A Word of Caution about HUD 203(k) Mortgages

Published on 14/01/10 7:20 AM

Not the most stimulating headline, I admit, but it’s a topic that deserves some bandwith. Let’s be honest: who out there even knows what a HUD 203(k) Mortgage is? Who’s first instinct (I’m guilty) was that it is an abstruse program that brings together 401K retirement accounts with mortgage financing? That’s what I thought.

Let’s get serious for a moment. A 203(k) is a HUD program that provides mortgage loans for the purchase of so-called “fixer-upper” properties. According to HUD,  203(k) mortgages serve a very important function because, “The purchase of a house that needs repair is often a catch-22 situation, because the bank won’t lend the money to buy the house until the repairs are complete, and the repairs can’t be done until the house has been purchased.”

Towards that end, the 203(k) allows the borrower to roll all of the costs of renovation into the mortgage. While these costs are theoretically uncapped, they must be estimated ahead of time. Further, it must be confirmed by an appraiser that the value of the home will increase at lease by these costs upon the work’s completion. In this way, those that might have otherwise been discouraged from buying dilapidated properties have an inexpensive source of financing (only 3.5% down, consistent with the FHA’s other mortgages).

There is also a new Streamlined 203(k) “Limited Repair Program, that permits homebuyers to finance an additional $35,000 into their mortgage to improve or upgrade their home before move-in. With this new product, homebuyers can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or FHA appraiser.”

The costs of these repairs, along with a “contingency reserve” of 10-20%, origination fees, and of course the purchase price of the property, are all rolled into the mortgage. Since it’s assumed that many of these properties won’t be of inhabitable condition until after the repairs are completed, the borrower also has the option of rolling 6 months of pre-payments (PITI) into the mortgage as well. Upon closing of the mortgage, the repair costs are deposited into an escrow. Withdrawing these funds can be tricky, however.

While FHA loans are effectively guaranteed by the government, they are originated and administered by private lenders. As one couple’s story illustrates, dealing with one’s lender is not always straightforward when it comes to the 203(k):

“As the contractors were hungry for work, we got started improving the property right away,” she said. “We had been told by our mortgage broker that we could expect the first draw against our $35,000 escrow 15 days after closing.”

As time passed, however, “we heard nothing from Bank of America, other then where to send our first mortgage payment,” she said.

For three months, the couple paid their mortgage, yet received no check for the work done so the contractors could be paid.

To pay for the work, “we have had to empty our savings and run up our credit cards,” she said. “We finally asked them to stop until we can find resolution with Bank of America.”

Unfortunately, borrowers who get the run-around from their lenders unfortunately don’t have much recourse, and can’t expect any help from the government. The best advice, then, is to make sure that the escrow is available to you start shelling out money for repairs. In fact, the raison d’etre of the 203(k) is to prevent the borrower from having to pay for repairs out of his own pocket. In hindsight, this couple would have been wise to heed this advice.


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59 Comments on “A Word of Caution about HUD 203(k) Mortgages”

  1. tcurranmortgage Says:

    Love this article, thanks for posting!

    I’ve originated and closed sec. 203k loans going back as far as 1992. Back in those days President Clinton created an initiative for Mortgage Bankers to use the program to rehabilitate inner-city housing. In search of profit and a somewhat idealistic bent, I jumped in feet first and originated 203k’s in Harlem and Bedford-Stuyvesant here in New York.

    We were doing purchases of about $50,000 with $200,000 of repairs, converting SRO housing (Single Room Occupancy) and burned out and gutted Brownstones into decent and affordable 1, 2, 3 and 4 family homes. I became an expert by dint of the process: learn what you need to close the loan or die!

    That problem you point out about the escrow “draw-outs” is typical of this program and the reason why you want to work with a regional/local Mortgage Banker, NOT one of those losers who took tons of bailout money just to improve the number of prompts on their voicemail systems before you get a living, breathing human on the line. As a mortgage broker today I would NEVER place one of my 203k loans with any of the large banks. No, not EVER.

    BTW, this program is NOT just for “fixer-uppers.” Oh, no, not at all! If you want a new kitchen for $15,000, there you go: 203k. If you want to make the property energy efficient, and finish the basement for a family room, well, there you go, again: 203k.

    I’ve long told Realtors they can sell more homes using this amazing financing product when the Buyers object to the kitschy 1965-era panelling and the tiny kitchen and the oh-so-1953 bathrooms. A 203k loan with $25,000 of improvements goes a long way to helping a homebuyer become a homeowner of a home they’ll love.

    Secret Family Recipe: Your Contractor must understand there is NO upfront money. The program protects the contractor money but doesn’t pay out until the work is under way.


  2. Rene Martinez Says:

    Heed this article. I’m in the process of trying to buy a wonderful home using a 203k from wells Fargo. The problem is wells Fargo has screwed up the paperwork many many times. Now the sellers have threatened to kill the contract. Likely the whole thing will result in about 4 months and $7k wasted on my end. 203ks are a joke. If you insist on getting one, DON’T use wells Fargo. Chose a smaller and more agile company. The gov’t isn’t on the side of the people either. They haven’t done anything appreciable to make banks keep their end of contracts.

