Navigating a transaction

The Renovation Mortgage Process Revealed

1

Contact an Experienced Mortgage Lender familiar with Renovation loan program options and process flow.

  • Inquire and discuss any specific scenario questions with the Lender contacted including Program option, Property, initial budget estimates, Credit requirements, etc.
  • Understand the loan options available and apply for financing once ready to see what initial figures may look like. (This will be a hard credit pull from a lender)
  • If looking to Purchase, you may search and submit an Offer upon receiving Preapproval. If a Refinance application and the figures look good your lender will get you actively started with the loan disclosure and documentation steps.

2

Realtor and Customer Responsibilities

  • Provide a copy of the fully executed sales contract and any other requested documentation as soon as practical
  • Order all required inspections (whole home, WDI, septic, etc.) to expedite the scope of work and required repairs reporting
  • Meet with selected contractors early, provide a detailed scope of work and make a timely contractor selection.

3

Inspections: Determine if a HUD Consultant is required

  • If required, the renovation specialist can help provide names of HUD-approved consultants in your State.
  • If not required, you can still have a HUD Consultant do your property inspection or a regular home inspector. – (HUD Consultant recommended if the budget will be close to $30k+ or if you suspect there may be foundation issues with the property or other true structural issues related to load bearing walls etc. Depending on the program being used this may help avoid additional costs later and help get a solid professional eye on the property upfront that is familiar with Renovation financed programs such as the 203k)
  • Customers should make an initial list of all desired improvements (wish list) and concerns before meeting with the Consultant/Contractors.
  • HUD Consultant and/or Contractor will need copies of any inspection reports (such as structural, termite, well and/or septic if applicable).

4

Contractor Selection, Scope of Work and Final Bid

  • Determine how many Contractor quotes you would like to obtain. (Do not delay too long during this step on Purchase & Renovate loan as remember you are on the clock and under contract.)
  • A detailed Renovation Bid including a breakout of all labor and materials cost for each line item must be provided, and define what is required to meet your “wants” list and any minimum required property standards per inspection results such as Safety, Health or non active utilities etc.
  • This detail provides an opportunity for the Customer, Contractor, and/or HUD Consultant to all understand and agree on the final scope of work plan.
  • The greater the bid detail & inspection phase; the smoother the Appraisal and Lender Property Approval process will be.
  • Detailed inspections and bids also help show that all health and safety issues have been addressed upfront which help the appraiser provide as clean a report as possible along with valuation.
  • Detailed inspections and bids document that allocated funds for renovations are sufficient to cover the required work the property needs at minimum.
  • Make your final Contractor selection if you have not already and make plans for the final agreed Bid to be sent to your lender as quickly as possible for review and appraisal order. (Make sure your Contractor understands what program is being used and how they will be paid by that program after the loan closes. This is very important in preventing delays late in the loan process due to Contractor confusion or misunderstanding. In addition, it can help prevent issues after loan closing with timely completion of the Renovation phase. Especially important conversation for the programs that require the Contractor be paid via draw payments)

5

Customer & Contractor Responsibilities

  • As soon as the Finalized Bid is submitted by an Approved Contractor the lender can review for appropriate detail & format and order the After Improved Appraisal. The Bid is required to be uploaded with Renovation Loan Appraisal orders to assist the appraiser in determining what is being done and what to base the After Value on.
  • Provide copies of contractor licensing, insurance and other validation forms as required by lender
  • Early contractor validation is an important step to minimize delays in the final Property approval and loan approval stage.

6

Final Lender Steps

Appraisal

Once the Work Write-Up from your HUD Consultant or detailed Bid from your Contractor is completed and reviewed by the Lender, it will be sent to an appraiser who uses it to estimate what the property value will be based on completed improvements. (Note: At times once the appraisal is received Bid additions/updates/tweaks/clarifications may be requested from you or your Contractor to help fully clear the Property Approval stage.)

Final Approval

The renovation specialist submits the Work Write-Up or detailed Bid, Lender Validated Contractor Pkg, and Approved Appraisal for final loan approval. Once this Property Approval process is complete, and any outstanding conditions are met, the loan can proceed to final approval and next closing.

Loan Closing

The closing agent will coordinate final figures and all required documents with the lenders closing dept. and make sure they are ready for customers to review and sign, including a copy of the final Closing Disclosure that details all final costs of the transaction. A renovation escrow account will be set up by the lender to hold the funds for payout per the program guidelines. Funds disbursement(s) “draws” are managed by the Lender/Servicer. Depending on the Renovation Program utilized some funds may be released at Closing or just after for the Contractor, or paid via the Draw Payment Process which the contractor should have already been made aware of during the Contractor Selection Phase.

  • Renovation Loans are fully funded at closing
  • With Purchase transactions sellers receive their net proceeds at funding, and real estate agents are paid.
  • With Refinance transactions the existing mortgage are paid off as necessary.
  • Proof that any required permits have been obtained may need to be submitted to your lender prior to the start of any work or release of funds to the Contractor.
  • Customer will contact the HUD Consultant or Lender Draw Dept. to schedule appointments for each required inspection as necessary.
  • The HUD consultant or a third-party inspector must inspect the completed work and submit a Draw Request form signed by the customer, contractor and the consultant (if applicable) in order for funds to be released.
  • The Draw Request form is submitted to the Draw Center and the draw specialist issues a check by mail
  • Checks will be made payable to both the customer and the Contractor
  • Funds are disbursed with the condition that all work must be started within 30 days of closing, cannot stop for a period of more than 30 days and must be completed within 4-6 months depending on Renovation Program utilized. Some programs allow as much as 9 months depending on size of the Project Budget.