My personal opinion about mortgage loans is the FHA Renovation Loan Program is the most exciting loan program available, There are so many exciting things about this program, so it becomes very complex, and that is why it is very important that anyone involved with this program really understands.
Taking the time upfront to learn this program will save a lot of problems during processing and closing. Once the loan closes, the Borrower and the Contractor must be on one accord, or there can really be problems. The Borrower and the Contractor must sign the FHA Homeowner/Contractor Agreement Form. This form has 15 different sections that should be thoroughly understood by everyone involved with the loan.
Here I touch on some of the sections that I feel are very important:
The Permits
The Contractor must provide a copy of the permit before he/she is paid.
The Contractor must provide proof of payment to be reimbursed.
The owner must pay for any necessary easements.
If a permit is required for the easement, it must be provided to the underwriter.
The Contractor
The General Contractor must supervise all the work that is performed on the job. The Contractor is responsible for all Sub Contractors. Sometimes a borrower will want a specific sub-contractor, such as a painter; that decision can not be made solely by the buyer. The General Contractor is responsible for all Subcontractors and has the right to accept or reject the buyer’s request. The Contractor is responsible for all work done on the project.
The borrower does not have to allow the Contractor to use as Subcontractor that he/she finds objectionable.
Usually, the Contractor will pick up all materials and have them delivered to the site. If this is not the case, you must make sure that you have a written agreement on what is to be done.
Removal of Debris
Cleaning up the debris from the construction site is the responsibility of the Contractor, right? Wrong. It should be spelled out who is responsible for the removal. There is a cost to removing the debris, and if the costs were not in the first work write-up, it needs to be spelled out on this form. It can cause problems during the renovation phase. The city can fine either the homeowner or the contractor for any debris that is left on the property.
Solving Disputes
This section is very important for the Borrower and the Contractor to understand. When and if a dispute arises, then the dispute may be settled by binding arbitration. Arbitration is very expensive, and the Arbitrators are from the Construction Industry Arbitration Rules of the American Arbitration Association. Both parties can agree in writing to other methods to solve the problem, but there may be an Underwriter that will require Arbitration. Arbitration can resolve problems faster than the Courts. Personally, I would not want Arbitration if the arbitrators were Contractors.
Timing
The work must begin within 30 days of closing unless delays have been caused by the weather.
The FHA Renovation Loan Program is the most exciting loan program on the market; anyone involved with this loan should be educated. Educate yourself.
Rae McCall, I spent more than 20 years as a Mortgage Loan Officer. It was my responsibility to guide borrowers through the process of finding the best mortgage loan product to fit their needs.
I originated FHA, Va, and Conventional loans; my niche product was the FHA 203K renovation loan program. The program is not widely used because it is a complex loan and needs to be fully understood by the loan officer.
I have been certified in Alabama, Georgia, and Tennessee to teach the 203K renovation loan to Real Estate Agents for continuing education credit.