  3. k musial Says:

    Thanks for this article. Though it barely even gets to the levels of agony that results from using a 203k mortgage. I wish there was more attention paid to this.

  4. W. Moore Says:

    I have built and remodeled homes for more than 30 years, a lot of which were HUD financed. I am also a certified HUD 203 k consultant. I do not do business with B of A for exactly the reasons cited. Use a local or regional bank of Mortgage Broker. And leave the tarp banks to themselves.

  5. CNJ Says:

    I just bought a housing using a 203k. It was not a headache for me. Everything went smoothly. I would say the bank did not do a great job of educating us on the ins and outs of the process. I was fortunate enough to find a great general contractor who educated us about the process, setting realistic expectations and providing us with quality work.

  6. Z Says:

    Dealing with a 203K now. My advice is to have a very experienced consultant and choose a class A contractor who has done lots of 203K repairs. I hear horror stories about contractors not getting paid quickly by the bank and then slowing work because they don’t have capital to finish the job. Make sure your contractor is well capitalized. (has the cash to finish without payment from the bank)

    This is my first experience with the 203k program. Getting $60k in work done in about one month. Two weeks in and two weeks to completion at the moment. Contractor started about two weeks after closing. Still don’t have paperwork from BoA, but the FHA consultant called a contact and got the account number so the contractor could apply for his draw. Experienced people make a difference in your 203k experience.

  7. gl Says:

    I could not believe what a joke this home-buying thing has become! I made an full-price, 20% down offer on a property and after oen month finally we got an answer (remeber, we gave them what they wanted-full price!). The bank (seller) wants us to get a 203k loan to fix the property which is in perfect shape except the basement which is not finished anyway so no one expected to live there. I’m told they will not sign the contract until i agree to get this stupid loan I don’t need! Sure, the kitchen cabinets will need replacing sooner or later but shouldn’t it be my decision? If electric, heat and water is working why do i HAVE to take this loan, ha? what’s next, force me to pain one bedroom in red? Call me irrational but it all started with the seat-belt laws: you accept to be forced into government-approved “safe” behavior and they’ll do you worse than in Soviet Union. i believe these loans exist to increase the expense on the buyer…come on, banks must be furious with these prices…they have to come up with something to make the loan fatter…People, pay off your loans, cut the credit cards, let them all go out of business. As for me, I’m waiting for the inspector to tell me how many billions i need to borrow from the bank in 203k hahahahha. Drop dead Republicans and Democrats, you destroyed this economy and you can’t wait to find new ways to mess it up so bad we’ll elect you kings. DROP DEAD and i hope all your bank executives have heart attacks while counting the money from the interest on the unacessery loan!

  8. gl Says:

    oh I forgot to tell you the best part: the listing agent told us we “need” to get the loan from Wells Fargo. i told her top drop dead too because I have my own lender who is using whatever banks he wants but my point is finally-made: don’t accept anything because the government says is for your own good or the realtor has a man for the job already! Assemble your own team before you make your move and move as one, lawyer/realtor/lender/buyer and remember :your goal is to have the lowest-posible loan NOW not improvements which will “increase bla bla bla” the value when jesus come. If the house is approved by the local town for occuppancy…tell them what i tell them: drop dead with your 203k loan! I’f i’m wrong please advise-I’m checking this page every day. (don’t advise me on english, i’m still mad by their audicity to tell me what to do and with who and whem i’m mad my grammar and spelling suffer which brings me again to the all bank executives should suffer and suffer and suffer and hahahahahha

  9. David95 Says:

    Not the most stimulating headline, I admit, but it

  10. Shay Says:

    I’m in the process of making an offer on a 203k approved condo and am worried about the process. Right now, I’m working with BoA but will definitely call a local credit union ASAP to see if they can assist me. Of course, I’d like things to run smoothly and be able to close and move in my place by the end of June, at the latest. Does anyone live in Michigan or suggest good, experienced people who can help me in the process?

  11. david Says:

    Wells fargo is the problem. I have been doing 203k consulting for years. the staff they have in minnesota are nasty, mean and dont care one bit about customer service. I felt like i was talking to someone at the dmv or post office, telling me time and time again that they make their own rules and screw you if you dont like it. Cindy S. and Mary H.are the worse.

    stayt clear of WF, go to Homestreet bank if your going to do a 203k.. They work well when not administered to hell.

  12. AskThe203klender - Dustan Shepherd Says:

    the theme of each of the above comments are dead on, do your homework, find a lender but more importantly find a loan officer who knows and is dedicated to the program. The loan officer can then assist you in developing a team of professionals (203k consultant, approved contractors, other needed inspectors) to help you navigate the process. The k is a great product that can be used for just mandatory repair items or throw in your cosmetic request as well. A 203k in most cases should not take more then 60 days to close and the repairs are completed after closing. As a 18 year veteran of 203k lending it saddens me that customers continue to receive poor service when requesting a 203k loan however there are many good loan officers out there that can help you through the process, while 203k rates are at their historical lows

  13. Faye Says:

    My sincerist thanks to all the contributors of this article! I believe strongly in researching everything before making major decisions whether you consider yourself knowledgable or ignorant. I’ve been burned enough on other things and am now very cautious. I found this “killer” property in perfectly fine shape touted as “eligible” for 403K. Guess what…..after reading all the comments I am not going any further. I would rather pay more for another property without the headaches than be “forced into” something just to get a good price that in the end is not really good. My greatest appreciation is felt for contributor gl. Just know that your suffering was not in vane as it saved me (a senior citizen) from some real suffering.

