If you’ve read part 1 and part 2, you know that I’m following this 203k Loan Saga with my son, who is buying a short sale in the LA area which needs quite a bit of rehab so he decided to take out a 203k construction loan. If you're a realtor and have not done a full blown 203k loan before you probably will learn from our stumbing steps.
This is NOT a streamline loan (under $35k). Once you exceed $35,000 in repairs, the process gets more complex and you (buyer) have to hire a consultant to oversee the project. In fact, he(buyer) originally wanted to keep all repairs and updates under 60k - If you read part 2 of this journey, you’ll see that was not necessarily possible.
So although I work as a realtor on the East Coast and he’s buying on the West Coast, I did have an opportunity to go out last week and see this home. I found myself quickly falling into the pattern of a typical parent who has not seen all the comps in the area but THINKS they know value (or in this case - lack thereof). I had to bite my tongue in order not to say those things we hear parents say all the time when they’re underwhelmed by the home their son or daughter is buying and wonder if it truly is worth what they’re paying.
The fact is that both my son and his fiance with the help of their buyer's agent went thru an enormous effort in finding this house and verifying value. And I finally decided I was not in a position to second guess their analysis.
After a challenging negotiation with the bank on the price of the home when they found another major flaw to the sewerage system and finding out the bank would not help them on it, they had to decide whether to proceed with the purchase of the home or not. All players (realtor - mortgage person - contractor ) agree once repairs are done, the home will be worth hopefully 10% or so more than the costs that went into purchase and rehab so they decided to proceed. With the sewer issue, they're clearly taking on more of a risk, but they feel it's worth it. This process is NOT without risks! If you're risk averse, the process is NOT for you!
I seemed to have come to visit just at the critical point - I met all key players including their CONSULTANT who will be watching over the project and making sure the critical work gets done. They’re rolling in over $80,000 of repairs and rehab into the mortgage amount. Once done the home will be for the most part, totally new and I'm sure very lovely. The consultant fees which sounded high to me, are set by HUD and are based on how much work will be done to the house. They can be paid (I believe) as part of the loan or paid out of pocket as my son and his -soon to be- wife has decided to do. They actually believe they can close on this home before end of December and move in probably early in February after all the work is done.
I’m learning about the role the consultant plays and about the paperwork the contractor must prepare for the consultant and mortgage provider. This contractor has never done a 203k loan and he too is learning he needs to get up to speed on the required paperwork and timelines that are very stringent. I’m learning that 203k loans are now used not only for rehab loans but also when a buyer finds something in a home they don’t like and want to change - even if the house is currently in good condition. I’m learning how stressful this can be for buyers and how hard it is to keep to an original plan in terms of work to be completed and dollar amount spent.
My son and his fiancé are getting married this weekend and yet throughout the past few days, they’ve been hit with a LOT of deadlines, decisions to make, paperwork to get submitted all around this major project. The milestones and timelines don't stop - even if you have a major event like a wedding! This is a significant challenge to complete. I continue to remind them of the benefit at the end of it all - to have a home that’s totally new and know you’ve already gained equity in the home. 
So at this point, contractor has been picked, repairs to be done have been decided upon, a consultant has been hired and the overall plan is almost in place. We still have to get thru the appraisal process - Stay tuned for that one! How did I forget to take interior pics when I was there ? That will follow in in our next Part. Stay tuned!
To Read PART one CLICK HERE To Read Part two Click HERE
Don't miss this event that raises funds for the annual Medway Christmas Parade. There are 
holiday cheer! Hope to see you there!