1.) Visit and perform a visual inspection of the subject property for minimum repairs and modifications required by HUD/FHA 203(K) program or accept an existing certified inspection report. Make Borrower(s) aware of all visual negative findings and visual deficiencies. 

 2.)  Provide a 35 item specification analysis report outlining required and proposed repairs. 

3.) Provide the Contractor a blank copy of the Work Write Up, Lien Waiver, and the 35 item Analysis Report to include Borrower(s) list of requested upgrades and additions to be included in report.  

4.) Inform Borrower(s) if other reports are needed such as Engineer’s Report, Water Well and Septic system Certification Report, etc. Borrower(s) will be responsible for selecting the certified professionals’ performing this reports. 

5.) Collect review, arrange, put together and provide the Borrower(s) and Lender’s complete 203(K) package(s) as soon as possible. Package(s) includes 35 item analysis report, work write up, draw request, and other required architectural exhibits. All reports to be obtained and paid by Borrower(s). Package work write up report including 35 item property inspection is based on the professional opinion of TREC inspection and/or my visit inspection. It is only intended to offer a description of existing visible conditions on the day of the actual inspection and write up.  Every effort is made to identify all conditions but/and does not cover inaccessible areas or dis-guided conditions that may exist. Consultant’s services including package work write up report does not offer any warranty for any portion of the property inspected. It is recommended that a Home Warranty be purchased if available and if this kind of coverage is deemed necessary.  

Once loan closes my job as a Consultant is over and then becomes that of a Compliance Inspector performing:

1. Required draw and compliance inspections (1 to 5 inspections to be covered by loan)

2. Filling out the Draw requests   (1 to 5 requests to be covered by loan)

3. Make available all documents to Borrower(s) for approval and signature and to Contractor for approval and

    signature with lien waiver to be notarized by Contractor, all to be submitted to Lender.

4. Compliance inspection fees are additional at $150.00 each plus .34 cents per mile after the first 30 miles. There is an additional fee of $100.00 per each additional unit such as in a duplex, tri-plex, fourplex, etc. 

So that’s what he does, in a nutshell. After much deliberation, I’ve gone ahead and hired him, and will keep tjhe blog updated with how it works out. To my knowledge, a certified 203(k) consultant is required if you are using the full 203(k), but not in the Streamline version of the mortgage. We still haven’t established which version of the loan we will be using.

At this point, the most frustrating thing for me about this loan program is lack of information. I was advised by many sites to make sure I use a mortgage broker, realtor, and contractors that are familiar with this program. . . that it can be a total nightmare if you are working with the unitiated. To that accord, I believe I have selected well qualified people on all accounts, but the communication lines (excluding my realtor who is extremely responsive) have been minimal. Everyone seems to want you to sign their contract or submit everything THEY need from YOU, then disappear into the wordwork. Presumably, they are working away. . . just forgetting to tell me what to expect or what’s next.

There have been many changes in lending rules due to the housing crisis and ensuing government reforms. One of the latest I have encountered is a hesitancy on the part of mortgage brokers to provide the “Good Faith Estimates” early in the mortgage process. My lender sent over a very wishy-washy worksheet that explained that my interest rate would be no more than 5.5%, but didn’t pinpoint an exact number. Although I haven’t verified it, I was advised that recent changes mandate that the numbers given in these estimates are not allowed to change, so they tend to shy away from quoting anything to protect themselves, hence the wide variance in range. To me, from the consumer side, it feels like a ploy to drag me far into the transaction, almost to the point of no return, and then basically force my hand to sign unfavorable terms. While this is probably just paranoia on my end, I am trying to remain hypervigilant. . . I definitely won’t be coaxed into a bad financial decision if I can do something about it, I read everything front to back twice before I sign it, and am not the type to succumb to pressure.