  14. LJR Says:

    Closing was a nightmare! (we used WF for our 203k Streamline loan. But we finally closed and are now waiting for our first draw check. All through the process we got conflicting information from our agent and from the 100 different people we had to deal with at WF.
    Had been told we’d get a check for 50% a week after closing then another check for 50% when complete. In reality they are offering to send us a check for 35% and 65% at the end. Was told firmly that only 2 checks will be issued, no midway withdrawls.
    For us to get the full 50% upfront (which our contractor is depending on) we have to resubmit an estimate with materials and labor listed seperatly. Wish we’d been told that earlier!

  15. Ami Says:

    A Forced 203K Story:
    so she finds herself in a pool of sharks with a guppy for a realtor. What was a good investment $50K for an older small house is now pushing $100K just to meet the legalized attacks of the swimming sharks and their parasitic hanger-ons.

    As the closing date draws near, she can see them begin to twitch with excitement and anticipation. They call their friends/relatives to join in on the big event – The Feeding Frenzy!

    They approach her with more required repairs, don’t worry they say, it is just going to be added to your mortgage. Don’t worry, I can refer you to a great roofer, electrician, plumber, hvac installer, etc – ad nauseum. They smile and salivate at the prospect of getting a nice good chunk of her. What to do?


  16. Jim Delgado Says:

    What I have found is that the 203k is only as good as the team serving. If the loan officer, real estate agent and even the HUD Consultant all aren’t on the same page with knowledge and experience, the client will suffer. I am a HUD Consultant and work very differently than most. Nearly all my client have a smooth (less tears experienced) when I get involved. But you have to be willing to take command of the field conditions.

  17. martha Says:

    I an a lender that specializes in 203K loans. You need someone who understands the product, can keep the ball rolling and has a good HUD consultant in his/her corner. They are a great product for 1st time homebuyers, fixer-uppers, or someone who wants to add on to their current property…yes you refinance to a 203K loan!!!

  18. Janet L Says:

    I have had an absolutely appalling experience with 203K Loan.
    Prospect Mortgage released monies when no permits were pulled (I found out after the draw request had been put in and approved, I was suspicious since the HVAC units installed started while I was at work. No discussions took place as to choices, I was not given any! The 203K consultant, threated me by email and copied the contractor that if I did not sign the check in the amount of 12K they would put a lien on my property. I did not sign as the work had not been inspected by the city. Illegal windows installed, were not in the specification write up, only three needed replacing. I had health issues COPD due to vents not being clean, I called my Doctor and she put me on some breathing aparatus, nebulizer twice and stated third time she would send me to emergency room if it did not work. I had the vents cleaned myself and paid for it and days later my symptoms cleared up. No lead based information was provided to me or testing took place beforehand. All this stuff surfaced as I started to do research and other contractors I brought in to inspect the work done alerted me of the code violations with electrical work. I then called the city and the inspected and wow, I think there are more code violations NOW than before I started. NEVER AGAIN, BE WARNED IT IS NOT WORTH IT. The stress sleepless nights.

  19. I Gotta Say Says:

    The Consultant fees. You can expect to pay upfront $275 – $375 just to get a Consultant to look at it and suggest reapars (which is required). Then another $400 -$700 to write the specs – these fees are HUD approved and if you ask the Consultant what you get for that fee, the answer I got with all of them is – “HUD sets the fee” – NOT MY QUESTION — It was WHAT DO YOU DO FOR THAT FEE? They are SUPPOSED to give you the specs and cost estimates for you to get bids. BUT they will take a short cut. They tell you to give them the bids and and then copy it into the paperwork. I paid $500 to have them copy my bids into their specs – NICE!! Then they charge $150 PER INVOICE to process it. They add another 10 – 20% of the total bids into your loan for possible change orders. In the end, if you do not need the 10-20% set aside, it will be put towards your principal loan balance. They can also charge you mileage if they drive at least 30 miles round trip. If you have $10,000 in repairs (remember that they add 10-20% more for change orders), you can expect fees to be at least $1,000. The spec fee and the invoice fees can be wrapped into your mortgage, but the initial inspection fee cannot. I looked online for 203k Consultants and found one locally who was $400 cheaper then they guy the Bank wanted me to use.

  20. Alex Reyf Says:

    Janet, I read your post on October 4th and also had a horrible experience with Prospect Mortgage, is there any way you can get in touch with me or I with you to discuss. I am filing complaints against them with NY department of Finance for unethical practices and I am looking for people with serious cases like what my wife and I went through. My email is “posya@” “”.

