The Consultant’s role as advisor to the Borrower while protecting the interests of the Lender and HUD
It has never been a requirement of today’s typical mortgage originator or underwriter to be an expert in the fields of home inspection or construction. For the 203(k) program to be successful, it becomes necessary that someone be expert in these areas. That someone is the HUD Consultant.
To insure all required and requested renovation work is accounted for, the HUD Consultant also monitors compliance with FHA Property Standards.
HUD Consultant prepares the following:
- Feasibility Study that Categorically Examines the Structure While Reviewing 35 Areas of Concern
- Plan Review to Examine the Customer’s Bids in Light of a Site Visit and Review of the Home Inspection Report
- Specification of Repair also known as the Work Write Up
What is determined in a 203(K) feasibility analysis report?
A number of important and essential details regarding a property in need of repair work is provided in a 203k consultant’s feasibility report. The scope and the extent of the rehabilitation is clearly documented in the report along with the cost of repairs. If a property to be purchased is in need of repairs, then it is extremely prudent to have the report in hand prior to submitting a formal offer to purchase. An appraiser will also need to be consulted to see if the repairs justify the after completion value. In cases where the value doesn’t get a substantial bump despite the repairs, it would be better to consider other properties than the one currently being considered by the buyer. The fee amount to perform an initial assessment is quite reasonable and the amounts are established according to the HUD 203k consultant fee schedule.
Here’s a look at the highlights of what a 203(k) consultant does during the home purchase transaction.
If you decide to buy a home and it needs some updates, repairs or renovations, a 203(k) consultant would inspect the property and talk with you about both the repairs that will be required to meet HUD’s Minimum Property Standards and the optional renovations you would like to make beyond the required items.
The consultant then prepares paperwork that the lender uses to determine the loan amount and underwrite the loan. This paperwork typically includes the feasibility report, architectural plans, and a work write-up that reflects specifications on all of the repairs that will be done, including:
- Cost of materials and cost of labor for each repair,
- A recommended “contingency funds” amount to be set aside in case there are cost overruns,
- A recommended inspection schedule, showing the times during construction when the Consultant will inspect the work performed and completed
If the lender needs additional paperwork – for example, a termite inspection report or certification that a roof is structurally sound – the consultant and lender work together to coordinate ordering these reports and making any needed changes or adjustments to various documents, if additional repairs are needed.
A 203K consultant also performs valuable services after the loan closes and repairs begin. When your 203(k) loan closes, a Repair Escrow Account is set up. The consultant inspects repairs as they are completed and, provided the work is satisfactory, tells the lender that funds can be released from the Escrow Account to pay the contractor. On major projects, this inspection and drawing of funds from escrow to pay for completed work typically happens as often as five times, before the final inspection and final payment.