No contingency per the lender

No contingency per the lender

Published 3/12/2024

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I thought all 203k projects required a contingency... Well, that isn't always the case with a Limited 203k. 

A Limited 203k it has been rumored covers non structural repairs up to $35,000, and though the guideline states that, it has NEVER been true. What is true is that the $35,000 also includes the contingency and "costs and fees" of approximately $800. Therefore if your actual work on your contractors bids comes to $32,000 then the lender says they want to see a 10% contingency you are now at $32,000 + $3,200 or $35,200 and then add those costs and fees you are at $36,000. The guideline says once you trip into a standard 203k clasification as I just did in this scenario it cannot go back to a Limited. That isn't going to happen in reality.

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To save this loan all the lender has to do is reduce the contingency. The lender has full control of that decision making process. But if you follow the guideline you can't "save the loan" because it tripped over the line and became a full 203k. The hard fact is that there are a mirade of lenders who only can do the limited 203k and not the standard 203k so they do it even if it breaks the a clause in the guideline. Who is going to know? In most cases only the underwriter. Our software has the capibility to change the contingency to "Zero" if need be. In the scenario presented earlier the contractor bids could total up to $34,200 and when you add those "costs and fees" of $800 you are right at the limit. The HUD drawing board has an increase coming from $35,000 to possibly $75,000 for the Limited 203k. We'll find out soon. 

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