The 203K mortgage is similar to other mortgage loans in that there are a number of necessary steps to obtaining loan approval. Because the 203K involves a construction loan, there are a few additional requirements. The following are the stages in the 203K loan process.

1. Obtaining a Pre-Approved Loan: Purchasing a home using the 203K mortgage may be a somewhat complex and time consuming process. For this reason, Catherine Teegarden Mortgage strongly suggests that all loan applicants for the 203K mortgage strongly suggests that all loan applicants for the 203K mortgage become PRE-APPORVED for the loan. Once you are pre-approved, you will have the assurance that when you find a suitable property, your loan will not be denied for credit or financial reasons. Another big advantage of being pre-approved for a loan is that the seller of the property is more likely to negotiate better terms with a buyer who has a pre-approved loan.

2. Getting Pre-Approval: This involves providing information needed for the loan application, together with the required documents. These might include bank statements, W-2's and recent pay stubs. If your credit and the quality of the information is sufficient to qualify, you will be given a "Credit Approval." This means you are actually approved for a loan. Getting pre-approved can save you time and money - and our pre-approval service is given for only a nominal charge to cover the cost of a credit report.

3. Finding the Property: After being pre-approved, you will need to locate a property that needs at least $5,000 worth of repairs or improvements, and that will be worth substantially more after the work is done. A licensed real estate sales person can help you locate such properties in an area in which you wish to live or invest. You may also ask your agent to check with the many lenders and government agencies such as FHA and VA to see if any repossessed properties offer such opportunities.

4. Doing a Preliminary Feasibility Study: Once you have located the property, take the time to do a preliminary feasibility study of the property to determine the cost to improve it. Take the probable purchase price and add the estimated cost of the proposed repairs and improvements. You should probably consult with one or more contractors to see if your estimates are in the "ball park." Have your real estate agent or a knowledgeable appraiser give you an estimated value of the property once the proposed work is completed. The goal is to determine whether you are adding enough value to warrant you time and expense. If there isn't enough value added, you may want to look for another property.

5. Entering Into a Purchase Contract: Assuming you are satisfied with your feasibility study, you will want to proceed with the purchase of the property. When your real estate agent writes up the offer, it will be important to include the following:
The purchase is subject to FHA 203K Financing.
The Buyer understands that additional improvements may be required by the FHA or Catherine Teegarden Mortgage.
The Seller Authorizes access to the property by buyer, plan reviewer, contractor, inspector, lender's representative and consultant. Such access is for purposes of inspection, damage evaluation, determination of rehabilitation cost.

6. Selecting and Hiring a HUD Approved Consultant: The consultant is, in many ways, the key to streamlining the processing time required for the 203K loan. The consultant works closely with the buyer and the contractor to insure that the proposed improvements and repairs meet the required HUD standards. Included in the consultant's services are the home inspection, project description preparation and final cost estimates. These are submitted with the loan application and, after the loan closes, inspecting the ongoing construction project to approve the requested construction draw payments. After the consultant's initial property inspection, he/she will meet with the contractor and the buyer to discuss the project. At that time, it is important that all relevant information relating to the property be available. This would include termite, roof, health, safety and soil engineering reports. The consultant will review the contract's initial cost estimate to insure that all HUD required items are included. Additional items added to your list will require that your contractor refine the cost estimates. The consultant will complete the write-up based on the finalized cost estimate, including all HUD required improvements. The consultant's report, along with the final estimate, is forwarded to the lender for inclusion in the loan application package. Working in concert with the consultant, the FHA approved appraiser will be preparing the appraisal report obtaining both an "as is" value and a market value after the proposed improvements are completed.

7. Processing the Loan: First, your loan officer will work with you to determine how much you can borrow. Then, the loan officer will complete a Maximum Mortgage Worksheet based on the sales price, the estimated rehabilitation cost, closing costs and the estimated future value of the property. This will insure that the loan amount is within the range for which the buyer is qualified, the  amount of the down payment and the estimated closing costs. This worksheet is initially prepared prior to ordering the consultant's report and the appraisal based on the contractor's initial estimate. This is to insure that the borrower's proposed loan is within the qualifying range prior to paying the fees for the consultant and the appraisal. Upon receipt of the consultants report and the appraisal, your loan package will be ready to submit for approval.

8. Closing Escrow - Now What Happens? After your loan application has been approved, your purchase (or refinance) will be closed. All final documents will be signed and officially recorded. You now own the property and a separate account has been set up to provide funds for the improvements. Funds for the improvements will be paid out in intervals upon certain stages of completion. When the contractor believes the construction has progressed to the appropriate state, he/she calls for a draw inspection. The HUD consultant will inspect the property to insure the necessary work has been accomplished and will order a draw payment. The funds are normally sent to the contractor but the check can be made payable to both the borrower and the contractor, if desired. A small amount of each draw payment, normally 10%, is held back. These funds are paid 30 days after the completion of the construction. This allows the lender to make sure that all the work is done and that you will be able to pay any remaining bills from contractors and suppliers.