A HUD 203K Consultant plays a vital role in the FHA 203(k) rehabilitation loan process, especially before the loan closes. Their involvement ensures the project is feasible, meets FHA standards, and that both the borrower and lender have a clear understanding of the scope and costs. Here’s an overview of their pre-closing responsibilities:

1. Initial Property Assessment (Feasibility Study)

• Feasibility Study: The consultant performs a detailed inspection of the property to assess its condition and determine the scope of necessary repairs and improvements. This ensures the property qualifies for the 203(k) loan.

• Repair Recommendations: They identify which repairs are mandatory (to bring the home up to FHA standards) and which are elective, based on the borrower’s goals.

2. Cost Estimate Preparation

• Work Write-Up: The consultant creates a detailed work write-up outlining the specific repairs and renovations needed. This includes labor, material costs, and a timeline for completion.

• Cost Estimates: They prepare an itemized list of all project costs, ensuring that the repairs are feasible within the borrower’s budget and the loan limits.

3. Creating the Scope of Work (Work Write Up)

• The consultant works with the borrower to develop a clear and detailed scope of work, which contractors will use to prepare bids. This helps prevent future disputes between the borrower and contractor over what work was agreed upon.

4. Contractor Bids and Selection

• The consultant helps the borrower review contractor bids to ensure they align with the scope of work and cost estimates.

• They may assist in ensuring that the selected contractor meets FHA guidelines and has the qualifications to complete the project.

5. Submitting Documents to the Lender

• The consultant prepares the necessary documentation, including the scope of work and cost estimates, which the lender uses to approve the loan amount.

• The consultant ensures that all FHA-required repairs and improvements are accounted for in the loan documents.

6. Ensuring Compliance with FHA Standards

• The consultant ensures that the proposed renovations meet HUD and FHA standards. This includes both safety and structural requirements, as well as energy efficiency and livability standards.

7. Reviewing the Draw Schedule

• The consultant establishes a draw schedule, outlining how and when the contractor will be paid as the work progresses. This schedule is critical for both the borrower and lender to ensure timely and proper payments.

8. Consultation with the Borrower

• They serve as a liaison between the borrower, lender, and contractor to clarify expectations, answer questions, and make sure the borrower fully understands the renovation process before closing.

By facilitating clear communication and documentation, the 203(k) consultant ensures the borrower, lender, and contractor are on the same page, reducing the likelihood of future disputes.

WATCH me explain how I work with Loan Borrowers, Lenders, and Contractors in this 3-minute video!