I write a lot about the many advantages of the FHA 203k program. How it helps borrowers create instant equity, and ultimately save money. How it also helps communities by sprucing up and getting occupants for aging housing stock, thus revitalizing the housing market.
But some people have a negative attitude toward this type of loan, because the initial cost is greater than that of a typical FHA or conventional loan. In those cases, I’ll explain to them how the pros significantly outweigh the cons.
I’ve also found it helpful to explain to them some of the additional costs associated with the 203K — how they relate to the loan program and its attendant benefits.
So here’s a brief rundown of the additional charges associated with a FHA 203K loan.
- Consultant fee: The 203k requires a HUD-certified consultant to coordinate various stages of the project. This is for the buyer’s benefit, because the consultant ensures that the project is completed to his or her specifications. The consultant’s fee, which HUD controls, can range anywhere from $400 to more than $1,100, depending on the property’s number of units.
- Re-inspection fees: The contractor gets a draw after the loan has closed and the work is being completed. The 203k consultant needs to re-inspect the work so the money can be released. Those fees typically range from $150 to $250 per re-inspection. Prices can vary based on mileage and revisions.
- Supplemental origination fee: The borrower pays a fee of $350 or 1.5% of the sub-total of the construction costs, whichever is greater.
- Title update fees: A title update is necessary to ensure there are no other liens on the property. The 203k program is a first-lien-position loan only. The title is checked every time we do a draw request, to verify that we have first lien position. The fee can range from $50-$150, depending on the title company.
- Contingency reserve: Actually, this is not a fee. It’s a reserve account set up for cost overruns or change orders. Typically, a change can range anywhere from 10 to 20 percent. But it’s still the customer’s money. If it’s not used, it can be applied back to the principal balance.
When purchasing a FHA 203k loan, keep in mind that your 3.5 percent down payment is a combination of the purchase price and the rehabilitation cost.
Also keep in mind that my team is available to answer your questions any time.