Before I jump into the tips …
Let me preface this article by sharing some of my relevant experience.
I am a licensed general contractor in Atlanta, Georgia (where renovation is LIFE) .My company has performed and or been approved to perform 203K renovations for most of the lenders that offer renovation loan mortgage products in the Greater Atlanta market.
I am also a licensed real estate agent with Maximum One Realty of Greater Atlanta. As an agent, I have also worked with homebuyers who were planning to use a renovation loan. I have also worked with property owners that are selling properties that would be opportunities for homebuyers that are looking to renovate using a 203k loan or other renovation loan products. I’m sharing this information up front to let you know that I have experience with these loans from more than one side of the table, and I’ve seen some 203k loan transactions go as smooth as silk, and I’ve seen some transactions crash and burn. If you are interested in hearing more renovation loan and 203k loan insights, please stay tuned because I have more articles on the way on this topic.
Is the Contractor Qualified with your Lender?
The first time-saving tip for selecting a contractor, is to make sure that the contractor or contractor(s) that you call or email is qualified. I know, I know. This sounds like an absolute no-brainer, but it actually is not.
Let me tell you why. The 203K loan product itself fundamentally functions the same from lender to lender. However, each lender has its own set of qualifications and requirements that a contractor must meet in order to be approved by the lender to perform the project.
That means that just because you find a contractor and you and the contractor agree on the scope and cost of the project, the deal is not yet sealed because the lender ultimately has the final say on whether the contractor can perform the project.
Regardless of whether you are purchasing a property or refinancing a property that you already own, time is always of the essence. So, what can you do to save yourself time and effort? Let’s jump into it right now.
Is the Contractor Licensed?
If your project involves performing work that is regulated by the municipality or city where the property is located, then a permit will likely be required. At a minimum this typically includes any time of building, plumbing, heating and air, and electrical work.
Now with that said, there are some jurisdictions (typically in more geographically remote areas) that do not have building departments and therefore do not issue building, electrical, hvac, and plumbing permits. In these circ*mstances, the lender will have the final say. In my experience, the lender will want a state licensed contractor even if the municipality doesn’t have any requirements. if your property is in a metropolitan area you likely will not run into this scenario.
Now before I make my next statement, I want to preface it by saying that every region is different. But in Georgia, having a state issued contractor’s license can be so what of a big deal. A state contractor’s license is what will typically be one of the non-negotiable requirements for a contractor to be approved by the lender.
In Georgia, the formal licensing for contractors has only be in effect for about 8 years (2010). With that said, there are still lots of contractors that perform this type of work and do not have a state license. Some don’t even know that they need one, or that its not the same as a business license. And, of course some probably pretend not to know. However, this does not help you.
You need a contractor with a state issued contractor’s license. A business license is a totally separate document and has nothing to do with a contractors license. The secretary of state’s professional license division usually issues contractor’s licenses
How to Verify that the Contractor is Licensed?
You can save time by asking any potential contractor if their company holds a state contractors license. If they say yes, ask them for the name of the business that holds the license, the qualifying agent and or license number.
I know that this may sound a bit intrusive, but the issue is that sometimes people think they can outsmart the process, and the vast majority of the time they cant. For many states, the contractor’s license information is available online.
So if you have any combination of the information that I mentioned above, you should be able to verify the license online, or worst case call in to the state to verify. I KNOW this sounds like alot, but its not. It takes less than 5 minutes online, and hopefully approximately the same if you call in, depending on whether or not they place you on hold.
Prevent the Panic!
Remember that this is just advice, and you can deal with the situation however you chose. I’m giving you advice from EXPERIENCE. I can’t tell you how many phone calls I’ve gotten over the years from homebuyers and real estate agents in a PANIC.
The buyer(s) are under contract on a property. They completed the inspection and due diligence period. The buyer selected a contractor weeks earlier. Today they received a call from the lender stating that the contractor they selected does not have the necessary license and cannot be approved to perform the project.
Now the buyer and often the real estate agent scramble to try and get the transaction back on track. Don’t put yourself in this position if you don’t have to.
I’m not saying that there won’t be other items on the application that could cause the contractor to be denied. But state licensing is by far the most common reason for denial that I see. Take the time to at least determine that the contractor holds the proper credentials. Just by reading this article you’ve just taken a major step in the right direction and you may have also side stepped a huge potential pitfall.
