So you've decided to apply for a 203(k) loan. Here are the steps in applying for your loan and completing your property rehabilitiation.
Step 1 - Choose your property.
Step 2 - Preliminary Feasibility Analysis. Once you've chosen a property, you and your real estate professional will make a marketability analysis which includes the extent of the rehabilitation work required, a rough cost estimate of the work, and the expected market value of the property after completion of the work.
Step 3- Execute a Sales Contract including a contingency upon the loan approval of your Section 203(k) financing.
Step 4 - Select your Mortgage Lender. Call your HUD Field Office for a list of lenders. You will provide information for the lender to request a credit report, verifications of employment and deposits, and any other source documents needed to establish your ability to repay the mortgage.
Step 5 - Your consultant prepares Work Write-up and Cost Estimate.
Step 6 - Lender receives HUD Case Number from HUD.
Step 7- Fee Consultant Visits Property. You'll meet with the contractor (if applicable) and the fee consultant to ensure that the plans are acceptable and that all program requirements have been properly met.
Step 8 - Appraiser Performs the Appraisal.
Step 9 - Lender Issues Firm Commitment which states the maximum mortgage amount that HUD will insure for the borrower and the property.
Step 10 - Mortgage Loan Closing. After issuance of the firm commitment, the lender prepares for the closing of the mortgage. This includes the preparation of the Rehabilitation Loan Agreement which establishes the conditions under which the lender will release funds from the Rehabilitation Escrow Account. Following closing, you will be required to begin making mortgage payments on the entire principal amount for the mortgage, including the amount in the Rehabilitation Escrow Account that has not yet been disbursed. At loan closing, the mortgage proceeds will be disbursed to pay off the seller of the existing property and the Rehabilitation Escrow Account will be established.
Step 11 - Mortgage Insurance Endorsement. Following loan closing, the lender submits copies of the mortgage documents to the HUD office for mortgage insurance endorsement. HUD issues a Mortgage Insurance Certificate to the lender.
Step 12 - Rehabilitation Construction Begins. You may have up to 6 months to complete the work depending on the extent of work to be completed.
Step 13 - Releases from Rehabilitation Escrow Account. As construction progresses, funds are released after the work is inspected by a HUD-approved inspector.
Step 14 - Completion of Work/Final Inspection. When all work is complete, you will provide a letter indicating that all work is satisfactorily complete and ready for final inspection. If there is unused contingency funds or mortgage payment reserves in the Account, the lender must apply the funds to prepay the mortgage principal.
~ Wayne & Jean
Union County, NJ - a great place to live and work!
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