This weekend I compiled my list of all the repairs and improvements we hope to make to the place before me move in. It currently looks like this:

1.) Replace 2 missing stair balusters
2.) Replace side entrance door to garage and add a window A/C unit to the garage
3.) Repair garage doors as needed
4.) In each of the 2 upstairs bedrooms there is walk-in attic access. Replace the access panels with keyed doors in both rooms.
5.) Remove old carpet from stairs and upstairs hallway / 2 bedrooms. Replace with hard wood. (Alternately, replace stairs and hallway with wood and 2 upstairs bedrooms with carpet).
6.) Paint the entire exterior
7.) Replace rotting / decrepit exterior privacy fence
8.) Replace / repair gutters
9.) Replace end-of-life A/C unit with high efficiency unit (per requirements for Austin Energy rebates)
10.) Replace end-of-life hot water heater with high efficiency unit (considering solar unit)
11.) Perform necessary insulation / weatherization improvements – walls have very little insulation currently
12.) Add GFCI to outlets in wet areas and garage
13.) Address electrical code issues, including exterior electrical wiring not properly run through conduit
13.) Add 2 dedicated 110 Volt and 1 dedicated 220 volt outlets to garage
14.) Few electrical outlets in the house are grounded. Add grounded outlets to key rooms.
15.) Plumb garage area for utility sink
16.) Address plumbing code issues, including non-compliant materials and corrosive piping used in bathroom and kitchen sink areas.
17.) Replace non-compliant gas lines with compliant materials to stove, oven, and other gas appliances as needed
18.) Replace upstairs bedroom windows with windows compliant with current fire code
19.) Repair broken panes of glass as identified in TREC inspection report

At this point, I’m not sure if replacing the fence (#7 above) is allowable under FHA 203(k) terms. I’m assuming my consultant can advise me on this, we meet tomorrow AM at the property for the first time to discuss next steps. I read somewhere online that landscaping was not allowed, but I am not sure at this point if a perimeter fence is considered landscaping or not. I’ll update the blog as I find out more.

I am also keen to get my consultants viewpoint on using a general contractor. The full 203(k) requires a contractor, while the Streamline does not. For the 20 – 25k in repairs I plan, I wonder if a contractor would be overkill / cost prohibitive? A large part of my budget will get consumed just by replacing A/C, adding insulation, replacing hot water heater, and doing some plumbing and electrical updates? Most of that work can be handled by a max of 3 contractors. . . do I really need someone to help coordinate just 3 contractors? I don’t know the answer, but want to make sure I am not just lining pockets unnecessarily. It’s hard at this point to gauge who is giving straightforward advice and who is in bed with someone else, making more money by spending more of mine.

Hopefully, more clarity and wisdom to share shortly, assuming it arrives. . .

The property we have contracted was built in 1961, and many things haven’t been updated since then. The current owners have lived in it since 1971, making our family the third that will have occupied it in its 49 years. My wife and I are planning to limit the work we perform on the house initially to the items that are necessities to make it a comfortable place for us to live. For us, that doesn’t mean fancy granite counters and stainless steel appliances. . . it doesn’t make sense for us to finance in things like appliances, which we would still be paying interest on years after they are dead and gone. We’re more concerned about things like A/C repairs, the roof over our heads, painting the clearly thirsty wooden siding. Inspections bring out the worst in a home, which is definitely what you want; it’s much better to know about a nightmare during your option period, when you can either renegotiate or run like the wind, than it is to find out about it after the fact.

I was surprised to find out that inspections aren’t required for many (if not most) mortgages. They are entirely optional. Only appraisals are required. Here’s my take on that. I can think of just two instances in which I could justify bypassing an inspection:

1.) I become the undisputed Holy Father of home construction, recognized universally under the mandate of divine right. If I know everything there is to know, why would I pay someone else to repeat it back to me?

2.) I feel like losing hundreds of thousands of dollars on a whimsy, and decide to scratch the itch.

In short, unless one of the above applies to you, GET YOUR PROSPECTIVE PURCHASE INSPECTED ASAP DURING THE OPTION PERIOD. If you can’t afford the $300 or $400 it costs to inspect a 2300 sq. ft. home, you have absolutely no business buying a home to begin with. And I’m not being cruel here, I’m being truthful. There was a time when I couldn’t afford an extra $400. Knowing what I know now, I am so glad I was a renter and waited to buy a home until I could afford to invest a bit in my family’s financial security.

