Because neither HUD nor FHA certifies, approves or endorses remodeling/general contractors, there is no such thing as a remodeling or general contractor being an FHA approved contractor for the FHA 203k loan. In 1995, HUD stopped approving builders/contractors, eliminated this approval process and the associated database. Instead, HUD/FHA allow the borrower to hire whomever they want and require the lender to determine that the selected contractor is acceptable for 203k work by verifying their license, insurance, references, experience, education and understanding of the 203k.
Zelaya Properties LLC has a certification through 203kcontractors.com. Contractors need to be as knowledgeable as possible regarding the 203k (HUD’s guidelines, time lines, paperwork, processes, compensation, etc.) The 203k Contractor Certification Program an approval process where a contractor is educated on the 203k, their knowledge/understanding of the FHA 203k is verified and tested and business and customer references are contacted and verified, as well as verification of licensing, insurance and financial stability. This education-based approval process exceeds all FHA lender underwriting guidelines and assures FHA lenders, Realtors® and consumers that these Certified 203k Contractors are as knowledgeable as possible on the 203k loan.
The borrower is able to choose whomever they want to work with, however the lender is responsible for determining that the selected contractor is acceptable to do the 203k project in a timely, workmanlike manner, and in accordance with HUD’s guidelines by verifying the contractor’s license, insurance, references, credentials, work experience, as well as the contractor’s understanding of and competency with the 203k.
Often times a contractor who has never worked with a 203k project doesn’t understand everything involved. A big issue with some contractors is that the compensation structure set by HUD does not always permit contractors to receive pre-renovation deposits/start-up funds. Contractors must be financially capable of affording the start-up costs and ongoing expenses with any 203k renovation project. Ample credit lines with suppliers and subs and/or sufficient capital/reserves will be verified as part of the certification process.
We strongly recommend thoroughly investigating your contractor, checking references personally and confirming knowledge of the 203k process. You can read about some of our experiences when we have been asked to come in after another contractor has started on a project.