    Thanks, Alex

  21. SAL Says:

    I agree with Janet L above, I really need to talk to you if you see this email me please!!!!

    we bought a house in Aug 2013, 203k of course, we had to borrow 100,000.00 so the consultant said, after paying him over 1100.00 to do his magic, and another 924.00 for his consultant fee, we got our loan and got the money in our escrow, I was living in another state until the repairs were about completed, by husband works 3rd shift and sleeps all day, so neither of us was watching the work being done, I came for a visit in November 2013 with my 4 children to see my husband who was already living the home while the repairs were being done, because someone came in a stole our stove and ripped out all the electrical in the house. So he thought he would be better living in the home to protect it. When we got here after a 10 hr drive in November there was NO water and NO electric, we have well water, so nothing was working without , so we were forced to use the porta potty in the dead of winter… Not fun at all!!! it was a very nasty visit. We were scheduled to meet the contractor and the consultant for the 1st draw, I was new and had no idea what was done as far as the repairs because I lived elsewhere, so my husband and I signed the 1st draw and when I questioned why no work in the house was done, they verbally abused me yelling that we did not have any money to do the inside of our house. WTF????????, anyway I let it go wondering why we were so off base in how much the repairs cost, and why were we not told we ran over on the roof, paint, HVAC??? 100.000 for those things, what the heck did we get for that??? GOLD???? anyway, I went back to the other state and waited for school to be over so we could make our final move into the home. We moved in December 2013, still not one thing done in the house. On Jan 22,2014 the consultant and contractor wanted to do the “FINAL” draw!!!!! I was livid, I was not signing ANYTHING!!!!! they were trying to convince us that we signed a self help agreement and we were responsible for the “SWEAT EQUITY”, I called the mortgage co and asked her if we did and she said NO, they would never allow a homeowner to do their own repairs, because it never works out, especially with me living in another state and my husband working 3rd shift and sleeping all day, when would he have the time to do these things they accused us of being responsible for. Let me tell you that it is AGAINST the 203k rules for the consultant to recommend the contractor, which this guy did, and even bragged about this guy to me saying he was the best!!. well at that Jan 22nd meeting when I refused to sign, I got verbally abused once again, and this time it was even worse, I ran from the room and locked myself in the bathroom for hours!!! They somehow convinced my husband it was out fault and that we had to sign the final draw paperwork since our 6 month due date was approaching, my husband signed. I DID NOT!!!! and I still have not, I have already been served papers for the lien on our home, and the attorney is the contractor’s wife, so she is threatening to sue us for everything we own because we have not paid her “client”, I am not paying for work not done. Let them try to sue me I have a 17 minute walk through video and over 200 pictures. I hired a lawyer and he has pictures, I paid a licensed home inspector and he has 400 pictures and a 90 page report. we have so many home violations in out home that went unreported to HUD, had the consultant been honest in his report we should have never been able to buy this house. Since it is over 100 years old, it has lead dripping from the walls and ceilings, paint chips are all over the place, Government is not helping us at all, they sent me a letter telling me that neither they nor the mortgage company is responsible for the work the contractor does…..My question is FRAUD!!! What about the fraud these 2 clown are involved in, I am really sure I am not the only one they have done this too. Sure would love to talk to Janet L, who knows she may have had the same guys working on her house.

  22. SAL Says:

    also, we were never given a punch list to go over with the contractor, but when he said he was done, the consultant signed off backing him up. This guy came in a took pictures of things that were not even on the write up to show they were completed, But I have pictures from his July visit when we put the contract on the house, and the pictures I have today show the very same thing, nothing touched. I wonder where they are going to find the proof to prove to the courts that they have done their job? they have not stepped a foot into our house to do anything that was on the scope of work that was needed to be completed, I have gotten calls just about every day from Jan 22 – Feb 27th from the consultant wanting to come back over and get me to sign, and if I did not sign they we would default on our home loan, and even laughing in the voice mail message. well everything I have read, it says only sign if everything has been completed. So I am sticking to my guns and I am not signing anything, the roofers and painters have not been paid because the contractor is a rip off artist. I went to check court records and sure enough the contractor and lawyer wife are being sued by other people, they are years behind in back taxes she was even sued from the law school she attended for not paying them back…. they owe money and they are trying to steal mine to pay off their depts. Not going to happen here!!!!

    The fraud starts and never ends with these guys, When my attorney talked to this consultant he produced a signed copy of a self help agreement from his july visit to our house, saying that we are responsible for and will pay for every repairs inside the home. (well if we were responsible to do and PAY for the work, why did we have to borrow the money from the bank too??) The contractor knew about this agreement too because 8 days after we closed on our house, he gives my husband a contract saying that we will do the outside of the house and we will do the inside of the house but he will take ALL the money. Of course my sleep deprived husband signs this paper, I knew nothing about these things because I was not living in the same state, they thought my husband made all the decisions. After I told them time and time again that he sleeps all day and works all night, they needed to not bother him. I would be making all the decisions. they ignored me, so when I finally moved in, I investigated everything, and found these men were scamming us.. My husband was clueless as to what they were trying to do to us, when I asked the mortgage company about this she said that this consultant sticks it in every 203k job he does, and they pull it out every time because it is not allowed. so he and the contractor tried to pull something shady, but by the grace of God I got here before it happened. Maybe it is my gift to expose these crooks.
    I will check this every day to see if there are other stories like mine and give help where I can, we are still in the process of cleaning house, I will tell everyone that will listen because this is not something you keep to yourself.

