I had a lender tell me that I cannot combine a 203k loan with "third party funds" - although she said that it was OK to combine it with down payment / closing assistance. She's a streamline-only lender if that makes a difference.
Essentially, there's a county program that is federally funded with HOME funds and they provide up to 50k in total assistance, up to 15k of which can be used for down payment / closing cost assistance. The balance is available for upgrades / renovation, but specifically health and energy efficiency stuff. They'll assist with lead abatement, insulation, Energy Star appliances, etc....meanwhile, the 203k is going to require that specific things are done. Some of it is structural (replace a floor joist, re-plumb and support a wall in the garage) (the streamline would require me to get the seller to do those before closing), but most of it is "install kitchen" and "put fixtures into the bathroom" plus "patch a hole in that wall" etc. I don't understand why 203k would prohibit me from having a third party do work after the 203k work is completed - why wouldn't I be able to accept appliances and insulation? I was looking here and they specifically mention combining with HOME funds, so I really hope she's mistaken. http://www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm
"Many lenders have successfully used the Section 203(k) program in partnership with state and local housing agencies and nonprofit organizations to rehabilitate properties. These lenders, along with state and local government agencies, have found ways to combine Section 203(k) with other financial resources, such as HUD's HOME, HOPE, and Community Development Block Grant Programs, to assist borrowers. Several state housing finance agencies have designed programs, specifically for use with Section 203(k) and some lenders have also used the expertise of local housing agencies and nonprofit organizations to help manage the rehabilitation processing."
Starting Score: EQ 583 TU04 619 EX 592 (lender pull) 2010
That's the funny thing - this program has 3 lenders they work with: USDA, TCF (who only does conventional loans), and PNC (who does FHA and FHA 203k streamlines). To do a full 203k, I have to get an exception made for a different lender. She (from PNC) is telling me that she can combine 203k streamline with the down payment assistance, but not with their renovation funds. She said something about not allowing 3rd party funds. I believe both portions of the program are from HOME funds...I feel like the reality is that she can do a 203k loan and it has to bring the house up to the 203k minimum standards, and that after that I could use the HOME funds for other upgrades that are allowed by their program (energy efficiency and the like). She also said I couldn't use more than 2k for appliances.
I'm trying to avoid using her right now because I don't want to ask Freddie to do the structural work before closing and risk them deciding to go with another of the offers instead. That and she doesn't seem to have a handle on this funding thing - she told me to find another lender before I made her clarify about whether they were disallowing downpayment assistance and renovation or one of them.
Here's what she just sent me in response to my request for clarification:
The FHA 203K streamline doesn't allow for 3 party funds. The full 203k does. This is an FHA requirement.
The other issue is that if Rhonda does rehab the total for all rehab would be well over the $35,000.00
She doesn't know how much the other rehab would be, btw, and the required rehab for 203k totals around 20k.