203(K) mortgage is the only federal program that facilitates the financing of the rehab work for both new home buyers purchasing a house or for existing home owners refinancing their home. The total fees and charges on 203(K) loans are different from other real estate mortgage loans. Compared to hard money lenders who charge excessive interest rates and closing fees, the fees and interest rates on these FHA insured rehab loans are quite reasonable. Due to the procedural and administrative differences, the maximum fees and charges allowed on the 203(K) loan are different from the 203(B) loan.
The following are the various fees and charges that may be charged based on the FHA 203(K) guidelines.
- Lender’s Supplemental Origination Fee – This fee may be charged by the FHA approved lender through whom your loan is processed. This fee is charged when the 203(K) loan involves insurance of advances related to the rehabilitation funds portion of the total mortgage. This fee can be up to 1.5% of the amount allocated towards rehab work or %350, whichever is greater. This extra (supplemental) origination fee is in addition to the 1% charged on the total 203(K) loan amount.
- Independent 203(K) consultant Fee – The needed repair (construction/architectural) exhibits can be prepared by either the borrower or a contractor or an independent consultant. Though the use of a consultant is not mandatory, but it is advisable to employ their services as it can help in speed up the process of closing a 203(K) rehab mortgage loan. HUD doesn’t offer any warranty regarding the services rendered by a consultant. The borrower and the consultant must enter into a written agreement that clearly outlines the services the consultant is expected to perform and the fee to be charged. These consultant fees can be made part of the mortgage through 203(K) closing fees. For repairs less than $7,500, the fee charged is $400. For repairs between $7,501 and $15,000, the fee is $500. $600 for repairs between $15,001 and $30,000. $700 for the expected repairs that cost between $30,001 and $50,000. The fee to be charged is $800 if the expected 203(K) rehab work falls between $50,000 and $75,000. $900 for 203(K) renovation expenses that fall between $75,000 and $100,000 and $1000 for those that are greater than $100,000. When more than one unit falls under the same FHA loan case number, then $25 for each additional unit can be charged by the consultant. All the required architectural exhibits are completed by the consultant for this fee. These fee restrictions don’t apply when the services of a state licensed architect or engineer are employed. However, the charged fees must be reasonable for this kind of work.
- FHA Approved 203(K) Consultant Fee – To make sure the property and the rehab work to be undertaken are compliant with the FHA guidelines related to section 203(K), an FHA/HUD approved consultant must visit the property prior to the conduct of the appraisal. The following fees are standard and can’t be changed, unless an approval is sought from the HUD. If the estimated costs of repairs for the property are less than $15,000 the 203(K) consultant fee is $100. $150 for property repair expense between $15,001 to $30,000 and $200 for expenses greater than $30,000. For the inspection of additional unit in case of multi-family residential homes under the same case number $50 per unit can be charged. For an additional review of the same unit another $50.00 consultant fee is allowed. If the distance is more than 30miles between the reviewer’s location and the property to be inspected, a mileage charge as suggested by the HUD field office can be added to the above mentioned fee schedule.
- 203(K) Appraisal Fee – The appraisal fee charged to the borrower by the FHA approved lender related to the 203(K) loan must be exact same as the fee paid out the appraiser. This also applies to situations where the appraiser may be part of the internal staff. Any fees paid towards the appraisal can be included as a part of the final closing costs on a section 203(K) or streamline mortgage.
- Property Inspection Fee – During the period when the actual renovation work is happening, the 203K mortgage lender will require inspections. These draw inspections allow the lender to get an assessment of the rehab work completed and accordingly release the funds from the escrow account. The draw inspection fees are set by the local HUD field office. According to the current guidelines a maximum of five draw requests may be conducted. If the number of inspections falls below this number as they may not be needed, then the remaining funds will be applied towards the reduction of the mortgage’s principal once the final release notice is issued. If more than five inspections are needed, the additional fees must be borne by the borrower or the contractor.
- Title Fees – Any unpaid or disputes related to payments to contractors and suppliers can result in mechanic’s liens. To protect the mortgage position from such liens any reasonable fees charged by a title company towards this can be included as part of the cost of rehab work. The maximum allowable fee shouldn’t exceed $50 per each draw release.
All the above fees are explicitly stated in the FHA guidelines pertaining to Section 203(K) loans. They are flexible and accommodative for most of the tasks and necessary services needed throughout the duration of the renovation work.