FHA offers a great mortgage program for folks who want to make improvements to their home (through a refinance) or those who are purchasing a home that needs some “TLC!” The program’s official name is the FHA 203k Renovation Loan, and it requires that you work with an Experienced Contractor.
If you are not familiar with the loan, here are basic program details, like how the FHA 203K renovation home loan program works. There are pretty specific Improvements are Eligible (and not Eligible) with the FHA 203K renovation mortgage program in North Carolina. This program works GREAT for folks purchasing foreclosed property!
Finding and Hiring a Contractor To Do Work Under The FHA 203K Renovation Loan
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All repairs/work must be completed within 3 months of the closing date.
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Repairs must be completed by a contractor unless the borrower can
demonstrate the required expertise/experience (ie: plumbing repairs would
require a licensed plumber, electric work would require a licensed electrician). -
The contractor making the repairs does not have to be a licensed general
contractor; however, he must provide a resume along with two letters of references -
The cost of repair(s) must be reasonable to qualify for the FHA 203K Renovation Loan
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The house must be “Complete” when the home is renovated! See Ineligible repairs
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“Cost Plus” or “Time and Material” contracts are prohibited.
Use of Contractors for the FHA 203K Renovation Loan
- Contractors provide estimates for the work to be done. The buyer / owner and the Contractor must both sign and date this form.
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Contractors provide a resume and two letters of references – these can not be emails. You need actual letters from actual people regarding the folks who are doing the work. They can say, “I had Joe’s Roofing Company replace my roof last spring and thought they did a great job, showed up on time, and were very reasonably priced. I would recommend them for your roofing needs.” They need to be signed, dated and have a telephone number on them.
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The Underwriter will review the contractor’s credentials verifying jurisdictional requirements for licensing, bonding & insurance are met (we will need a copy of all these docs). MEANING… you need to work with a “REAL” company. We are going to be looking at the NC Sec. of State site to verify that this is a COMPANY.
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Each contractor for the FHA 203K Renovation Loan must sign a homeowner/contractor agreement. (Different from the estimate provided by the contractor – this is a FHA form we will give you) The cost estimate(s) provided must clearly state the nature and type of repair and cost for completion of the work item. You can not have an agreement that says, “general miscellaneous carpentry work $20,000.” I need SPECIFIC details of what is going to be done.
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If you do not provide a detailed estimate of work, the FHA 203K Renovation Loan underwriter may require additional cost estimates from the borrower. We recommend you get estimates from 3 people and keep those estimates in your folder in case the underwriter asks for them!
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“Cost Plus” or “Time and Material” contracts are prohibited.
Self Help (borrowers completing work) under the FHA 203K Renovation Home Loan:
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The borrower is required to have the necessary expertise and experience to complete the work in a satisfactory manner (ie: borrower is a licensed plumber and will complete that portion of the work).
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The cost of labor is included in the repair/rehabilitation cost (in case the borrower is unable to complete the work and a contractor must be hired).
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The borrower may not be compensated for his/her labor. No sweat equity.
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The borrower must provide written estimates of the repair/rehabilitation costs as well as written estimates from the suppliers of the materials that the borrower will purchase
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The borrower must sign and complete the self-help agreement that we provide them for the FHA Renovation Loan.
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“Cost Plus” or “Time and Material” contracts are prohibited.
Once we have all of this paperwork, the signed Estimate, the signed Contractor Agreement, the Letters of Reference – then we will submit the information to the appraiser. It is important to know that once we submit your loan for approval – you can NOT change which contractor you use!
Get the price settled, get the best deal you can – but don’t try to change the contractor after the loan has been submitted for approval! Because getting all of this paperwork takes some time – we suggest that you expect at least a 45 day closing!
FHA 203K renovation loans are for owner occupied properties. The maximum FHA 203k loan limit varies based upon the county in North Carolina where you are buying or refinancing.
Did you know that if you are a FIRST TIME HOME BUYER you might qualify for a 3% Mortgage TAX CREDIT! There are income and sales price restrictions. You don’t need to be a first time home buyer to qualify for the program, but you can not have owned a home in the past 3 years.
If you have questions about purchasing a home in NC, or refinancing so that you can use the FHA 203K Renovation Loan program, please call Steve and Eleanor Thorne, in Cary, NC 919-649-5058
I try and answer all questions :)