    People do your job and read up on the rules and stick to the contract.

  23. Niki Says:

    The problems stated in this article aren’t the fault of 203(k) loans, but rather the banks chosen. I am a real estate agent, and have people walk in to my office all the time. It doesn’t matter what type of loan you choose to use, you are going to have an issue with closing and servicing of the loan if you use one of the big banks mentioned. Conventional, FHA, USDA, 203(k), it doesn’t matter.

  24. Greg Robson Says:

    Janet L’s issues are not caused by the 203(k)loan – they sound as if they were caused by a lousy 203(k) Consultant and a shoddy contractor.

    The Streamline 203(k) is for minor repairs requiring less than $35,000 to complete. “Minor repairs” are items like replacing kitchen cabinets, new floorcoverings, replacing damaged doors, etc. As a general rule, if a repair item requires a permit, the loan cannot be a Streamline 203(k). A 203(k) Consultant is rarely used for a Streamline 203(k). The FHA Appraiser or home inspector will generally indicate deficiencies in the home that must be repaired – such as the installation of smoke detectors, doors that need to be replaced, drywall that needs to be repaired, adding insulation to the attic, etc.

    A borrower is NOT required by FHA or HUD to use a 203(k) Consultant or either a 203(k) Streamline or 203(k) Standard loan. It is, however, a good idea to use one because a consultant is (or should be) familiar with the process and what documents need to be prepared and submitted to the lender in order to close the loan. (And each lender or underwriter may have different procedures to follow and documents they want submitted. A good 203(k) Consultant will explain what services they will be providing and what the fees are for those services.

    A 203(k) Standard loan is more complex and is to be used for repairs costing more than $35,000 and/or involving more complicated repairs – such as foundation repairs, a new electrical system, modification to an existing bearing wall, etc. Occasionally, design professionals, such as a Structural Engineer, will be necessary to determine how to properly repair an item. Generally, the repairs items in a 203(k) Standard take more time and effort to accomplish.

    Not all mortgage companies offer both types of 203(k) loans. Some only offer the 203(k) Streamline because they are not set up to handle the additional paperwork and requirements of a 203(k) Standard.

    For clarification, the “203(k) loan” is actually titled “203(k) Rehabilitation Home Mortgage Insurance.” The money is borrowed from a traditional lender, not the government.

  25. Mike Gottlieb Says:

    You are all experiencing the basic down falls of working with inexperienced real estate professionals. The fha 203k rehab loan through HUD is and had been a crucial tool to preserve property values in a market with an overabundance of dilapidated homes. Like any took on the right hands it is very effective and in the wrong hands it can be down right dangerous. Do your research, avoid the big banks and brokerages and work with the folks who have done many of these.

  26. Janet Lloyd Says:

    Beware, do not use Prospect Mortgage for a 203K loan.
    No permits pulled, in 8 days a draw request was put in for 12K for unauthorized HVAC units installed. No final inspection by the city and the check was dispersed. I would not sign it unless I had a inspection by the City. I found out after some red flags and damage to my property and absolute horror at the work that no permits were in place. The consultant and the contractors were in my opinion in conclusion. Stay away from Prospect Mortgage. The electrical work had code violations and was not inspected. Yet the draw request was put in, I signed it not knowing at the time. Later found out about the permits when I called in professional to inspect the work since I started to smell a few rats. All incorrect, shoddy work. STAY AWAY.

  27. Mike Palmieri Says:

    I came across this website and as I reviewed the comments,there were several issues and problems that I’ve seen before.It is paramount that the entire process is outlined by the lender/broker to the borrowers before they start,even before they prospective borrowers/buyers make an offer.I have always cautioned that a contractor is involved prior to an offer being made who can realistically give a breakdown of all work and costs ,along with a time frame.The last 3 years, the 203K’s have become the majority of what we do, we have become experts with these.

  28. VMW Says:

    OMG!!! I am so glad I read this article. I have a FHA loan and looking to refinance. Well I never heard of the 203K loan and my home could definitely use some repairs and updates. Well I certainly know to look for a qualified consultant and stick with a local bank on this one!!!

  29. Terri Says:

    Any suggestions for a Streamline 203K lending in Rochester NY?

    Thank you everyone.. these replies are saving me a lot of pain. I initially was going with WF but not after reading through this.

  30. Alex Reyf Says:

    If anyone read my comments above and is interested in legal action against prospect, please email me I went through a nightmare with them as well, I am not an attorney myself, but right now working with one about this.

