If we view the process of getting to the closing of your 203k loan as a journey, this one, which will take approximately 45 days, starts with an application. You’ll complete your loan application with the needed information, name, purchase property address, social security number, etc. as well as needed documentation (you can find a list of required loan documents here). From there, your application and all the documentation gets sent through the mortgage company’s internal parties; they are getting your credit score and verifying the information.
So, while they are doing all the verifying, you have a very, very important task: find your contractor. Don’t get me wrong, choosing the right mortgage company to finance your 203k loan is important, after all, who wants to wait longer than they must to close on their home but choosing the right contractor is just as important, if not more! This person will be doing the work of turning that house into your dream home. This is also the person that the mortgage company will be paying out of the escrow account set up on your behalf. To make it to the destination, the closing table, in 45 days you should have your contractor selected no more than 4 days after submitting your application. From there your contractor will put together the bid or work write up, laying out the work that will be done and how much it will cost.
To ensure this journey keeps moving at the right speed, the contractor’s bid/work write up should make it to your mortgage banker a week after your application submission. From here you will sit down with them and go over any further needed documentation—at this point you may feel inundated with requests for more information but hey, at least we aren’t asking for a DNA sample… yet. At the same time, your mortgage company will order an appraisal. The appraiser is given a window of time to complete the appraisal, typically ten business days. Over the course of these couple of weeks, you are gathering that additional documentation and it is being processed by your mortgage company. Even though you are staying busy pulling documents together and living your life, you can’t help feeling a bit anxious about the pending appraisal. Don’t worry, that’s normal—let’s call it 203k butterflies.
Think of the pending appraisal as if you are approaching a possible construction zone during your journey… You see the appraiser is going to take into consideration the current value of the property you are purchasing and all the wonderful upgrades then he or she will determine how much it will be worth. So, if the amount it appraises for is enough to cover your contractor’s bid and the purchase price then, “all clear! The construction workers have the day off and all lanes are open!” On the other hand, if the appraisal amount does not cover the purchase price and bid then, “go ahead and pull over so you don’t run out of gas”. (You can learn more about appraisals here.)
Let’s say you get the “all clear” and are moving along your journey to the closing table, at this point you might be asking, “are we there yet?” Well almost! In the 45-day journey to closing a 203k loan, we are at day 24. The appraisal has now been reviewed by the mortgage company (day 29) and you meet with your mortgage banker to make sure everything is good moving forward (day 30). It is true, they may have to ask you for additional documentation.
Once you submit the final documentation to the mortgage banker and it’s reviewed/ verified by their internal parties, you get to hear those sweet words, “You are clear to close!”. The destination is right ahead of you. From here, your closing date and location is determined. You will also receive a closing disclosure to review at least 3 business days prior to closing. Then at the closing table, your 203k road trip butterflies subside, and you can celebrate because you have made it to your destination! You have the financing to turn that almost perfect house into your dream home!