How Trump Can Improve The FHA 203(k) Mortgage Program

How Trump Can Improve The FHA 203(k) Mortgage ProgramOne of the most-useful financial options in real estate is the FHA 203(k) loan, a handy bit of mortgage magic that deserves a lot more attention than it gets.

The trick to the 203(k) is that under government rules borrowers can get loans which allow them to acquire or refinance a property and – at the same time – get a commitment to finance the repairs needed to upgrade or expand the home. The advantages here are three-fold: First, you can borrow more than the house is now worth. Second, you don’t need an additional closing for additional financing and all the costs a second closing represents. Third, there is a real public good here in the form of a better housing stock which leads to nicer neighborhoods.

There is, of course, a catch. Lenders don’t just hand out bags of coins to anyone who walks through the door. There is a process. To claim your goodies under the 203(k) plan you first have to coherently explain what it is that you want to do. If the lender says yes, it doesn’t simply write a check for repairs and upgrades. Instead, it issues checks in draws as the work is completed.

All of this is fairly complicated. It is not a do-it-yourself operation. You need help, help that comes in the form of an FHA 203 (k) Consultant. According to the Mortgage Bankers Association, the Consultant’s responsibilities “include conducting preliminary property inspections, developing work write-ups and cost estimates, detailing the work being performed based on project proposals, monitoring rehabilitation or repair progress, and conducting final property inspections for work completion, quality of workmanship, and conformity to local codes and ordinances.”

203(k) Mortgage Consultants

In other words, the 203(k) program can help a lot of people and to make it work you need a Consultant for the Standard program (repairs of $35,000 or more) and you would be smart to get one for the Limited version (repairs of less than $35,000).

So guess what?

Consultants are crucial to the 203(k) program but their fee schedule has not been changed since 1995. Can you guess why it can be tough to find a Consultant?

Really. I’m not kidding. Consultants have not had a pay raise in two decades, the very experts borrowers and lenders need for 203(k) mortgages.

In a letter, the Mortgage Bankers Association has asked HUD to “allow Consultants to charge fees that are reasonable and customary in the market for similar work performed by professionals with similar qualifications.” The MBA would also like to see the fees become financeable, a fancy term meaning they can be included in the loan amount and paid over time. This is a way to cut the cash cost of an expansion or improvement project.

We have a new Administration coming into town, one which claims it wants less regulation. Okay, have at it. Regardless of political persuasion, I don’t think you’ll have too many people arguing that 1995 salaries make sense today. This is a fixable problem so let’s get it done.

(Photo courtesy of Alex Wong)

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