.

@Gerrett Houston

Take a look at this recent thread for more info


The contractor definitely comes into play even before you make an offer, just like any other reno.  A bad deal (with that contractor) is still a bad deal.

Also, remember that getting the reno costs approved is part of getting the mortgage committment. So, while there isn't any sort of formal FHA certification for being a 203k contractor, make sure your contractor is savy enough to put together a detailed estimate with all the materials and associated costs. This is the major added stress of the 203k option since you have one more layer of approvals before you can get your loan.

Good luck.

@Gerrett Houston

Ideally the process should look like this.

You have some contractors vetted from your personal network, online resources, professional network, to call on once you find a property.

Once you get into contract, first person to step into that property should be a HUD consultant. (Homestyle they're not required, but some banks will require it anyway - I'd argue that you should hire one regardless)

They will create a feasibility study, and an SOR or schedule of repairs.

This document will let you know what needs to be done to the property for it to be up to code + HUD quality standards, and will also list out by line item whatever work YOU would like done.

The consultant will then give you this line item list, which they often accompany by rough estimates of labor + material cost per line item.

THEN bring in as many contractors as you can to walk the property, using the SOR as a bid sheet. Have them basically fill in the SOR with their labor and material numbers for each line item.

This will make sure that the bids are leveled, and things don’t get lost in translation which is very common with people that don’t understand construction.

Then from there, you negotiate and pick which contractor works best for you.

Get the best contractor you can afford. Don’t go for the cheapest price. Cost and price are two different things. Lowest price often costs you more in the long run.

Also, make sure to have a soft start date agreed upon with the contractor. You don’t want to close on the loan then find out the contractor is backed up for 6 weeks.