  31. Elle Says:

    I got a 203(k) loan with Bank of America, to buy a super cheap Fannie Mae foreclosure. It’s been nothing but aggravation and metric tons of paperwork. B of A has been so slow and inefficient that Fannie Mae just cancelled my deal because it was taking so long for B of A to process my paperwork. So I’ve wasted about 10 weeks and $1,500. I am just as mad at Fannie Mae, who accepted my offer knowing full well that a 203k would take several weeks longer, but refused to grant an extension. I would never recommend this type of loan to anybody.

  32. Paigeypar Says:

    We are having a horrible time with Prospect Mortgage and our 203k loan. They will not honor their commitment to disperse the funds. They tell us “tomorrow” every day.
    They initially lied to us by telling us that we could get money out to begin the project. We wasted the first month waiting for that check and then were told that we had to finish the work before we got any money. We emptied our savings and finished the first portion of the work under “self help” but they will not disperse the money even though it is approved by the HUD consultant. They have wasted over 6 weeks of our time at this point and there is no end in sight. Instead of finishing the project, we are faced with having to spend time sending all of our documents with all of their numerous and brazen lies to our attorney. If there is anyone else out there who is having a problem with their Prospect Mortgage 203k, contact me

  33. D Says:

    I own a pproperty that was damaged by Hurricane Ike. I want to know if I should use a 203k loan to rehabilitate my property since I already own it. Would that be a wise choice?

  34. Jeanette Says:

    I am in the middle of the 203k approval process. Let me tell you, I have no reserves left, and we still have not closed the deal. Our 203k consultant was literally blind. I am not kidding. We had to read the paperwork to him, and he was scheduled for eye surgery the following week, so no help there. Our appraiser told us that he had never appraised a property for a 203k loan before. He has now required us to replace “fixtures” that are stained. They are working properly. We were just told that we had to “remove all lead based paint from the home”. Even though none of our projects are in the area that contain lead based paint, wish I would have known that from the beginning. Our lender just now (after 6 weeks of trying to struggle through this process on our own) introduced us to their 203k transaction coordinator. This has been a nightmare. The appraisal companies don’t know what to do. The federal guidelines are not clear on what is expected during the renovation process and the lenders have no idea what they are doing. We haven’t even closed yet. My guess is that this in the tip of the iceberg. I can’t wait until we close…. what a freaking joke. BTW, I’m a licensed real estate agent. I will NEVER recommend this product to any of my clients.

  35. Fran Says:

    O.K. Here is the deal on 203(k). Find a mortgage BROKER who is very well versed in the process of this type of loan. One who has processed these loans all the way to completion several times. Find a contractor who understands there is NO money up front. They BID on the project, whoever you choose to do the project, they have to be BONDED and LICENSED and have enough money in their coffers to pay for all the work while its being done because the mortgage company will not release funds to them until an FHA inspector has inspected the property and “signed off” on the amount of the draw from escrow. You have up to 4 draws and then a final 5th draw to complete any overages. When the project is done, the FHA inspector says the project is done, they “sign off” on the project with their final paperwork, the mortgage company rolls your draws from the escrow account into a mortgage and you close on your mortgage. It’s really pretty simple. A lot of things can go wrong, but you have to due your due diligence and be regularly ON TOP of everything that is going on with YOUR home.

  36. Janet L Says:

    My experience with Prospect Mortgage, work done outside of the Summary of specifications, no change order. Ended up with all new windows, appalling below energy code for chicago cold weather. Want more details? Email:

  37. Doris W. Says:

    Thanks for the information and thanks to the realtors who told the truth. As contractors my husband and I are seeing that one of our clients is getting the run around with their bank and a realtor that hadn’t explained the 203k throughly. It was stated orally by realtorthat renovation materials would be paid for through loan. Now the bank want pay for it.

  38. Michel Wright Says:

    Hi! I’m a 203k specialist with Wells Fargo. I started here in 2011. I’ve not worked with anyone in this comment chain. I believe that your originator is the key, finding someone local is important. Wells Fargo has designated 203k specialists. You can call Wells Fargo main center… Or you can call a local specialist. A local specialist (such as myself) can more easily walk you through the process because we know the customs. When it comes to any lender, 203k or not, it’s not a company that creates an experience, it’s your originator. Always talk with and feel good about who you are using and don’t judge a company based on a bad employee. I know 203k inside and out. My clients are always a priority. Does every buying situation (203k or traditional) always go as expected? No. The important thing is having a great originator, realtor, consultant and contractor who work together to make your experience the best it can be!

  39. Jeff Says:

    The Article Link is dead, Follow this link instead:


    Thanks Jeff. We just updated the link to the above article location.

  40. William Pitcher Says:

    As a 203k Consultant, I don’t see one very important regulation mentioned. The Repair Escrow funds are not paid to the contractor until a portion of the work is COMPLETED. There isn’t any up-front money to contractors or borrowers. For very small contractors, their bid is usually contingent on receiving some payment to start work. It is very important that borrowers reject any such conditions. Usually there are four draws during construction, so the contractor will have to supply materials before being paid the first draw amount.

    If you can’t find a contractor that will work according to these conditions, you will need to have extra money after closing to be able to make mini-construction loans to the contractor and get reimbursed out of the draw payments.

