Facilitate Contractor Relationships

If a Contractor has not been selected, then the Consultant will like to have at least three Contractors to bid on your Project. Why? To ensure that you (the borrower) will not only get the right contractor based on price but on how well you get along with the Contractor. We will be joined at the hip during your Project so having the right team is essential.

If a Contractor has been selected, then the Consultant will work directly with your selected Contractor at the beginning of the process in order to get all the contractor required documents and exhibits. During the construction period, the Contractor and Lender will work together to be sure that you receive the quality work you deserve.

The Consultant is also responsible for obtaining signed Lien Waivers during draw inspections, to be sure that sub-contractors have been compensated correctly and to protect the homeowner from mechanic's liens. If you are not happy with the quality of the work, the Consultant will request that the Contractor correct any issue prior to payment. In addition, your HUD 203k Consultant will ensure all times that enough funds remain to complete the project.

Important note about the first Draw Request:
Under a HUD "Standard" 203K Rehab or a Fannie Mae Homestyle Loan, the Contractor will not get a deposit on your Project. Both lending products has a vested interest concerning your Project so the selected Contractor in addition to must be credential by the State but must also be on solid financial footing. The first construction Draw will be for items like Permit Fees, soft cost items like Architectural Drawings or Special Orders (like cabinets orders, etc...).

An example of the first Draw process is shown below for a typical project.

Standard 203(k) transactions, Mortgagees may disburse the following at closing:

  • permit fees (the permit must be obtained before work commences);
  • prepaid architectural or engineering fees;
  • prepaid Consultant fees;
  • origination fees;
  • discount points;
  • 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.

Note:
For any Disbursements paid to the contractor, the Mortgagee must hold back 10 percent of the draw request in the Contingency Reserve.

Under a HUD "Limited" 203K Rehab Loan, the Contractor can expect the following at closing...
  • permit fees (the permit must be obtained before work commences);
  • origination fees;
  • discount points;
  • up to 50 percent of the estimated materials and labor costs before beginning construction only when the contractor is not willing or able to defer receipt of payment until completion of the work, or the payment represents the cost of materials incurred prior to construction. A statement from the contractor is sufficient to document.

Important note about Contractor data entry:
Once the Contractor submit the initial proposal, that proposal will need to be re-submitted in the form that HUD accepts. Mainly HUD required the final proposal from the Contractor to include detail description of the repair, the cost including material and labor for each repair in the format of HUD 35 Point Checklist.

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