Contractors typically are used to getting 10% down at the signing of their contract, and another 30% when materials are landed at the sight. That hasn't been the case with a Standard 203k where they must work soley on their own credit and cash to get started then get "reimbursed" for each phase to get their money back.
The "Limited 203k" loans, per the guiedline always provided 50% of the project cost for materials up front to the contractor unless you were dealing with a lender like Wells Fargo that only allowed 35% or Prospect Mortgage at 40%. Most other lenders still provide the full 50% per the guideline. Years ago I would see B of A, close the loan and in many cases it took them up to six weeks to provide the "50% up front money". These "limited 203k" project were quite often only going to take 30 days to six weeks to complete. They finally got with the program (years ago) and started providing the money from escrow at closing.
The new rule as it is proposed for
Standard 203(k) transactions, Mortgagees may disburse the following at closing:
- permit fees (the permit must be obtained before work commences [to be reimbursed at closing]);
- prepaid architectural or engineering fees;
- prepaid Consultant fees; [reimbursed to the borrower] [This can be added to your escrow instructions to be used as part of their down payment or closing costs too]
- materials costs for items, prepaid by the Borrower in cash or by the contractor, where a contract is established with the supplier and an order is placed with the manufacturer for delivery at a later date; and
- up to 50 percent of materials costs for items, not yet paid for by the borrower or contractor, where a contract is established with the supplier and an order is placed with the manufacturer for delivery at a later date
- For any Disbursements paid to the contractor, the Mortgagee must hold back 10 percent of the draw request in the Contingency Reserve.
This is actually a big thing. This will allow us to get reimbursed for materials... materials at 50% of their cost at the close of escrow. By paying that directly to the supplier with proper 1099 form and invoice copy for materials they can get the money at close of escrow. This should speed things up considerably for getting the big ticket items deposits paid for up front at the closing.
While the permits and some of the other fees has been the case for yers the 50% of some of the materials costs paid at close is going to help allow more contractors the flexibility to do more 203k projects. Technically this goes into effect Sept 14th, 2015 but many lenders are going with it right now.
Mike Young, 203k Team Leader
We have fourteen offices in CA covering both CA states, NorCAL and SoCAL where we can cover the entire state.
To learn more about the FHA 203k loan program go to www.203kOnLine.com. To contact us for a consultation please go to www.my203kconsultant.com and "order a consultation". If you like what you see here please take a look at Another blog by Mike Young in Spanish and other languages.
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