“Big Brother” is HUD Consultant on FHA 203K Rehab Loan

When you do an FHA 203K Loan as either a purchase or a refinance, and have over 35K in renovations, either structural or not, you have to have a HUD Consultant, approved by FHA to monitor your rehab project, but more importantly, sign off on the initial general contractor bid, before the loan goes into underwriting. The HUD Consultants job, is to make sure the project is in line with HUD “minimum requirements” for FHA to insure your loan.

I’ll give you an example. I’m currently doing an FHA 203K purchase in Wash Park where as the buyer has 3 or 4 bids for his $120,000 renovation. With regards to price, the bids were all over the map. The HUD Consultant’s job is to make sure the bids are congruent with the scope of the work based on the FHA minimum requirements. The HUD Consultant is also there to ensure the borrower is not getting ripped off. In this case, he potentially was.

The bid for the electrical renovation was $13,000. The bid for the windows was $4000, both of which were extremely excessive, and the latter, the General Contractor chose expensive Pella brand windows, versus standard windows.

Lucky for us, the FHA Consultant on this job, who also has to be lender approved, was the General Contractor for 15 years building homes for Habitat for Humanity. He acts like “big brother” on these renovations, and will charge around $200 for the initial bid review, and around $100 each time he comes to follow up with the project before each draw request gets funded by the lender.

Often when it comes to fixing and flipping properties, many people try to brave it all on their own. These people usually end up losing money because it is very common for the project to go over bid.

FHA 203K Loans are by far the safest renovation loans available. Here’s why:

1. Instead of the usual 6-9 term note for private money renovation lending, you get a low interest rates for a 30 year term with a FHA 203K Loan.

2. You can refinance in 60 days with the initial lender into conventional financing, and if the equity is there, refinance out of the FHA loan, which carries mortage insurance.

3. Big Brother or the HUD consultant who is watching the entire project will save you money and time through out the process.

Now you should have a better understanding the FHA Loan and why it’s the safest renovation loan to get. You may also have a better understanding of the role of the HUD Consultant and why he acts as a Big Brother.

Brian Quigley

Contact our Colorado Loan Officer TODAY to ensure your FHA Loans gets done right.