So tomorrow is inspection day, if all goes well. Here’s what I am quite sure we will need to tend to:

1.) Gutters need repaired or replaced
2.) Garage doors (3) possibly need repaired or replaced
3.) Stairs are missing 2 – 3 balusters that need replaced to code
4.) Some roof damage – extent of which is currently a wildcard
5.) Exterior siding needs painted
6.) Privacy fence needs replaced

Those are the knowns. The unknowns are what I am eager to find out about:
1.) The A/C is definitely not brand new. How much life is left, how efficient is the unit, is it properly sized for the house?
2.) Are other major mechanicals in good condition? Plumbing, wiring?
3.) Condition of built-in appliances (This is not my top priority but everything is a negotiating point)
4.) How bad is the roof, as mentioned above? Is this a case of rip and replace,  or is repair feasible?
5.) Any termite, mold / water, or foundation troubles evident?

As I understand it from my mortgage broker, the next step after inspection (assuming we decide to continue forward) is to line up contractors to bid on the work that needs done. My understanding is that there are 2 different kinds of 203k loans available on the market. The first, the FHA 203k Streamline, can be used for up to $35,000 in repairs or rennovations (eligibility and dollar amounts determined by a wide variety of criteria, of course) and does not require you to use an FHA 203K Consultant during the bidding process.

The role of the 203K consultant is to help coordinate the bidding process. They make sure you are working with HUD-approved contractors, that the quotes you receive and type of work you are doing are both reasonable and within FHA 203k guidelines, and facilitate a fast and smooth closing through their knowledge of the ins and outs of the process. And yes, they charge a fee. From other reading I have done, but not personal experience at this point, the fee typically ranges anywhere from $400 – $1000+, depending on your market, the extent of work being done, and who knows what else. The fee CAN be financed into your mortgage, if you so choose. I like the idea of paying fees like this upfront whenever possible; paying 5% interest on even $500 for 30 years gets expensive very quick. Use cash whenever you can, and use the financing for the big jobs you can’t afford to pay for outright.

I found a 203k consultant here in Austin, TX. His name is Jose Guerrero, and while I haven’t worked with him yet, he has been very responsive to my initial inquiries. In fact, I contacted him initially because I was having difficulty finding a lender locally that does 203k’s. Both my realtor and I agreed that it would be ideal to work with a local broker / lender due to the added complexity of a 203k transaction. There are some real horror stories on the internet about closings that never happen or are months late due to inexperienced people trying to handle the additional complexities of this loan program. Keep in mind that most often there are additional approvals involved in every step of the way; even during underwriting, I believe a construction supervisor has to approve the work you plan to do, etc. So you have one set of people approving and underwriting the home purchase itself, and another group approving the construction portion of the loan, along with the work performed and dispursement of funds upon completion. So things get a bit complex.

Jose was able to point me to a local mortgage broker, Sente Mortgage, that is very experienced in 203k mortgages. I’m working with them right now, having already secured my approval (which they turned around the same day for me) . . . I’ll post updates on my experience with them throughout the process as well. I’m also still up in the air on whether I will use the consultant (Jose) or not. If I choose to use one, I will definitely go with Jose, no question there. He’s been super responsive and very helpful to date. If his fees are reasonable, I will likely bring him onboard, though; I’ve always been a firm believer in having people on your team that are experts, and I am certainly not an expert at any of this. He’ll help me keep the contractors honest in the bidding phase and make good real estate decisions. . . that’s worth the money, if he delivers on the promise.

All this tax-credit hooplah apparently has everyone else thinking the same thing. Since we don’t qualify for the tax credit (not first time buyers and didn’t stay in our last home long enough), we’re in less of a hurry than the “oh shit, really?” crowd that woke up and realized they could get 8 grand back if they just take out a mortgage for hundreds of thousands of dollars and pay millions in interest. Fair trade, right?

I’m not knocking the tax credit at all, I think it’s great. . . I’m more suspect of the National Association of Realtor’s using it the same way they’ve used “your home is your biggest investment” and even worse, “buy the most house you can afford” as brainwashing fodor since the middle of last century. If you lose out on the $8,000 tax credit, guess what happens? Absolutely nothing. The government will more than likely extend it, given the current economy. If they don’t, buy a good book on negotiating. . . . I guarantee if you are patient, find the right property and the right seller, you can more than make up the difference by waiting instead of jumping the gun.

