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What does a 203K consultant do?

The 203(k) consultant is someone who has been designated by a HUD field Office for the purpose of completing the Work Write-Up/Cost Estimate and the required architectural exhibits for the borrower.

Below is an outline of how we guarantee you a successful project.

I. Site Visit:

  • Consultant meets with the borrower at the site.
  • A general examination of the work to be done determines if the project is feasible.
  • If feasible, Client signs Consultant Agreement and pays Consultant a retainer fee.

II. Consultant prepares a detailed Report which contains:

  • Clear, concise project specifications
  • Construction cost analysis
  • HUD required draw request forms
  • Preparation of contractor bid packages
  • Preparation of lender packages

III. Consultant delivers the Report Package:

  • Borrower
  • Lender
  • Contractor

IV. Selection of a Contractor by the Borrower:

  • The Borrower selects a contractor.
  • Buyers please note, banks have certain requirements for contractors, find out what they are.

V. Loan Closes:

  • Repair funds are placed in escrow.
  • Remodeling begins.

VI. Consultant Performs Draw Request Inspections:

  • 1st Draw – Consultant insures permits were issued.
  • 2nd and 3rd Draw – Draw request inspections are performed as work progresses.
  • 4th Draw – A punch list is established.
  • 5th Draw – The project is closed out and warranties and lien releases collected.

These are the main duties of a 203k loan consultant, other services that can be arranged are septic inspectionsstructural engineeringleadmold and asbestos testing.

HERS, or Home Energy Rating Systems

A HERS report is similar to a miles-per-gallon rating on a car. HERS are programs which provide evaluations of an individual home’s energy-efficiency. A HERS report is prepared by a trained Energy Rater. Factors such as insulation, appliance efficiencies, window types, local climate, and utility rates are used to rate the home and calculate energy costs.

A HERS Report Includes:

– Overall Rating Index of the house as it is.

– Recommended cost-effective energy upgrades.

– Estimates of the cost, annual savings, and useful life of upgrades.

– Improved Rating Index after the installation of recommended upgrades.

– Estimated annual total energy cost for the existing home before and after upgrades.

A Rating Index is between 1 and 100. A lower index indicates greater efficiency. Cost-effective upgrades are those which will save more money through energy savings than they cost to install.

A HERS rating usually costs between $300 and $800. This could be paid for by the buyer, seller, lender, or real estate agent. Sometimes the cost of the rating may be financed as part of the mortgage. No matter how the rating is paid for, it is a very good investment because an EEM could save you or your buyer hundreds of dollars each year.

Why do you need a consultant to pay the contractor?

Good question and this is the answer.

After the 203k loan is closed and the rehab funds are put into escrow your contractor starts ordering materials to begin work. The demolition starts and then the contractor starts doing the repairs according to the written scope of work that was approved by all parties.

The 203(k) program is different in that it requires that the Contractor to provide ALL the funds to begin the project, and the contractor isn’t paid until the Consultant is called for a Draw Request or Change Order invoice.

To pay the contractor you need the 203k consultant to approve the draw request.

Inspections by the local permitting authority, the City or County, still have to occur as required by the General Building Permit.  Typically the 203(k) Consultant is called at the same time to verify that the Permit has been signed and all construction (labor and materials) have been put in place as set forth in the Specification of Repairs.  A maximum of 5 Draw Requests can be called in… typically they occur at 30/60/90% intervals and then the final 10% when the Punch List is substantially completed.  The fifth inspection is to insure that the property has been turned over to the Borrower in good condition,  and to release the 10% holdback to the Contractor.

Your 203k Consultant visits the property, makes sure that all FHA minimum standards are being met, then checks to make sure the work is done as specified in the work write up and construction is up to code (IBC Standards).  The Consultant should give you peace of mind and is your assurance that everything is being done as it should.

At each Draw Request inspection, the Contractor is required to sign a Lien Waiver for the amount they are given, making sure that all subcontractors and material suppliers have been paid.  The lien waver document is turned in with the formal Draw Request, is considered mandatory by the lender, and insures clear title for the property.   The check usually arrives within 7 to 10 business days (but some banks take longer so ask your loan officer how long it will take) and is issued in the name of the Borrower and the Contractor.

You, the homeowner, sign the check over to the contractor and the contractor is paid for work done.

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