FHA 203k Contractor
FHA 203k CONTRACTORS
Do I Have To Use A General Contractor?
The borrower will select the contractor(s) who will provide written cost estimate(s) for work to be done. The borrower may use one or more contractors to complete the repairs on a Streamline 203k, however they must use a general contractor on a Standard 203k.
What Is The Process For Reviewing Contractor’s Bids?
The mortgagee reviews the borrower’s proposed work plan and cost estimates to ensure the planned work meets all program and repair recommendations as noted on the appraisal report or home inspection. If a FHA 203k Consultant’s work write up was required the bids must identify the cost for each line item noted on the 203k Consultants work write-up. The consultant will review the contractors bid for detail and cost effective value. The consultant will use his experience, local suppliers and national pricing services (such as Marshall Swift) to confirm that all cost are within an acceptable price range for the services and materials to be provided. If the consultant feels that a a particular item is not in line in either scope or cost he will work with the borrower, 203k contractor and the lender to try and find an acceptable solution to the shortcoming.
What Documents Does A Contractor Need To Supply To Become 203k Approved?
Along with the cost estimates the 203k contractor must provide the mortgagee with references and financial data (most lenders actually have a Contractor Profile form for the contractor to fill out), a contractor’s license (when applicable), a business license (when applicable) and a copy of the contractors commercial liability policy. After review, the selected 203k contractor(s) must agree in writing to complete the work for the amount of the cost estimate and within the allotted time frame. A copy of the 203k contractor’s cost estimate(s), 203k Homeowner/Contractor Agreement(s) and 203k Contractor Profile information must be submitted to the 203k underwriter along with the credit package for final approval. An executed IRS W-9 form, must be collected for every contractor or vendor providing services (if a general contractor is used, only the general deals with the required paperwork). A check request will not be released unless a W-9 has been provided. It is best to request all the lender required contractor forms upfront, so the contractor and borrower fully understand the contractors responsibilities.
Does A FHA 203k Have To Meet Local Codes And Ordinances?
A FHA 203k contractor must finish the work in accordance with the written estimate, 203k Homeowner/Contractor Agreement and any approved change order. Repairs and improvements must meet any local codes and ordinances and the mortgagor and/or contractor must obtain all required permits prior to the commencement of work. The consultant will provide the borrower and the lender with a Permits/Certifications Required statement that identifies Permits that will be required for the project. The 203k contractors bid sheet/invoice should note if the contractor or the homeowner is responsible for paying the cost associated to permit the project.
Can A Borrower Perform The Work On The Home?
“Self-help” arrangements, in which the mortgagor performs the work, are not to be approved unless the borrower can sufficiently demonstrate that he or she has the necessary expertise and experience to perform the work competently (e.g., borrower is an electrician and will perform electrical repairs/upgrades to the property). If “self-help” arrangements are utilized, the mortgagor must provide written estimates from the suppliers of the materials and a cost of labor estimate from a contractor. The estimated amount of the labor cost must still be included in the repair escrow in case the homeowner is unable to finish the “Self-help” repair portion of the contract and an additional 203k contractor has to be identified. Any excess cost left in the repair escrow after all work is completed will be applied as a principal reduction toward the mortgage. Keep in mind that if the homeowner is handling only a few items listed on the work write-up then they must work within the scope and timeline of the general contractor.
All work begins after the mortgage is closed and the borrower takes possession of the property.
