Steps to obtain a FHA 203k Rehab Loan

Loan pre-qualification
The lender will determine the loan amount that a borrower can be qualify for
The loan amount approved for will include the purchase price of the house and repair escrow budget
To determine the maximum 203k loan amount that you can qualify for call (866) 305-7808 from 8:00 a.m. to 6:00 p.m. Monday – Friday.
Submit an offer for the house you want to purchase
Have a home inspector, contractor and/or FHA 203k consultant determine the extent of work required and the estimated cost for the repairs
Your Realtor should provide an analysis of the property value after the repairs and improvements are completed
Work with your Realtor to determine the contract offer price on the home. Parameters to consider when making an offer include:
  • The value of the property post-rehabilitation or "after completed value"
  • The total anticipated cost of the project
  • Target equity gain you anticipate for rehabilitating the property
Termite report
If there is structural damage to the property and the repair budget is less than $35,000 you will need to process the loan as a full 203k, which involves using a FHA 203(k) Consultant, or have the seller cure the structural damage prior to settlement in order to process the loan as a FHA 203k streamline loan
If there is structural damage to the property you will need to process the loan using a FHA 203k Consultant. Provide a copy of the termite report to the FHA 203k Consultant in order to incorporate the necessary repairs into the Consultant's scope of work report
Water test and/or septic certification
Only required if the house has either a well or septic system
Obtain a septic certification from a local septic inspector. Based on local requirements the inspector may have to be licensed
Request a water test. Based on local requirements the water test is used to analyze the following:
  • E.coli
  • Nitrates
  • Nitrites
  • Lead
Select a local firm to analyze the water test results in order to ensure that the results are compared against tolerance levels established by the local authority
Deficiencies identified in the septic system should be able to be included in the repair escrow budget for both the full and streamline 203k loan
Deficiencies identified in the water test are harder to determine if they can be included in the repair escrow budget unless the repair can be guaranteed to resolve this issue. If the deficiency is not able to be cured then the loan may not be approved by the lender
Documenting the scope of the repair project
If the anticipated repair budget is greater than $35,000, there is structural damage to the property, or any changes that impact the structure of the property a FHA 203k Consultant will be required. The Consultant's function will be to provide a Feasibility Study and a Work Write-Up. The Feasibility Study determines what repairs will be required to bring the house into compliance with FHA standards. The Work Write-Up establishes the estimated cost of the repairs
If the anticipated repair budget will be less than $35,000, there is no structural damage to the property, and no load bearing walls will be moved then the FHA 203k Consultant isn't required unless specified by the end lender
If the FHA 203k Consultant isn't required then the home buyer can work directly with a licensed and bonded Contractor(s) to determine the items to be repaired and cost of the repairs. This repair estimate or proposal provided by the Contractor should be itemized and show a corresponding cost associated for each line item
Appraisal is performed
The FHA 203k Consultant's Work Write-Up or the Contractor's repair estimate or proposal will be provided to the FHA Approved Appraiser
The Appraiser will inspect the property in order to determine the current "As-Is" value of the property and the "After Completed" value of the property
Should the Appraiser find any deficiencies in the property that FHA requires to be repaired that weren't listed on either the Work Write Up or the Contractor's repair estimate then the Consultant and/or Contractor will need to update their reports to include the missing repair items and forward back to the Appraiser
Should the "As-Is" value of the property be less than the purchase price, the home buyer will need to pay the difference at the settlement table or the seller will need to lower the sales price to the "As-Is" value
Should the combined purchase price and repair budget exceed the "After Completed" value by more than 110% (100% for a condominium) the home buyer must bring the difference to the settlement table, decrease the scope of the repair project in order to bring down the repair budget, or negotiate with the seller to lower the sales price
Loan is approved by the Lender
The lender will assign the loan request to an Underwriter. The Underwriter will ensure that the loan request is in compliance with FHA guidelines in order to provide a loan approval
Settlement occurs
The buyer and seller sign the lenders required documentation, including a mortgage note and deed of trust
The seller receives their proceeds from the transaction
The buyer becomes the owner of the property
Rehabilitation budget is created
From the proceeds of the loan amount the Rehabilitation Budget is created and managed by the loan servicer's 203k repair budget administrator
The homeowner must have their Contractor(s) start work on the project within 30 days of the settlement date and have all work completed within 6 months of the settlement date
If the rehab project required a FHA 203k Consultant there may be up to five payment draws, including the final draw, to the Contractor(s)
If the project didn't require a FHA 203k Consultant then there may be up to two payment draw, including the final draw, to the Contractor(s)
At no time can the Contractor request payment for more than the percent of work actually completed
All payments to the Contractor(s) are made in the form of a two party check that require both the homeowner and Contractor(s) signature
Rehabilitation project is complete
Upon all work being complete the Contractor(s) will submit for their final draw amount
If the project required a FHA 203k Consultant the Consultant will provide their approval that the project is complete and the Contractor(s) will receive their final payment
If the project doesn't require a FHA 203k Consultant the lender may require that only the homeowner provide their approval that the project is complete or will assign a lender representative, such as the Appraiser, to verify that the project is now finished
If any monies remain the rehabilitation repair account then this money will be applied to reducing the principal balance of the mortgage