  41. William Pitcher Says:

    moderator. I do now see the no up front money comment.

    You may delete my previously submitted comment.

  42. Kathy Says:

    We have a 203k loan with Bank America.
    Can we refinance and get out of this loan,before work is completed.

  43. Katie Says:

    I am using Prospect mortgage and they have put me into tears. Most of repairs I can handle myself but we have yet to finish financing on closing, and he keeps losing out paperwork. Who is a decent lender for a 203k streamline loan??? Tired of not sleeping

  44. Kevin Says:

    So, there have been many negative comments about who NOT to use. Can anyone suggest a company to use? I am in the western NY area and sadly this is the only program/loan that will help us because of the lack of equity and the large scope of work that needs to be done.

  45. Simmie Says:

    My disaster with 203k was a living hell. Real Estate agent in Raleigh (GoRealty) helped us in getting the house in July 2013, we knew nobody so we took her recommendation on the mortgage broker (Movement Mortgage) he was all to eager to help. Knowing our situation of me and my husband living in 2 states wanting to merge together with the family, this opened the door to an easy way to rip us off, he recommended the 203K consultant (Advanced Properties) and this guy recommended the contractor (Enhance Construction)they were all rotten to the core, we borrowed 100,000.00 to renovate the 1800’s house we purchased, knowing my husband worked 3rd shift and slept all day and I lived in Georgia with our 4 kids waiting for the renovations to be complete before we moved in. while signing paperwork for the consultant he slid in a “self help agreement” which I knew nothing about, the contractor rewrote the quote to make it say that we would do all the work ourselves and pay out of our pockets and hand him over all our 203K money, I came in December 2013 only to find that the work was not done and the contractor had no intentions of completing the work…. I refused to pay him and this started a hornets nest, the 203k consultant and the mortgage broker were in on the scam and belittled me and my family through the hell they put us through, the contractor has his rewritten quote and decided to sick his attorney wife on us, they put a lean on our house, refused to go to arbitration, instead our attorney talked us into a shoddy deal and we lost our case. During this massive scam I found out that the 203k consultant is NOT supposed to recommend the contractor, this contractor was not more experienced to do the work than I was… Movement mortgage did not check out the contractor nor did they even care. the contractor advertised with Angie’s List, BBB and had the EPA logo on his website stating he was certified for to the work, these were all a sham he was not with any of these companies. I called each of them and verified, they even sent letters to him telling him to remove them for his business cards, and website. He is bad news people…. this entire bunch is bad news. I will never forget this horror…. we lost our money and we still have not gotten ou house fixed

  46. contractors license check Says:

    But a large proportion aren’t technically contractors in any respect and are doing
    the job of a normal employee, meaning they are in breach of
    a tax avoidance rule, referred to as IR35, that says people cannot be disguised staff” by paying themselves through companies.

  47. GC Decorator Says:

    I have my own horror story. As a 203k Contractor i have finished my end of the project. The customer is now begins on the mortgage and i can’t get my money from the bank, Because of the loophole. They must be current on the mortgage to release the holdback and the final draw amounts. This has been a nightmare from inception. Going on 1 year plus from the start of this. I have to the bank end has been wonderful the owner is another question.

  48. Bill Says:

    Here is the deal . The Morgadge company’s will not process a check to pay contractor unless all the correct paper work is submitted . Second when the check comes it’s not in the borrowers name its in the contractors name . Most of the time check goes directly to contractor . 203k loans are great way to go if your educated on them

  49. Mike Russo Says:

    Can anyone recommend a contractor for a streamlined 203k in northern NJ?

  50. Dennis Says:

    There are contractors that are preditors but there are also homeowners that are also preditors.It has been my misfortune to sevice such a couple.I am a contactor and have $21000.00 of my money invested in such a project. The house was in direparefor 20 plus years with the roof leaking for likely 15 years. we removed the shinglesin pieces no bigger that a childs hand.The couple played a con on my company and pretended the new roof we installed was leaking. We insisted on viewing the damage while the rain was coming down and they would not allow us into the house. The husband is a photo specialist for schwinn and cyle groups who knows how to set up and make things appears what they are not. I informed bank how it was odd that the owners would not allow any one in house to confirm leaking situation.Now the bank has not been in contact with me for over 30 days The owners have not been in contact for 3 months and still no payment.If any one knows what number to call for help please let me know. It isn’t just contractor that are dishonest, we honest contactors get ripped off also.Good luck everyone.Dennis Johnson Johnson Construction service 814-285-0885

  51. Janet L Says:

    Windows all replaced on 2nd floor, only two needed replacing. How can I place the link so everyone can view the windows installed, passed by an inspector, no change order was submitted. 203K loan Prospect Mortgage.

    How can I post the link, would love to share the nightmare of Chicago winters with plastic and comforters(puchased from the thrift store nailed to stop the drafts. They were blowing in the wind!!!

  52. Jessika Saunders Says:

    My husband and I are doing a 203K loan with Wells Fargo right now in Rougemont, NC. It would save a lot of time if we found a contractor that is already pre-registered and approved with Wells Fargo in this area. Does anyone have any ideas about how I could find a one? I know some of your have found contractors that were already pre-aprroved. Where did you look?