But back to our home search. We’re probably in it for all the wrong reasons, too. So what if our daughter moves after a year or two of school, what’s the rush to buy now? We just sold our last home in Houston and made the move back to Austin less than a year ago – and homeownership is not the BBQ’s and “smiling dad mowing the lawn” it’s portrayed to be. And yet, here we are. . . drawn in by the promises of what could be, the romance of scouring the MLS compulsively, waking up in the middle of the night and booting the laptop to see if their are new listings. MLS = crystal meth.

Our real estate agent (God bless her) is used to our levels of neurosis, it’s apparently par for the course in most home-shoppers. We make her drag us to 10 or 12 houses. Submit offers. Retract offers. She rides the highs and lows with us without asking for any of our Zoloft or Xanax. And all of that for 3%.

On Saturday we dropped in to 8 houses – it was a beautiful morning, the kids were on their best behaviour, and we managed to find more than one home we really liked, which is quite an accomplishment. One of the last ones we went to, though, stuck out for a variety of reasons.

The sweet old Armenian couple that has owned the home since 1971 was still inside it as we viewed the home. Normally, this bothers me. . . I like sellers to be out-of-sight entirely when I intrude their space. I want to be able to say “that is the worst craftsmanship I have ever seen” without offending the DIY-er that did the work, or “Kelly, look! There is a giant (and I mean GIANT) grease spot on the wall over the bed, where a headboard should be. Can one person’s hair put out that much grease?” Or my favorite, from my wife: “Wow, this lady hangs her wig on the towel rack in the bathroom!” Yes, these are all real examples. Point being, sellers: resist the temptation to still be home when prospective buyers come through. Even making the buyer stand in the driveway for five minutes while you put on a bra and get junior in his car seat is an inconvenience. Be GONE 15 minutes before the scheduled appointment.

In this instance, though, I instantly loved the people. It helped that my realtor speaks Armenian, although it was entirely a coincidence that we ended up with an Armenian realtor in a home owned by Armenians. Coincidences aside, they added context to a home in the rare instance where I want it; I could see how much they loved the home, had lived in it, had raised a family. She offered us cookies. She wanted to make us coffee. I really might have stayed for dinner, if she offered. . . something smelled both delightful and excessively curried, how could I not be hungry? She told us in Armenian, translated by our realtor, that they were moving to Oregon to live with one of her daughters. I could tell it was bittersweet. She clearly loves her family, but it will be difficult for her to face leaving the home she has owned since 1971.

And all of the sudden, I want this house.  Hell, I even want some of the furniture that’s in it (solid antique pieces from the ’20′s and ’30′s.

Nothing is really updated. There is a toilet in the laundry room. Not an entrance to a half bathroom off of the laundry room, mind you. Just washer, dryer, and toilet all in a row, so you can drop two loads off at once.

Upstairs, there is a “telephone nook” built into the wall, that still houses a nice rotary phone from the 1950′s. In black sharpie over the yellowing paint is written: “I love you mama.”

As we contemplate making an offer on the home, this becomes one of my offer contingencies: Do not paint over “I love you mama” on the upstairs telephone nook. Call me a sap, or more likely, an Austinite, but who could possibly change something so sweet, so consicely worded? I grew up visiting a woman in her 80′s and 90′s who never erased the chalkboard her husband had written “I love you, Zoe” on some 50 years prior, before his untimely death. As it faded, she traced over it, until it was literally etched into the chalkboard itself. Some things should never leave the homes they are part of, and this innocent act of childhood vandalism is, I believe, a good omen for our time in the home, too.

So we draw up an offer. Submit. Fingers crossed.

This blog, assuming we move forward, will chronicle our journey through the process of obtaining financing through the FHA 203k program, which allows you to also finance in rehab / rennovation costs into your mortgage. It’s a much lesser-known mortgage product than the straight-forward FHA mortgage, but shares the low (currently 3.5%) down payment requirements and slightly relaxed credit score requirements of it’s older brother. Since information on this product on the internet is scarce, I thought I’d chronicle our experiences first-hand, provide links to the resources I use throughout the process, and ideally help others step through the process easier that follow me.

Stay tuned.