203k presentation 2010 updated


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203k presentation 2010 updated

  1. 1. HUD’S FHA 203K LOAN Kevin Shea Mortgage Banker USA Mortgage a division of DAS Acquisition Company LLC 1000 Executive Parkway, Suite 105 St Louis, Mo. 63141 (314) 288-0072 direct kshea@applywithkevin.com NMLS: 183935, MO: 1204-MLO Company NMLS: 227262 Missouri Residential Mortgage Licensee
  2. 2. WHAT IS A 203 K LOAN  The Section 203(k) program is HUD's primary program for the rehabilitation and repair of a primary residence  This loan is a FHA loan that allows the borrower to purchase the home and repair the home  Standard FHA Underwriting Guidelines Apply (Minimum Credit Score 640)
  3. 3. ELIGIBLE PROPERTIES/LOAN AMOUNT  Eligible properties-attached and detached SFR  2-4 unit properties  Condominium units in FHA-approved projects  No ratio requirement of purchase price to rehab cost
  4. 4. ELIGIBLE IMPROVEMENTS  Virtually any kind of improvement is eligible provided it becomes a permanent part of the real property and adds value:  Additions and repairs to the structure  Kitchen or bath remodels  Finished basement or attic  Patios, decks or terraces  Roofing and landscaping  Safety, energy efficiency and electrical upgrades  Handicapped accessibility improvements  Luxury items are not eligible  Swimming pools, hot tubs, tennis courts, gazebos, barbecue pits, saunas or alterations to support commercial use
  5. 5. DETERMINING THE VALUE AND REHAB COSTS  The loan-to-value is based on the lesser of  The sales price or "as is" appraised value plus cost of rehabilitation times 96.5%  110% of “as completed” appraised value (on a refinance)
  6. 6. APPLICATION PROCESS  Borrower locates property in need of repairs or determines that their current home needs improvements  Borrower determines improvements needed and schedules an inspection with contractor(s) and hud consultant  HUD consultant completes the work write-up and consults with contractor to obtain cost estimates  Appraiser uses work write-up to determine “as-is” and “improved value (should already have an idea of subject to completion value)  Loan closes  Construction begins within 30 days of loan closing—must be completed in six months or less
  7. 7. STANDARD FHA 203(K) DRAW PROCESS  After the loan is purchased  Welcome package is sent to the borrower  Disbursements are made as each phase of the project is completed based on the draw paperwork provided by the cost consultant  Inspections are required prior to each disbursement  A maximum of five draws allowed  Draw amounts may vary and are based on the work performed  A 10% reserve is withheld on each draw—a “holdback”  “Holdback” funds are disbursed upon completion of all work
  8. 8. CONTINGENCY RESERVE  Used to cover health, safety and unplanned issues that arise during construction  A minimum of 10% of the cost of rehabilitation and maximum of 20%- (15% is required if the utilities are not on)  If not used (after all construction is complete) the remaining amount can be  Applied to principal  Used to make other improvements (certain restrictions apply and additional approval of proposed work is required)
  9. 9. HOLDBACK FUNDS  Required on FHA 203(k)  Used as an incentive to insure all work is completed  10% of the cost is withheld from each draw  All payments are impacted by this requirement  Disbursed after all work has been completed and inspected  Make sure all parties involved in the rehabilitation understand the holdback requirement
  10. 10. TIPS AND TOOLS  When pre-approving your borrower remember that the 6% seller concession is on the sales price, not the total loan amount  Borrower will pay anywhere from 3.5-6%, prepare your borrower  Make sure all parties understand the draw process  When the first and all subsequent draws are made  How many draws are allowed—maximum five  Meet the client, HUD consultant, contractor and agent at the property to set realistic expectations  Contractors must be licensed and insured and show the ability to financially carry the rehab  This is still an FHA loan-your borrower must meet standard FHA guidelines