Are you one of the rising number of buyers or homeowners that have chosen a renovation loan? Many now realize that finding the perfect home is tough. However, renovation loans provide the financing tool which turns a diamond in the rough into a dream home scenario. Yet when it comes to a 203k renovation or a Fannie Mae Homestyle Renovation loan, so many avoid one key player. The HUD consultant, sometimes known as a 203k consultant, acts in the role of a project manager for these loan types. The cost of a consultant adds to the renovation cost but their experience and guidance are invaluable to the borrower. We want to share the importance of this key player in the renovation process.
HUD Consultant Qualifications
In order for someone to be placed on the approved HUD Consultant Roster, the Department of Housing and Urban Development has certain requirements. HUD realizes this person plays a key role in a home’s safety, staying within cost estimates, and meeting local building codes. HUD requires the following to become a HUD consultant.
- At least 3 years experience as a home inspector, remodeling contractor, or general contractor (If state requires licensing, so does HUD)
- State licensed engineer or architect (do not need the 3 years experience)
- State licensing (for states requiring inspectors and contractors to be licensed)
- Written description of candidate’s ability to conduct…
- Feasibility studies
- Review or prepare architectural drawings
- Use proper methods of cost estimating
- Prepare change orders
- Complete draw inspections
- Certification the consultant has read & fully understands the FHA single family Housing Handbook 4000.1 requirements for 203k consultants
- 203k Consultant Roster Certification on consultant’s letterhead
There is a need in many areas for more consultants. So home inspectors, contractors, engineers, or architects who are interested in joining the approved list of HUD consultants, just follow these instructions.
Reasons to Hire a HUD Consultant
As mentioned above, so many try to avoid the extra cost involved with having a HUD consultant. Although, a truly experienced renovation loan officer would highly recommend the HUD consultant hire. An additional, small fee paid provides invaluable information to the borrowers and the key players in the renovation process. Understanding the project direction up-front saves time, effort, and money. Additionally, a consultant may even determine excessive underlying problems unseen by others.
In addition, a HUD Consultant can ensure that your Contractor isn’t “over” charging you for work, or even “under” charging you, coming back to you later asking for additional monies, with excuses of unknown issues. The costs could far outweigh the benefits or value. Who wouldn’t want to know when to walk away from a potential money pit or find out too late that you were overcharged, or now need to come up with more money than you thought?
As evidenced by the HUD consultant requirements above, hiring an expert project leader makes perfect sense. Especially for buyers or homeowners who are not well versed in rehab projects. Keep in mind that the cost of a HUD Consultant can be financed into the loan, minimizing cash outlay, but maximizing your protection in the project.
When is a HUD Consultant Required?
Even though a consultant may be used on any renovation project, there are cases where one is required. Experienced renovation loan officers and lenders will follow these rules as well as explain them to all involved parties. Additionally, the costs and ways of paying them are explained to the borrower.
203k Loan Consultant Requirements
Once a renovation project costs exceed $35,000 (including the renovations, contingency reserve, and all fees), FHA 203k renovation loan guidelines and FNMA HomeStyle renovation loan guidelines will require a HUD consultant. Renovations without structural work and beneath $35,000 in costs qualify for the “limited” version of a renovation loan, 203K, or HomeStyle. Notice in the chart which projects are allowed in each renovation loan type above.
So, when renovation costs exceed $35,000 or are structural renovations, the FHA 203k and HomeStyle standard program guidelines take over. These always require a HUD consultant. But, do not be afraid of crossing this threshold just because of the consultant. An experienced renovation loan officer and lender is able to make the process just the same as the “limited” version.
Another renovation loan scenario which requires a HUD consultant is a VA Renovation loan with renovations exceeding $50,000.