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Home Renovations and Understanding the FHA 203k Financing Process

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Successful home rennovations begin with a plan, budget and a team to make it happen. We are here to help you every step of the way. ...

Successful home rennovations begin with a plan, budget and a team to make it happen. We are here to help you every step of the way.

Get a PRE-Purchase Feasibility INspection and rehab cost estimate BEFORE you even make an offer. This will help you make better decisions, help you be prepared for more timely settlement and control your budget.

Let our 203k Experts and our referrals help you build YOUR Team: Consultant-Contractor-Lender-Realtor

A successful 203k project or any home renovation begins with you in mind. OUr renovation consulting services are available on any type of renovation financing and while we service Maryland, DC and Virginia directly, we offer referrals anywhere you need one!

Check out our BLOG: http://TodaysHomeRenovations.com
Email us today:
vsimone@203kServices.com
Call:
410-952-5595

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Home Renovations and Understanding the FHA 203k Financing Process Presentation Transcript

  • 1. FHA 203k Financing Presented By Vito Simone HUD Certified 203k Consultant
  • 2. How Does a Borrower Decide on a 203k Loan?
      • Looking to purchase a property that requires repair
      • Owns a home that requires repair and cannot afford the repairs
      • Wants to gain equity in a home purchase using the 3.5% down payment benefits of an FHA loan program
  • 3. Lender Considerations
      • Help Realtors understand how 203k loans can be used as a tool
      • The loan officer needs to do a Pre-Approval versus a Pre-Qualification (automated underwriting approval)
      • Get the documentation and always ask for tax returns (unreimbursed business expenses)
      • Once a property is selected the timing to get to settlement must be thoroughly understood and respected by all parties
    © 203kServices.com
  • 4. Loan Officer Considerations
      • Help Realtors pick REO Listings to do Open Houses
      • Develop a “203k Ready” strategy for Realtors
      • Sponsor Rehab Workshops: bring Contractor and Consultant
      • Do the drip marketing for the Realtor
      • Meet the buyer at the subject property at least once
    © 203kServices.com
  • 5. Processing – 203k Versus 203b Loan Program
    • Similar Processes:
    • Obtain Income and Asset documentation for loan submission
    • Order Appraisal*
    • Submit to Processing
    • Request missing/additional documentation
    • File to underwriting with results of appraisal
    • Collect conditions and submit to processor
    • Underwriting review for additional conditions or clear to close
    • File to closing department
    © 203kServices.com
  • 6. Processing – 203k Versus 203b Loan Program
    • Different Processes:
    • Loan Officer should ask selling agent to check comps from the beginning to be certain that the value is there
    • The Appraisal Process and Timing
      • Settlement is typically 45 days after the appraisal is ordered
      • Set this expectation with the borrower/agent and reinforce
      • The time between offer acceptance and the ordering of the appraisal is most important factor influencing your closing date
      • Be clear on the documentation required by your operations center for loan submission
    © 203kServices.com
  • 7. Processing – 203k Versus 203b Loan Program
    • Different Processes (cont):
    • The appraisal cannot be ordered until the HUD consultant has prepared SOR or Feasibility study
      • 203k consultant prepares SOR ( S pecification O f R epairs) that eventually gets signed by all parties including the contractor
      • SOR does not need to be signed by anyone except the HUD consultant to order appraisal for most lenders (signatures should not hold up the process)
      • Target two weeks from contract acceptance
    © 203kServices.com
  • 8. Processing – 203k Versus 203b Loan Program
    • Different Processes (cont):
    • The Escrow Account
      • Rehab funds are placed into an escrow account
      • Can include up to 6 months of mortgage payments provided:
        • The home is uninhabitable
        • There is sufficient value
      • SOR must reflect the number of payments to be financed
      • The funds are disbursed after closing through the Draw Process
    © 203kServices.com
  • 9. Consultant 203k versus Streamline K
    • Consultant 203k (full 203k)
      • Consultant prepared Specification of Repairs
      • Periodic Draw Inspections to approve payment
      • Contractor paid ONLY for completed repairs
    • Streamline K (no Consultant)
      • Contractor gets deposit at time of settlement
      • Balance paid after 100% completion
      • Appraiser to re-inspect finished work
      • ‘ TIP’ – 203k Consultant to prepare Repair Scope
    © 203kServices.com
  • 10. Disbursement of Funds – Streamline 203k
    • Initial Disbursement
      • 35-50% Deposit From The Escrow Account
