FHA 203(k) – Tips on finding and hiring a contractor
If you’ve already done your homework and you understand everything there is to know about an FHA 203(k) loan, it’s now time to hire a good contractor.
This is an extremely important part of the process because you want to make sure the work is done correctly.
In order to qualify, the contractor you use must be
Generally, this must also be the contractor’s full-time business. In other words, unless you’re actually a contractor, you can’t do the repairs yourself and you can’t use a friend who does this type of work on the side or wants to do you a favor.
It helps if the contractor is
- Familiar with 203(k) paperwork/reimbursement
You may want to look for a professional firm that’s done a 203(k) renovation project before.
This way they’re experienced with the process, the paperwork that needs to be completed and how reimbursement works.
It helps to find a contractor who is well-funded, because this isn’t the same as simply hiring a contractor and paying out of your own pocket.
Your entire project depends on choosing the right contractor and the completion of all required 203(k) paperwork.
Where do I find a contractor?
This part is really important. You can ask for referrals, but just because someone is a good contractor doesn’t mean they’re right for a 203(k) project.
You’ll want to do your research and ask a lot of questions. Make sure a contractor can provide proof of insurance and a license.
This is also the time to ask whether a contractor has any experience working with 203(k) loans.
Once you’ve hired a contractor, it’s time to get some official bids for your project.
Collect accurate bids!
The cost and time estimate you receive can’t be a guess. That’s because your lender has to submit the final bids to an appraiser. The appraiser takes the value of the work and adds it on to the property’s future value.
That’s what your loan is based on.
If the amount of the bid changes later on it could mean additional appraisal costs. That could kick it back to your lender for re-approval.
Submit to lender
Your lender probably already has your credit report and other information. Once all the required bid paperwork is submitted, your loan moves on to final approval.
While your lender does not approve the contractor you choose, the lender does have to determine whether the contractor you chose is
- Can do the 203(k) project according to guidelines
- Can finish in a timely manner.
In this step you sign all of the final documents and take possession of the home.
Time to work!
Once your loan is finalized, your contractor can then begin work on your home repairs and improvements, putting you one step closer to the home you’ve been dreaming of.