1. WHAT IS A RENOVATION CONSULTANT
A renovation consultant is an individual whom the FHA/HUD regional headquarters, in most cases, have vetted. A consultant should have an in-depth knowledge of construction and be familiar with construction pricing and local, municipal, and state building codes and requirements. It is also desirable for a renovation consultant to have a strong construction background. This individual will be helping a person with a renovation program. Therefore, they should have the appropriate knowledge of not just construction but FHA, Fannie Mae, and VA requirements for a renovation loan. If your consultant has a lending background in renovation loans, that would also be highly beneficial. Your Renovation Real Estate consultant has all the qualifications above.
2. WHO HIRES A RENOVATION CONSULTANT
The renovation consultant is hired by the potential homeowner purchasing a home or property. However, the Lender may have a list of renovation consultants to recommend. A national registry with FHA/HUD for renovation consultants is available in the State and region where a person may want to purchase a property. It would be advisable for the potential purchaser of a property to ask their Lender first for any referrals or references of renovation consultants they currently work with. We would recommend that a potential property purchaser goes to the national FHA website at WWW.HUD.Gov for more information.
3. WHAT ARE THE FEES FOR A RENOVATION CONSULTANT
The fees that a renovation consultant can charge are based on a preset list defined by HUD. The prices will range upwards to $1000. A ratcheted amount of work on the property determines the price. For example, if a person were doing a renovation loan and the amount of the renovation was $5000 to $7500, the HUD set fee would be $400; consequently, if a person were doing a renovation loan over $100,000 in value, the HUD fixed fee would be $1000. It should also be noted that the consultant can charge additional fees for such things as mileage, plan reviews, or other additional inspections that may be needed, such as a pest or termite inspection. If your consultant is qualified to perform these inspections, they can charge you the appropriate fee. Any fees, such as consultant fees, mileage, plan review fees, etc., are considered allowable. As an allowable fee, they can be credited to you at the closing of your loan. The consultant will provide your lender with all the necessary documentation and receipts for all allowable fees. The definition of crediting an allowable expense to an individual would be an example of your lender informing you that you must bring in $8000 to close your loan. Although you have an output of $2000 of allowable fees, you would only have to bring in $6000 to complete the closing. This may vary with individual lenders, although it is typical for your allowable costs to be credited to you in one form or another. Consult with your lender on allowable fees. It should also be noted that the consultant fee and any other fees he will be charging are all due at the time of service and are typically not payable at the time of closing.
4. DOES THE CONSULTANT DO A COST ESTIMATE
The consultant can do cost estimating for a project. The consultant can also assist a potential purchaser in acquiring bids for things that must be done to the property. If your consultant has a robust construction and inspection background, they can provide cost estimates for the SOR paperwork. Suppose a consultant does offer cost estimates for the paperwork. In that case, those numbers will need to be verified and approved by the homeowner to ensure an adequate amount of money for the project to be completed. Under most normal circumstances, a homeowner will hire a general contractor to perform all the necessary work on the property. With that being the case, sometimes a general contractor has to be determined before the consultant reviews the property. Therefore, a consultant can do the cost estimate and consult with your general contractor to ensure that all the cost estimate numbers are correct. This must happen before the loan closing if they are incorrect and need to be modified. Most lenders will require the general contractor to approve the numbers of the SOR and initiate a homeowner-contractor agreement for the money necessary for the property’s repairs.
5. DO I NEED AN INSPECTION FOR A RENOVATION LOAN
It is highly recommended that every person doing your renovation loan that the property they are purchasing be professionally inspected. The consultant can identify any significant concerns or problems with the property by conducting a professional inspection. However, a consultant will generally do their assessment of the property not to be construed with doing a home inspection. A consultant’s review is to identify all the “Have-To” items that would need to be done on the home to bring it up to minimum lendable standards. Although having an inspection will not hurt, it is not necessarily required in most cases.
6. WHAT IS A FEASIBILITY INSPECTION
A feasibility inspection is an inspection performed by the consultant for the benefit of the potential homeowner. By definition, a feasibility inspection is precisely that, a feasibility inspection. Can we purchase a home based on the money needed for the renovation? For example, let's speculate that a person is qualified for $500,000 in the purchase price, and they find a home that suits their needs for the purchase price of $450,000. A feasibility study determines what the “Have-To” items alone would amount to more than their qualifying limit of $500,000. With that being the case, the consultant can provide the homeowner and their real estate agent with the feasibility study report, thereby being able to present that to the seller of the property in hopes that the seller would bring down the purchase price of the property by the necessary amount of money needed for the new homeowner to purchase the home using the renovation loan. There are benefits to the seller by having a feasibility study performed by a potential buyer. The seller probably understands that the home they’re selling needs works to be done, and having a qualified buyer lessens the time the seller would have the house on the market trying to sell it in its As-Is condition. The longer that a seller has the property for sale, the property becomes less desirable because of the work that needs to be performed. It would be advisable for a person to have their consultant perform a feasibility study before and or at the same time as making an offer to purchase the property. The cost of a feasibility study will vary with a consultant, and this fee usually is not credited to the buyer moving forward. It is an out-of-pocket expense. The feasibility inspection by Renovation Real Estate details all the items that need to be repaired on the property and the approximate cost of the required improvements.
7. WHAT TYPE OF PAPERWORK IS REQUIRED FOR A RENOVATION LOAN
The paperwork required for a renovation loan involves several components. The first thing an individual needs to do is to become prequalified with a lender specializing in renovation loans. That lender will inform you of the maximum amount you have to purchase and renovate a home. The lender has paperwork that they perform to determine all the fees and provide you with a qualification dollar figure. As a consultant, we would ask the lender to provide us with a number, a dollar figure that you were qualified for. This benefits the consultant performing the inspection and feasibility study on the property you are considering purchasing. If all goes well and it is determined that you can purchase the property, the consultant has paperwork to fill out and provide to the lender. Some of the paperwork that the consultant has are forms that are very simple in their nature. However, the most crucial piece of documentation that the consultant is responsible for filling out is referred to as the Specification of Repairs, commonly known as the SOR. The SOR is an 11-page document that has 35-line items associated with it. These line items identify everything about the property, from the exteriors to the interiors to the mechanical systems, electrical systems, plumbing systems, foundation systems, insulation, and other safety and health considerations. It is ok if you, as the potential purchaser of the property, have your general contractor look at the property to make a bid for you on your desired items. Your consultant will want to conduct his inspection to ensure that all the “Have-To” items have been addressed. Your consultant will then communicate with your general contractor, who will provide the labor and material cost of the project to the consultant. The consultant will then take the bid from the general contractor, extrapolate all the budgeted line items, and place those numbers into the SOR line items as applicable. The SOR is an extensive and laborious task for your consultant to perform. The SOR must paint a picture for the appraiser when doing your appraisal. The appraiser is heavily reliant upon the SOR to determine the “Have-To” and “Want-To” items being done on the property. All of these “Have-To” and “Want-To” items being performed add to the house’s value.
8. DOES THE GENERAL CONTRACTOR NEED TO COMPLETE THE SPECIFICATION OF REPAIRS PAPERWORK?
The contractor does not need to fill out the Specification of Repairs (SOR) paperwork. Under nearly all circumstances, the consultant will complete all the necessary paperwork and submit that to the lender.
9. WHO DOES THE RENOVATION PAPERWORK
Your consultant will do all the necessary paperwork and forward the final copies of the SOR and other related paperwork to the lender. Before submitting all the required paperwork to the lender for processing, the consultant will provide you with a draft copy of the Specification of Repairs (SOR) for your review. Upon approval, the consultant will forward that paperwork to the lender.