This type of loan pairs nicely with many probate properties. Many need extensive work and this loan can provide the funds. It is similar to other loans in that credit and income levels must be met. The escrow period is longer though. Up to 90 days.
The buyer must get a bid from a licensed contractor and set out the scope of work. Submitting this to the lender before the appraisal can be done. The appraiser needs this information in order to determine the FUTURE improved value of the property. For instance, if the property would sell for $350,000 not fixed up and the buyer borrows an additional $100,000 to do the rehab, the appraiser has to appraise the property at $450,000 or more in order for the loan to be approved. As you can see, it is helpful if the buyer has an existing relationship with a contractor. Otherwise this process could drag out forever! Appraisal is ordered once the scope of work has been defined and agreed to by the buyer, the buyer’s contractor and a HUD Consultant. The lender coordinates this process with the HUD consultant and if the scope of work is less than $35,000 and the work is not structural, then a HUD Consultant is not required. Appraisal is done on an after-renovated basis incorporating the scope of work and bid.
Also, we need to validate the buyer’s contractor which normally takes about 4-5 days once we receive the completed contractor documents.
Just another tool in the toolbox to close a deal.
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