This is an FHA product that follows regular FHA guidelines and FHA loan limits and can only be used on primary residences. If you would prefer a conventional loan, or the property you have in mind will be a second home or investment property, see the Utah HomeStyle Renovation Loan alternative.
The Utah Streamline FHA 203(k) Renovation Loan is designed for minor rehabilitation/renovation projects up to a maximum amount of $35,000. This amount includes the actual renovation costs + any other fees associated with the loan, such as inspection fees, permits, contingency reserve etc. Use of a HUD Consultant is not required.
Major structural alterations and additions are ineligible under the Streamline 203(k) Renovation Loan, and would require the Full/Standard 203(k) version – regardless of the amount of repairs.
The Utah Full/Standard FHA 203(k) Renovation Loan is used for more complicated projects, such as:
While you can (and should!) get pre-approved for a renovation loan prior to shopping for a home, the actual loan process does not begin immediately after a property has been identified. This is where the loan delay occurs, but proper preparation can help minimize it.
Here is the step by step process of obtaining a Utah FHA 203(k) Renovation loan:
1. Get pre-approved with an FHA 203(k) lender.
The last thing you want to do is venture into paying up front fees on a property, and then find out you don’t actually qualify for a loan, or for that specific loan amount. Getting pre-approved requires you to submit a loan application along with income and asset documentation. An underwriter will then review your file and issue a conditional commitment on behalf of the lender.
This is a more thorough process than the pre-qualification a loan officer can provide, and it is a great bargaining tool when dealing with sellers. It will also help your loan move faster.
2. Locate a HUD Consultant and a General Contractor ahead of time
Use this link to locate a Utah HUD Consultant – just select the State and click Send. You are allowed to use any HUD Consultant you want, as long as they are active. You don’t want them too far away because they will have to perform inspections during the renovation process, and you will end up paying for their mileage. However, each HUD Consultant can charge their own fee within the HUD established limits, and you will want to check what that fee is and how it is being charged (up front, or on the final HUD-1 at closing).
You can also choose which General Contractor you want to work with, but you will need to make sure of the following:
I am placing an emphasis on this last part because those qualities play an extremely important role in how fast your Utah FHA 203(k) Renovation Loan will close. Any paperwork that is sloppy or ineligible will cause delays, and particular importance is given to the Contractor Bid:
- bid must be on company letterhead and have all the proper identifying/contact information
- must have a very detailed breakdown of costs (separate labor from materials)
- Must be dated and signed, so the underwriter can easily keep track of which is the most recent bid if multiple are submitted
*Ask your HUD Consultant to refer a good General Contractor
3. Locate the desired property and make an offer. Once your offer is accepted, move on to number 4.
Suggestion: If the property needs a lot of work, you might want to obtain a Feasibility Study from the HUD Consultant. The Feasibility Study will detail what repairs need to be done for the property to be in compliance with HUD rules, as well as the approximate costs involved. This is optional, and it costs about $250, but it will help you negotiate the price down with the seller if the seller’s evaluation is a bit too high.
4. Contact the HUD Consultant and schedule to meet him/her at the property.
The HUD Consultant will observe what repairs need to be done on the property, and add your desired renovations to his Work Write-Up or Specification of Repairs (SOR).
5. Obtain Contractor bid
Present the copy of the Work Write-Up or SOR to your General Contractor and obtain the necessary bid for costs involved. Specific GHA 203(k) Renovation loan documents will need to be signed by you, the HUD Consultant and the General Contractor (loan officer will provide)
6. Provide the purchase contract, the Work Write-Up and the Contractor Bid to your loan officer.The loan process can start.
7. If you’re already pre-approved, your loan officer can go ahead and order the appraisal. If not, you will want to wait for the initial underwriting review and approval of the documentation.
8. Property valuation
The appraisal is ordered and performed and the report is issued based on the “after improved” value of the property.
All the documentation is re-submitted into underwriting for the final approval or “clear to close”
Closing documents are ordered and sent to the title company for the final number adjustments. Signing is scheduled.
All parties are notified and the loan funds within 24-48h. Renovation funds are escrowed to be disbursed under HUD Consultant supervision, and they will contain a 10-20% contingency reserve (a sort of backup fund for unexpected repairs).
Construction work can begin the day of closing, and the draw process can begin within 3 days after. Renovation should begin within 30 days of closing and cannot be stopped for more than 30 days. Work must be completed within the next 6 months.
* Any excess renovation funds left over will be applied towards the loan balance of your Utah FHA 203(k) Renovation loan.
If you’re wondering how come there aren’t more lenders offering this amazing loan options, the answer is simple. Renovation loans are specialty loan programs offered by only a few select lenders that can allocate necessary resources. Working for a mortgage broker has its advantages, and I am able to shop around for pretty much any type of mortgage loan available.
For any remaining questions or copies of required forms, please contact me at (801) 473-3154 or email me at email@example.com.
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