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Dealing with a FHA 203-k Consultant

FHA 203k Consultant

FHA 203k Consultant -- What you need to know!

Many questions arrise about the FHA 203k Consultant Fee.  Remember that the FHA 203k Consultant is NOT the appraiser, NOT the Lender, and NOT your Loan Officer.  They are there to provide their expertiece.  However, just like hiring a contractor, you should interview your FHA consultant to make sure you are comfortable with them and their prior references.

A borrower applying for a 203k Loan can also use a contractor to prepare the construction exhibits or prepare the exhibits themselves. The use of a consultant is not required; however, the borrower should consider using this service in order to expedite the processing of the FHA 203k loan.  Unless you truely know what you are doing you are probably better off and you lender may advise you to hire a consultant as it may save you 6 months worth of headaches and cost you the deal.

When a FHA consultant is used, HUD does not warrant the competence of the consultant or the quality of the work the consultant may perform for the borrower. Pay attention to that statement.  You are on your own to hire the consultant.  The consultant must enter into a written agreement with the borrower that completely explains what services the consultant will perform for the borrower and the fee charged.

The fee charged by the consultant can be included in the mortgage loan.
A fee of:

$400 is acceptable for a property with repairs less than $7,500;
$500 for repairs between $7,501 and $15,000;
$600 for repairs between $ 15,001 and $ 30,000; 
$700 for repairs between $30,001 and $50,000;
$800 for repairs between $50,001 and $75,000;
$900 for repairs between $75,001 and $100,000;
and $ 1,000 for repairs over $100,000.

An additional fee of $25 can be charged for each additional unit in the property under the same FHA case number. For this fee, the consultant would inspect the property and provide all the required architectural exhibits. State licensed architect or engineer fees are not restricted by this fee schedule. The architect and engineer fees must be customary and reasonable for the type of project.

Most consultants will require a deposit place upfront intially before they do any work or at the signing of the contract with them.  This is normal.  It would not be advisable to pay the whole consultant fee upfront.  You wouldn't pay your contractor upfront now would you?  A deposit plus the rest when the loan funds should be acceptable.  Remember though, if your loan never closes, you still may owe the consultant their fee so read the contract closely.  They still did all the work so they are entitled to be paid for their service.  Just because it did not close is not their fault.

This is why is it very important to have a good idea of what it will cost to repair/upgrade the property.  One of the biggest reasons that FHA 203k Loans do not close is that the borrower underestimates the actual cost of the project.  A little more work upfront can save a lot of agrevation.

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