Written By: Bonnie Wilt-Hild, Op-Ed Writer
Since the 203k program has become wildly popular again, I thought I would provide some best practices that in my opinion help get the cases closed as quickly as possible. Very recently, I have seen mortgage professionals really struggling to get these case types to the table in 30 days or less and in some instances have people telling me its taken as long as two or three months to get them closed which is way to long.
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In most of these situations the delay is born during origination and processing because the borrower is not informed as to their responsibility where the rehabilitation piece of the mortgage is concerned. When this happens the case usually gets stalled in underwriting because the documentation required to complete the underwriting piece of the rehabilitation has not been provided and the underwriter can not complete underwriting or even calculating the loan amount. This often creates major problems is the case is a purchase transactions and the contract is about to expire.
In order to avoid the delays in underwriting and ultimately chasing down a lot of documentation a day or two before closing the best way to proceed with the 203k, more particularly the streamline K’s is to get all of the information you need to determine the rehabilitation at the start. When meeting with the borrower make their responsibilities clear. The first thing the borrower needs to do is obtain a home inspection. This will address all the deficiencies where the property is concerned and enable the borrower’s contractor to complete the necessary specification of repairs correctly the first time.
If the borrower’s contractor does not know the repairs necessary to bring the property up to HUD minimum property standards when they are completing the work write up, than chances are they will need to revise it once the underwriter gets their hands on the home inspection and compares it to the work write. Safety issues are usually addressed in the home inspection as are things like electrical and plumbing issues and if the contractor is a general contractor who is simply talking to the borrower regarding the cosmetic improvements desired, they are not going to know to include these items nor is anyone going to be aware that electrical or plumbing certifications are going to be required.
Once, the home inspection is received by the lender, make sure you let the borrower know they need to forward a copy to their contractor so that when the specification of repairs are completed the contractor can address all of the issues indicate in the home inspection and at the same time, the lender can make the borrower and contractor aware that certain certifications such as an HVAC certification or electrical certification is required. If the contractor helps the borrower get these certifications they can often time have them in sufficient time to include any necessary repairs in the work write up. Inform the borrower and the contractor that they should use a standard specification of repair form and be specific as the quantity and quality of materials being used so underwriting is able to adequately determine that the price quoted is fair for the project.
Finally, when the work write up is complete, forward this information along with the home inspection to the appraiser. So, they can accurately determine the after improved value of the property. To try to complete this value with out this information would be no more than a guess for the appraiser. Also, be sure to inform the appraiser that they need to provide the value as well. The loan amount can not be calculated without this information.
If the cases are handled in this manner, then there should be no delays in underwriting because the underwriter can underwrite the rehabilitation piece without any questions. They should also be able to determine that all required repairs are included in the work write up by comparing it to the home inspection so, their should be no serious questions or delays at time of underwriting. Folks, I have been using this method since 1990 and I have to tell you, I have closed streamline 203k’s in 14 days from the date of origination.
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As always happy underwriting.
About The Author
Bonnie Wilt-Hild - As an op-ed writer, Bonnie has held many mortgage underwriting positions, including Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans".