      • Requires Signed Request By Contractor
      • Paid at Settlement
    • Final Disbursement
      • After appraiser inspects completed work
      • Remaining balance from the Escrow Account
    © 203kServices.com
  • 11. Streamline 203k Limitations
    • Total Rehab Escrow Under $35,000
    • 10% Contingency Usually Required
    • Deduct any mortgage payments requested
    • Usually results in actual rehab cost of less than $30,000
    • No Draw Inspections or Inspectors
    • Specifications are determined by a contractor
    • No independent third party to review feasibility
    © 203kServices.com
  • 12. 203k Documentation Considerations
    • Hazard Insurance
      • Be sure to give enough time for people to shop around
      • May take 2 weeks or longer to obtain
    • Ask for the termite certification early in the process
    • Provide draw processing procedures to
      • Consultant and Borrower
    © 203kServices.com
  • 13. 203k Documentation Considerations
    • Contractor Selection and Approval Process
      • Determined by the lender
      • Check license and insurance status
        • MHIC License Required
        • Will require worker’s compensation for employees
      • Contractor References
        • Be sure to check contractor references
        • Verify references are for projects similar to the subject property
    © 203kServices.com
  • 14. 203k Documentation Considerations
    • 203k Package Documents
      • FHA 203(k) Consultants Agreement
      • Specification of Repairs
      • Initial Draw Request
      • Consultant's Invoice
      • Owners/Contractors Agreement
      • Identity Of Interests
      • Floor Layout Diagram
      • Permit Certification Form
      • Separate Heating Certification
      • Separate Plumbing Certification
      • Separate Electrical Certification
      • Woodboring-Termite Report
    © 203kServices.com
  • 15. Preparing for Closing Post Closing
    • Work Must Be Completed Within 6 Months
    • The Contractor Can Begin The Work
    • The Draw Process Begins
    • No Upfront Cash
    © 203kServices.com
    • Notify the HUD Consultant of Closing Date
    • Must have first draw within 30 days of closing
    • Maximum 5 Draws
  • 16. Step 1: Submit a Draw Request Package Step 2: Request a Change Order Step 3: Submit a Final Draw Request Package Step 4: Release of Holdback Funds Step 5: Payment of Interest from the Repair Escrow Account The 203k Draw Overview Borrower & Consultant Responsibility Lender Responsibility © 203kServices.com
  • 17. The Draw Request Package
    • Draw Request Form
    • Lien Waivers
    • Borrower Receipts (Self-Help Only)
    © 203kServices.com
  • 18. Change Orders - Contingency Repairs
    • Documented BEFORE repairs are started
    • Consultant can approve SOME changes
    • Contingency repairs may not be paid until Final Draw
    • Contractor Invoice required AND report by Consultant
    • (Contingency may be 10% to 20% of repair budget)
    © 203kServices.com
  • 19. The Draw Request Form © 203kServices.com
  • 20. Lien Waivers Definition: Prevents contractors from placing liens against the property when they have already been paid. A signed lien waiver must be submitted for each contractor. There are two types: 1. Conditional Lien Waiver 2. Unconditional Lien Waiver © 203kServices.com
  • 21. Borrower Receipts
    • If the borrower is doing some of the work themselves, then they must submit paid receipts for all materials and supplies in order to be reimbursed. Borrowers will not be reimbursed for their labor.
    • Self-help permitted if Lender approves borrower skill level, capacity, and available time
    © 203kServices.com
  • 22. The 203k Draw Process © 203kServices.com
    • Consultant Scheduled for Inspection
    • Consultant Documents Work Completed
      • Includes photos and report
    • Report Sent to Borrower/Contractor for Signatures
    • Consultant Receives Signed Draw Request
      • Processes with Lender
    • Checks Sent Directly to the Borrower
      • usually within 5-7 days
  • 23. Things to Remember! © 203kServices.com
    • Proper Signatures
    • Change Order Invoices
    • Lien Waivers
    • Checks Delivered To Vacant House
  • 24. Borrower Out of Pockets in a 203k
    • Initial Site Visit/Feasibility $250 – 300
    • Work Write-up per Fee Schedule $400 - $1,000
    • Specialty Inspections: Termite, Well, Septic, Engineer
    • Drawings/Plans: $300 - $3,000
    • Appraisal $350 - 450
    © 203kServices.com
  • 25. What You Can Expect From Your Consultant
    • Feasibility Inspections
    • Realistic Cost Estimates
    • Understanding of FHA Requirements
    • Timely Inspections
    • Review Contractor Bids With Borrower
    • Negotiate with Borrower’s Preferred Contractor
    • Ensure Quality Scope of Work
      • Protects the Homeowner and the Lender
    © 203kServices.com
  • 26. Help us Share Information! © 203kServices.com
    • ‘ Like’ us on 203k Services
    • ‘ Subscribe’ to our Video Channel on
    • www.YouTube.com/203kServices
    • ‘ Connect ’ with me Vito Simone
  • 27. Vito Simone HUD Certified 203k Consultant [email_address] 410-952-5595 www.203kServices.com