Monday, March 14, 2011

203k mortgage process and purchasing a house

Editors Note: This was originall written September 19th, 2010

So we found a place, put in an offer and now are in the process of closing the deal... what is involved in this.. well...

1. Make an offer. If a bank owns the house, expect it to take 2-4 weeks for them to get back to you, this was weird for us where we make an offer and give the seller 7 days to come back, not a month...

2. Get it approved by the seller, if this is a bank, then expect the counter signature to take a week

3. Once its all signed, your not safe. Next is going to the lawyer to ensure that you are protected by the offer, in the case we are talking about, this is especially important. until you are out of attorney review, someone can make a higher offer and steal the place from you, so while you want to make sure you are diligent, you need to MOVE.

4. Once the attorneys are happy (ie they earn their money) you have to get a building inspection done. In the case of a 203k mortgage you also need to have someone come in and give you estimates of what it would take to resolve whatever the building inspector finds at fault. You can actually do both at once with a HUD inspector who is also a licensed building inspector. The goal in selecting a building inspector or contractor would be someone who has done FHA before, as they will know what they are dealing with. Sean Thompson our mortgage broker from Wells Fargo was able to point us in the right direction.

5. The building inspector is about the only security blanket you have in NJ, its buyer beware down here, except that if you have someone come in and do a building inspection (someone licensed...) you can sue them for up to 10 years after the purchase if they missed something, this makes all of them VERY detail oriented. If you forego this, and go with a HUD consultant, you are running a risk. In our case we had no choice because all of the main areas of concern (Plumbing, electrical, gas) were disabled and would not have been possible to inspect them anyways.

6. FHA appraiser comes by. Most times you will not be present, if you are worried or want to pitch your case you can discuss with the appraiser but by law your bank rep doesn't know who it is, and your agent can have limited contact with this person. Its a federal program, so don't expect much in the way of negotiating capabilities with this individual.

7. If all is good, your loan is now approved and you can close the deal. Sign the 43 pieces of paper in triplicate, call your contractor and start the work! 203k streamlined versus normal differ here in that under the normal package the contractor cannot get any money up front, so they really need to be someone who is used to working in this program.

8. GET THE RIGHT PERMITS. Your hud consultant will call out what needs permits, what can and can't be done without his inspection. You are stuck with the consultant until the job is done, so make sure you enjoy his company... He will inspect the work and release funds in the form of a check that is addressed to you and the contractor so that both have to sign to cash it. This is another safety net, and the contractors again have to be aware of this so that they don't close up the electrical work behind drywall before the hud guy has seen it, even if the building inspector from your town has signed off on it. They will have to take it all down, for which they will want to charge you so be aware.

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