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Renovation Financing: Not all loan officers are created equal!

Date:September 23, 2009 | Author:Andrew Adams | Category:Approval/Qualification Process

I am working on a deal that was originally with another lender as a purchase 203K, the other lender ended up dropping the ball to the point the borrower switched lenders in the 11th hour to close the loan on time as a regular FHA loan.

The borrower purchased the home and has started the renovation on his own, mainly demolition (I don’t recommend doing this prior to closing on a renovation loan). So few lenders are actually doing these renovation loans….. he ended up back with the original lender trying to do the 203K loan as a refinance.

While going through the process he came across some of my posts and blog on Zillow.com (thanks for the referral Zillow) and reached out to me. Because he was so far along in the process I answered a few questions and coached him a little as to how to deal with the current lender to try and expedite his loan closing. Three weeks go by and he is no closer to closing than he was when I spoke with him originally. So he decided to apply with me.

I was walking through the project with him when I noticed the house was going to need to be painted and also knew that the proposed budget only had about $250 in it for minor painting. I knew by looking at it that it was going to cost more than that! I have to admit that I don’t go out and see every house I write a renovation loan on, although I do need to have a complete understanding of the project so I can spot potential hiccups and delays and address them up front.

Having done these loans for years I have a ton of experience with them and my customers get the benefit of that experience. It is really tough to explain all the benefits of experience. Much of what we have learned through experience is 2nd nature and you just do things differently.

I have a three year old daughter and I am amazed almost moment to moment as I watch her develop. It is the things that we take for granted I find the most interesting, the way she eats, gets dressed, walks up and down the stairs, climbs over under and on whatever gets in her way, and a zillion other things. At some point we learn what works best. We learn that walking around the table, although it may take a little longer than going over or under (or not), may be the most efficient way to get to the other side.

When working with an experienced lender and or experienced renovation lender their experience will make your experience much less stress full!

Below are some of the things I try and walk around:

1. Self Help – These are almost always a recipe for disaster and I really discourage anyone from attempting to do these projects as self help

2. Streamline Renovation – 203K streamline although less expensive by about $800 in costs, I have seen too many issues arise as a result of half the funds being disbursed upfront and contractors disappearing or demanding additional payment upfront to finish.

3. Cutting corners – eliminating $5,000-$15,000 from a project because you are spending more than you want. The difference in your payment is usually minimal, and to go through a renovation project and settle for less than what you want tends to do nothing but generate regrets. If you are going to do it…do it right!

4. Hud Consultant – Make sure you are working with a good 203K consultant. I have been working with AM Consults in Malden MA for well over a decade and am extremely hesitant to work with any other consultant.

5. The Loan Officer – Choose a loan officer that has the experience actually writing these loans rather than the loan officer that just has access to the program. The loans are more expensive than a standard loan so expect to pay a slightly higher premium for the loan, but don’t get taken advantage off. I have seen on more than one occasion an LO charge a ridiculous amount for these loans…The Mind set being if the customer is willing to pay that amount I’ll figure out how to write the loan…They may figure it out but you don’t want to over pay to be a guinea pig (sorry animal lovers).

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Responses (0)

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Keane 11:30 PM - Sep 23,2009

Andrew,

I couldn’t agree with you more on this. Tons of lenders offer 203k loans but how it’s handled by the loan officer makes all the difference.
business credit 4:44 AM - Sep 24,2009

I prefer short term loans -they solve funds problem for immediate business starting. Their term is usually one year or less.
Andrew Adams 5:49 AM - Sep 24,2009

Business credit,

I would love to hear more about the terms of the short term financing. I don’t know of any currently available loans short term or otherwise that are based on the future value of the property and require little (3.5%) into the transaction to secure financing. Combine that with a rate of 5.5% fixed for 30 years.
Jeffrey Ragan 9:54 AM - Sep 25,2009

Andrew,

Again I find this article most helpful. I was once in the mortgage business (not any longer so don’t worry) and I’ve seen deals much like what you spoke about in the article here.

If more people like yourself can be found, first time home buyers can avoid many of the costly mistakes by just working with a good loan officer.

Then when they find a loan officer that understands the FHA 203K loan they have the best of all worlds. They can take advantage of these foreclosures out there, buy a home at a deep discount, get in with a low down payment and finance the repair costs!

Please keep up your awesome posts!

First Time Home Buyers
Brian Brady 2:39 PM - Sep 25,2009

Love the title (and am following this series)
Jonathan Blackwell 8:43 PM - Oct 8,2009

Andrew has some great ideas here, I do renovation loans exclusively. I don’t allow self help, want to do the work yourself? Take the loan elsewhere. Come to me with a super low bid? You know that contractor and some sort of arrangement has been made, your loan will be called out. We are not stupid.

For the full 203K’s the HUD Consultant is crucial. If you’re in Georgia call Chris Colvin. In my area and want to use someone else? Sorry, take the loan elsewhere.

203K loans require experience and expertise. If you choose a LO because he is .125 lower on rate, but has never closed a 203K you will learn your lesson the hard way.
Kimmieb 9:42 AM - Nov 22,2009

“For the full 203K’s the HUD Consultant is crucial. If you’re in Georgia call Chris Colvin. In my area and want to use someone else? Sorry, take the loan elsewhere.”

So it’s your contention that there’s only one competent 203K Consultant in the whole state of Georgia? And if by any chance I don’t want to deal with “your guy” I need to “take the loan elsewhere?”

Whatever happened to customer service?? Aren’t you in the business of servicing loans FOR customers? If they qualify with you they will surely qualify with someone else!
Andrew Adams 9:57 AM - Nov 22,2009

Kim,

I agree with Jonathan. There very well may be another competant Consultant in Georgia, however if Jonathan hasn’t worked with him why should he take a chance on them?

I use a Company called AM Consults in Massachusetts and if they can’t do the Work Write Up, I won’t write the loan. The consultant is a crucial part of the process. In order for me to make sure the transactions go as smoothly as possible from application to prject completion I need to make sure I have the best possible team assembled. The Consultant is part of that team.

The colts are going to play Peyton Manning at Quarter Back…because he is the best man on the roster…If the fans wanted the Colts to trade for Tom Brady…Would they? No…Tom could probably do as good a job but he is not part of that team.
Jonathan Blackwell 8:25 PM - May 30,2010

Kim, I’m in the business of closing loans. If you listen to me and do what I tell you then the loan will close more quickly and with way less stress. I work at capacity, I don’t have time to train people how to do their jobs.