All Forum Posts by: Melanie Palos

I used a 203k loan 2 years ago on my HUD owner occupant Home. It is a hassle, but worth it in the end. Good luck funding a mortgage company that will do a 203k loan, very few lenders do them anymore. Once you can find a lender that will do it, good luck finding a contractor who is 203k certified. I called the only 3 general contractors in my area that were and only 1 called me back. The contractors have to float the construction costs for weeks or months and they don't like doing that. They get paid in 3 checks (beginning, middle and end) of the project. The consultant never comes and looks at the property at all. He will be an off site guy who you email with questions. The loan is very expensive with thousands and thousands more in closing fees associated with the construction loan.

I did a complete Home rehab. New house basically. Cost of construction loan was $77k. But it increased the value of my home by about $150-$200k and I didn’t pay a dime out of pocket for any of the construction. It’s a great program if you cannot afford a rehab yourself. But you end up paying more in fees from the lender and the general contractor is more expensive because he knows upfront he is getting paid $77k and the cheaper he can go on the rehab the more he makes on the project.

My advice and if I had to do it again. You only get one chance to meet with the contractor before he writes a bid for the scope of work and cost which is submitted to the lender. On that written quote specify everything under the sun. Name brand faucets, shower heads, paint, cupboard hardware. Once the bid was accepted it was a constant back and forth about how if I wanted to “upgrade” to nice hardware it was going to cost me extra. Because the 203k loan itself has a 10% contingency attached for “unforeseen” costs. The contractor knows this. And believe me he will nickel and dime you for every bit of that 10%. You don’t have much bargaining power because you have to use that contractor. The only power I had was the bank issues you the checks in your name which are then signed over to the contractor. I told the guy I was not signing over the final check until he fixed everything we had agreed upon. He ended up tearing down and re-doing my bathroom which one of his subs screwed up. He wasn’t happy but it needed to be done.

Hope this helps for those looking for a 203k loan.