Profile picture for DarrellVan Meter

203k Underwriting Unreasonable

Long story short I am approaching the end of buying a foreclosure with a 203k. Closing was scheduled for the December 26th but regardless of what I do we are going to need at least a week extension.

Literally all the paperwork was done but underwriting just shot back requiring me to make ridiculous repairs 2 days before closing. These repairs are a 2 inch area of slight insect damage on a peice of exterior trim and a damage window sill from insects. They require I make the repairs BEFORE closing (on a house I do not own) or include them in the rehab estimate which would mean I would need to shoot the estimate back to my contractor for a FOURTH revision.

They also are requiring me to get a "structural professional" in the building to deem it structurally sound because of minor termite damage to the main support beam despite already having FOUR opinions that the house is structurally sound and the minor damage in no way threatens the integrity of the home. We have the FHA appraiser, the home inspector, the contractor, and the termite inspector who all raised no concerns of structural integrity.

I feel I have more than fulfilled any reasonable requests for what they are asking for. What are my options? I can simply tell them that I feel this way? What do I lose if I change lenders this close to closing?
  • December 23 2013 - US
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Answers (5)

@203K Contractors

Exactly how would a 203K Consultant have helped? Would they predict the Underwriter's concerns? Would they thoroughly review the inspection and head these issues off at the pass? Or, would their involvement, alone, have pacified the UW into not requiring the repairs?

By the way, I've taken, and passed your test. I stick by my statement. This is the level of scrutiny that occurs on a 203K. It could have been handled earlier, and proactively. As you imply, it may not be anyone's fault. It just pays to be predictive, and proactive, on 203K's.
  • December 27 2013
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Your options are to adhere to the lender's requirements, or switch lenders and risk terminating the transaction or cancel the transaction.
You may lose your earnest deposit money if the transaction gets cancelled if your Buyer's Agent and/or attorney did not write the proper HUD/FHA recommended verbiage in the purchase contract.

To respond to wetdawgs comment - these UW requirements are not the result of increased regulation but rather possibly a failure from the lender to properly and efficiently communicate to the borrower in a timely manner all of the FHA required items for this transaction. 

To respond to Hamp Yonce's comment - This is not the level of nit picking that is expected with a 203k, but rather possibly a demonstration of the LO's lack of experience and/or incompetence with the 203k. It 'sounds' as if this is a Streamline 203k, which does not require a 203k Consultant and usually relies on an FHA appraiser to determine the FHA required repairs. Had there been a competent 203k Consultant at the beginning, at the beginning, working with a 203k experienced lender, 99% of any challenges are typically eliminated at the beginning, thus avoiding the last minute 'surprises.' 

These challenges simply express the need to work with 203k experienced/qualified team members for all 203k. 203k Team Members include a 203k Experienced Lender, HUD 203k Consultant and Certified 203k Contractor, not to mention a buyer's agent and/or attorney who knows how to write the 203k purchase contract properly and a 203k borrower who is prepared to take care of necessary tasks in a timely manner.

It does not appear that the UW is being unreasonable but rather the Lender as a whole (includes the LO, Processor and UW) having possibly failed this borrower on the 203k. Most, if not all of the 203k required items can be discovered and disclosed within the first 14 days of a purchase contract when the right '203k Team' is being used. 

It is also very likely that all the right team members were being used on this transaction and things just didn't work out as intended. We are all humans and prone to making mistakes. So, without knowing all the details of this transaction, we are all just 'guessing' at the cause and cure of these problems.
  • December 27 2013
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Profile picture for wetdawgs
Welcome to the joys of increased regulations.    Breathe deeply and jump through the hoops.  
  • December 24 2013
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Profile picture for JustinLeffew
If you change lenders this close to closing, you risk losing the house entirely. If you want a 203k loan with this lender, you'll have to do what the Underwriter requests. Anytime there is termite damage, all of that will have to be included in the estimate or repaired/reated prior to closing on the home. You have to realize you're not negotiating with McDonalds to get a free fry because they messed your last order up. You're trying to borrow hundreds of thousands of dollars.

I apologize that you found this out 2 days before closing. That is either your Loan Officer's fault, or an operational issue with your lender. You should have a clear to close 2 days before closing so you and your agent can have ample time to review the HUD. It doesn't always work that way, but I try to make sure that's the case on most of my loans. 
  • December 24 2013
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Do you want the money, or don't ya?

This is the level of nit picking that can be expected on a 203K.

Changing Lenders will not help. It will be way easier to just appease this one.

Have you argued that the Contractor is a "structural professional"? I think they mean an engineer.
  • December 23 2013
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