  53. Sue E. Says:

    We are dealing with a couple of crooked contractors and the consultant is clearly in cahoots with them.

    First of all, be aware that if you get a 203K, you will be paying for the entire amount of the finished project BEFORE one nail has been hammered. We’ve been paying for a $450,000 house for over six months when the construction is far from finished and the house is only worth $300k. We’re living in two rooms while the rest of the addition is added and the contractors are dragging their heels, using our money to pay for other projects, and taking their good old time. When they want a draw they promise you the moon. The minute you sign the check they disappear. I’ve never seen anything so despicable in my life. Looking for a lawyer now to get us through this nightmare. I’m sick to my stomach every time I have to deal with them! If anyone can recommend a good real estate lawyer in MD please let me know!

  54. L.A. Says:

    I am so glad to read these comments. Well, glad is not the correct word, really. Currently going through a 203k on my first home purchase ever. Found a great home under market cost because it needed so many updates. Kitchen was the size of a closet so we decided to open it up on the living room. We also paid to have electrical and intake plumbing re-done, and parts of hvac that were wrapped in asbestos removed and replaced. Electricians totally dropped the ball and replaced electrical panel with a 100 amp instead of 150, the ground line they installed was installed incorrectly, and even though my contract says “replace electrical throughout house and replace to code,” my contractor is now saying that we only paid to have it “replaced to code.” Moreover, I’ve had other plumbers come out for various other reasons not covered in the 203k and they looked at the intake plumbing that was redone and saw all kinds of red flags, including no shutoffs anywhere for either of the bathrooms or the kitchen, and certain pipes that were never replaced that should have been. Kitchen is about 75% complete and looks beautiful but finishing work has yet to be done (door/window molding, lighting, etc.) and the workers are dragging their feet getting back out here (its been weeks since they last worked on anything at the house). 203k’s are a major headache and you must be a very patient person or you will eventually be forced to be one. I have yet to be forced into a position where I feel I should seek a lawyer but as soon as I am pushed to that point I will not hesitate. Moreover, inspections are your best friend and I plan on having the city come to inspect all of the work before I give the bank the OK to pay the contractors. Also, my bank gave our contractor half of the money when I closed and the other half is coming when the work is finished. I was surprised to see some comments in which people stated that the contractors were given no money upfront. However, I do feel my contractor probably does not have a lot of capital because the men who have been working on our house have stated she has been slow in paying them.

  55. James Says:

    What happens if I finance using a streamline 203k loan but decide not to use the loan after closing? I have been avoiding calls from my bank draw specialist and the contractor.

  56. Ed Schmitt Says:

    I’m a contractor who has not been paid by Guaranteed Rate for a month and my contact there never answers an email nor does she answer emails. I acted in good faith and was told the process takes 5-7 days after all the paperwork is submitted. My work was done 4 months ago. With these loans the contractor becomes a mini sub lender having to pay for materials out of our pockets. Seems to be no penalties built in for late servicer processing. I will NEVER do another one of these again.

  57. Ed Schmitt Says:

    sorry meant she does not return a call or answer an email now for a week.

  58. Jay Fletcher Says:

    Currently trying to use a 203k loan for a purchase and it has been one of the biggest nightmares of my life. 203k may have started as a good intention but has been manipulated into a filthy money-making scam by lenders and so-called HUD “consultants.” The “consultant” forced on us by our lender committed fraud on their SOR and negligence by omitting a major structural deficiency and including b.s. like wood trim. beware of the 203k program with ANY lender and HUD consultant. Question absolutley everything they say and do and keep records. However, because of the wisdom of lawyers, they are generally protected from malfeasance within the contract they have you sign. They are ZERO responsible even if putting you at significant risk to safety and especially financially. But since they control the purse strings, they have you right where they want you – and paying for everything through the nose. Want to minimally safe in the property you have purchased – pay more, because what you will pay up front is merely a jobs program for shady “consultants.” Want to do simple, unregulated work yourself (as ALLOWED by HUD) – nope. You’re forced to pay others as your lender requires. This is yet another money-making and jobs program for lenders and HUD “consultants.” If your project works out, it’s by mere dumb luck. My lender wants to know all the terms by which my retirement accounts can be liquidated. Does that tell you something about what their true motives are? Scumbags, one and all.

  59. Rhonda Barber Says:

    I do not have the energy to type what all went wrong with our 203K loan/home remodel. Had to fire the contractor after he failed two FHA inspections. My home is no longer structurally sound due to his poor workmanship. There is an illegal lien on our property now that we have no way to fight without spending THOUSANDS on an attorney. It has now been over 6 months since my shell of a house has been touched. We became the proverbial hot potato. We have lost our savings, retirement, even became homeless for a couple of months while trying to save our house. Now living in a rent house in another town away from family and schools. Not to mention the cancelled insurance policy that I had to inform the bank about nor the taxes that were paid on a property that was not even ours!
    PLEASE do NOT use the FHA203K loan program!

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