Bed Stuy Reno: First 203K Inspection

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From the contractor’s perspective, the 203K inspection is probably the single most important part of the 203K process. The contractor doesn’t get paid for his work until an inspection actually takes place.

But let’s take a step back. The 203K inspection is the official FHA inspection of the property, and it can only be done by the 203K consultant. When applying for the 203K loan, you are required to select a consultant. Based on budget and the scope of work, the consultant determines the number of “draws.” Draws are the total number of payments and inspections.

My project has a total of five draws. I selected my consultant based on the feedback I got on Brownstoner Forum last year. My consultant has been great and even gave tips to make the process go more smoothly.

When to schedule a draw? How it works is that your contractor will complain to you about how he’s low on cash and then you will tell him he needs to finish more stuff before you call the consultant. (I’m only slightly joking about this.) Prior to the first inspection, I had absolutely no idea what to expect.

I frantically emailed Pamela from the blog So We’re Buying a House! and asked a million questions, such as “do I have to fill out this crazy FHA form?” Pamela patiently answered all my questions by telling me not to worry about the inspection, and that the consultant will complete all the forms and he will determine the percentage of work completed.

The day of the consultant’s visit my contractor actually cleaned up! Cleaning is not his strong point but I was impressed that there were no longer paint cans and equipment just laying around. (Above, one of the kitchens about four or five weeks into construction. It looks totally different now.)

The consultant came and took lots of photos of all the work and asked the contractor questions. The entire process took about 30 to 45 minutes. A day or two later the consultant sent me and the contractor the official report reflecting the amount of work completed to date and the amount the contractor is to be paid by the bank.  The owner and the contractor both have to sign the form. The form is then sent to the bank by the consultant, and like magic a check arrives that you and the contractor both sign.

And all is well for a couple weeks until your contractor starts complaining about getting paid again. Next up: How to find a contractor for a 203K renovation.

7 Comment

  • Wow – it sounds like you are having a much better experience than I had. The HUD inspector never came by and was totally in with the contractor. I once called to check-in and complain about something and he actually said “Well, I haven’t actually been there yet” … that was already after the second draw.

    • That sounds bad. Did the renovation turn out all right? Does that mean you should find your contractor separately from your inspector?

      • I was not really happy with the renovation, to be honest – lost tools, still dealing with clean up and plumbing issues, and it took over six months for a non-gut. Yes, I would highly recommend finding the two separately, which we initially tried to do. But after a couple of months of trying to find a legit contractor (license and insurance for all sub’s, too) recently after Hurricane Sandy, it was impossible.

    • The good thing about the 203k loan is that you have a lot of leverage with the contractor. If you’re unhappy with the quality of the work refuse to sign the checks until he improves the quality of the work.

      • Yes, in theory there is leverage. However in reality, 203k’s are low on a contractor’s work list, time limits are easily extended by the contractor, and if there is collusion with the inspector (and there are few certified per region), there is really nothing you can do: it’s your word against a certified HUD inspector and experienced general contractor. When the mortgage payments come due and it’s either get the house into move-in condition or fight with the bank, inspector, and contractor, it’s a much harder prospect. 203k’s are great, but for inexperienced/budget-conscious home-owners like me, it was a very tough process.

  • FHA 203k loan is indeed a tough process; especially seeking a good consultant. Consultant plays a crucial role in the 203(k) process. During our house inspection, our consultant from Prospect Mortgage determined what repairs are required to bring the property up to FHA minimum standards. No more hassle for us because he did all the preparation for all applicable architectural exhibits, feasibility study and the specification of repairs. As an advice, talk to your consultant about the optional improvements you would like to incorporate into the 203(k) loan amount.