Due to the overwhelming number of foreclosures and the change in available financing, the FHA (Federal Housing Administration) 203K loan is enjoying a resurgence in popularity. This represents an opportunity for ASHI inspectors to diversify their businesses.
The 203K loan is an FHA-insured mortgage and is HUD's (U.S. Department of Housing and Urban Development) primary rehab loan for homeowners desiring to improve their property. The loan is available for one- to four-family units and allows the buyer to purchase the property and finance money for improvements into one loan. Homeowners also are able to refinance under this program.
Along with the loan submittal, the borrower is required to provide architectural exhibits, which may include a plot plan and an interior plan if alterations are to be made, and a work write-up and cost estimate. While buyers often can prepare the architectural exhibits themselves or have a contractor provide them, a 203K consultant also can provide the exhibits. In addition to helping with the architectural exhibits, the consultant completes draw inspections while work is in progress.
In order to get on the 203K consultant roster, an application is made to HUD with a resume documenting the following:
- A minimum of three years experience as a remodeling contractor, general contractor or home inspector. A state license as a state-certified engineer or architect may be submitted in lieu of the documentation of the three years experience.
- Licensing (general contractor, home inspector, etc.). In those states where a home inspector is required to be licensed, the department requires the applicant to be licensed and to provide proof of that licensing.
- A narrative description of the current/prospective consultant's ability to perform home inspections, prepare architectural drawings, use proper methods of cost estimating and complete draw inspections.
- The applicant also must submit a certification verifying that the consultant has read and fully understands the requirements of HUD Handbook 4240.4, REV 2 (203(k) Handbook) and all related materials listed in Mortgagee Letter 2000-25.
Once a home inspector is approved to be on the 203K roster, he or she will be contacted by lenders and buyers when needed for a 203K loan application. Typically, the consultant meets the buyer at the house to discuss the desired repairs. The consultant must make sure the repairs will meet HUD minimum property standards and address any health and safety concerns brought up during the home inspection. Then, the consultant prepares the architectural exhibits, including a cost estimate for the work. Often, buyers have obtained estimates from contractors prior to this point, which will assist the consultant.
Consultants are free to set their own fees, although HUD has a suggested fee schedule ranging from $400-$1,000, depending upon the repair amount.
In our current economy, becoming an FHA 203K consultant represents an opportunity for ASHI Inspectors to diversify their business. Although it is typically more involved than a home inspection, it does represent a way to make a few extra dollars helping buyers get rehab financing.