HOW DOES A 203K PROJECT WORK?

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The Streamline and the Standard/Full work a little different, but here’s what to expect.

Streamline

  1. Before the closing, a 203k Consultant will perform an inspection detailing areas where HUD’s minimum standards are needed.
  2. Then a 203k Contractor can review the Consultant’s report and submit a proposal.  Both are then given to the Lender.
  3. If the borrower is approved for the loan, the funds will be put in an escrow account.
  4. The 203k Contractor can draw up 50% of the loan for the first draw (depending on what the lender will allow).
  5. The proposed work must start within 30 days of the closing date, and work cannot cease for 30 consecutive days.
  6. The total project must be completed within 6 months.
  7. If the project is below $15,000, HUD does not require that it be inspected (but the Lender might).  If it is between $15,000 and $35,000, HUD requires a third party inspection.
  8. Once the project is complete and it has passed inspection, the borrower and lender will then approve the final payment to the 203k Contractor.

Standard/Full

  1. Before the closing, a 203k Consultant will perform an inspection and will provide a Work Write-up report and a Specification of Repairs report.
  2. Then a 203k Contractor will need to review these reports and submit a proposal detailing the exact pricing.
  3. An appraisal must be made to determine current value and post-renovation value.  All of these are submitted to the Lender.
  4. If the borrower is approved for the loan, the funds will be put in an escrow account.
  5. No money is drawn up front, the money will be paid out by 4 scheduled draws and then a final payment.
  6. The proposed work must start within 30 days of the closing date, and work cannot cease for 30 consecutive days.
  7. The total project must be completed within 6 months.
  8. Once the project is completed, the 203k Consultant and a 203k Inspector must inspect the work.  Often times the Lender will have it inspected as well.
  9. If the project passes inspections, the borrower and the lender will then approve the final payment to the 203k Contractor.

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