Use of an FHA-approved 203(k) Consultant (f.k.a. HUD Consultant) is a requirement for FHA 203(k) Standard loans to ensure the property will meet HUD’s Minimum Property Requirements (“MPR”). FHA maintains a list of qualified Consultants on their FHA 203(k) Consultant Roster. To become approved, each 203(k) Consultant must be a state-licensed architect, state-licensed engineer, have three (3) years or more experience as a remodeling contractor or General Contractor, or have three (3) years or more experience as a home inspector. The 203(k) Consultant inspects the property, prepares or reviews any architectural exhibits, and prepares a Work Write-Up and Cost Estimate.
203(k) Consultant Responsibilities
The 203(k) Consultant is responsible for performing the following duties:
- Feasibility Study (only if requested by the homeowner/buyer or lender)
- On-site property inspection to ensure there are no rodents, dry rot, termites and other infestation on the property; there are no defects that will affect the health and safety of the occupants; there exist adequate structural, heating, plumbing, electrical and roofing systems; and there are upgrades to the structure’s thermal protection (when necessary)
- Identifying and preparing or reviewing any and all architectural exhibits such as well and/or septic certifications, termite reports, proposed plot plans for new additions, foundation certifications, cabinetry plans and elevations, new construction exhibits to obtain a building permit for an addition, grading and drainage plans, or engineering and soil/geotechnical reports
- Prepare an unbiased Work Write-Up (“WWU”) and Cost Estimate without the use of the contractor’s estimate utilizing HUD’s 35-point checklist format. The WWU must identify each work item (i.e., specific repair or improvement), indicate which work items require permits, include a cost estimate for each work item, separately identify labor costs and itemize the costs of materials per work item, specifically identify whether each work item is required to meet HUD’s MPRs, will involve structural changes, or is borrower-elective. Cost Estimates should be reasonable for the area in which the property is located
- Inspect work after loan closing for completion and quality of workmanship at each draw request (i.e., draw inspections)
- Review any proposed changes to the Work Write-Up after loan closing and prepare a Change Order when necessary
- Inform the lender of progress of the renovation work and if any problems have arisen such as work stoppages of more than thirty (30) consecutive days or work not progressing reasonably during the renovation period; significant deviations from the Work Write-Up without the Consultant’s approval; any issues that could affect adherence to the program requirements or property eligibility; or any issues that could affect the health and safety of the occupants or the security of the structure.
203(k) Consultant Fees
FHA/HUD determines how much a 203(k) Consultant may charge for the services they render.
- Feasibility Study (only if requested by the homeowner/buyer or lender): $375
- Work Write-Up:
- Up to $1,000 for repairs less than or equal to $50,000
- Up to $1,200 for repairs between $50,001 and $85,000
- Up to $1,400 for repairs between $85,001 and $140,000
- Up to 1% of the repair costs or $2,000, whichever is less, for repairs over $140,000
- The Consultant may charge an additional $25 per additional Dwelling Unit
- Draw Inspection Fees: $375 each
- Change Order: $120 each
- Reinspection Fee (only if/when reinspection of a work item is requested by the borrower or lender): $225 each
- Mileage: The Consultant may charge a mileage fee at the current Internal Revenue Service (IRS) mileage rate when the Consultant’s place of business is more than 15 miles from the Property
Additional Required 203(k) Consultant Documentation
The 203(k) Consultant delivers the Work Write-Up and Cost Estimate to the mortgage lender. They must also deliver the following:
- 203(k) Consultant’s Certification
- Consultant/Borrower Agreement and Invoice or Paid Receipt
- Inspections and Draw Request Forms
- Change Order Requests, if applicable
It is important to note that FHA/HUD requires the mortgage lender to identify and select the 203(k) Consultant hired to work on each FHA 203(k) loan. Many mortgage lenders have established relationships with 203(k) Consultants in the areas they lend.
Jennifer Goldsby, NMLS #591226
VP, Renovation Lending
Diamond Residential Mortgage Corporation NMLS #186805
Equal Housing Opportunity
Disclaimer: The postings here reflect my personal opinion. They do not necessarily represent the opinions of Diamond Residential Mortgage Corporation and its management.
