We are getting many questions again about 203k/Homestyle “rehab” loans, so we are repeating a previous blog. These loans are essential for all properties in need of major repairs.
For purchases, the process is like this: Buyer contracts to pay $400,000 for a house that needs $100,000 of renovations. Buyer hires a HUD consultant (JVM provides names) and a contractor to discuss improvements and to create plans and specs.
JVM processes the loan as a normal purchase, and orders the appraisal. The appraiser is given plans and specs and asked to appraise the property “subject to completion” of plans and specs (appraise “future value”). The appraisal comes in at $560,000, allowing for 90% loan–to-value financing, with an eventual loan amount of $504,000 (enough to cover $100,000 of improvements).
Plans, specs, appraisal, and loan submission are all approved at the same time by the underwriters. The loan funds within 30 days like any other purchase loan, and the seller is paid in full. The buyer brings in his normal down payment amount, as if there was no construction financing taking place. The only person “waiting” for money at close of escrow will be the contractor.
The contractor doing the work is then paid in “draws” after the loan closes, and after the HUD consultant does inspections (to verify the work is done). The work can be done in 30 to 180 days, and there can be up to 5 draws.
The above is a very simplified version of events, but rest assured that JVM will direct traffic and let buyers know what to do. An experienced HUD Consultant is a key component of this process as well.
Please email or call if you have any additional questions.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646