Comparing the 203(k) and HomeStyle Loan Programs
One of the most important requirements for FHA 203(k) borrowers is to ensure that they have a licensed general contractor to complete the work on their property. However, before enlisting the help of a contractor, you will first want to get help from a HUD-approved 203(k) loan consultant.
A 203(k) loan consultant is often an architect, a licensed home inspector, or a licensed general contractor themselves, though they do not necessarily have to be (exact requirements vary by state). However, they do have to be approved by HUD in order to qualify. While you can find a licensed 203(k) consultant in your area by using the HUD 203(k) consultant roster, it may also be smart to speak to your loan broker/mortgage originator or your lender in order to find out which consultants in your area have the best reputation. During their planning process, your consultant will create a work write up, which you can use to create a bid document to submit to potential contractors.
Finding The Right 203(k) Contractor for Your Project
While this article is about finding the right contractor for your 203(k) home renovation project, we spent most of the last two paragraphs talking about finding a 203(k) loan consultant. The process for finding a 203(k) contract really isn’t too different; you should ask qualified people that you trust, including architects, realtors or real estate agents you’ve worked with in the past, your mortgage broker, and even the 203(k) loan consultant that you’re working with.
However, make sure that you truly trust someone before taking their recommendation, as untrustworthy consultants, mortgage brokers, and lenders may simply be suggesting tat you use their friend or business partner’s company without regard to the actual quality of the work that will be done on your home. No matter what, you should always ask for and get bids from a variety of contractors to compare prices, as well as look up online reviews in order to determine a contractor’s experience and reputation. And, while it may seem like a technicality, you will also want to check a contractor’s license online. Each state has a web portal where visitors can easily check a contractor’s credentials and make sure they are up to date.
Once you have gotten bids from at least a few contractors, your 203(k) consultant will examine each bid to ensure that their estimation of costs and fees is reasonable, accurate, and fair. If there are any red flags, or costs seem unreasonably high, you, your consultant, and your lender can enter into a negotiation with the contractor to see if prices can be brought down to a more reasonable level.
203(k) Contractor Requirements: What You Need to Know
So, now that you know much of the process you’ll have to go through in order to choose your 203(k) contractor, we’ll discuss the requirements for being a 203(k) loan contractor in the first place. The reality is, other than being a licensed contractor in the state in which they want to do business, HUD and the FHA do not have additional requirements for 203(k) contractors. In fact, HUD and the FHA actually stopped directly certifying contractors quite a few years ago. Despite that, your lender may have more specific requirements for your contractor, so it’s a good idea to check with them before you start soliciting bids.
In most case, lenders prefer that contractors possess a minimum $1 million in general liability insurance. They should also be on good terms with all of their creditors, and be able to provide a detailed cost breakdown for their potential work. In addition, lenders often want contractors to give them a minimum of 3 work references involving projects completed in the previous 12 months.
There are also private 203(k) certifications that contractors can get, but these vary in quality and comprehensiveness, so they may not mean much to you as a borrower. However, they may enhance the credibility of a contractor in the eyes of your lender.