FHA Streamlined 203(k) Review• What is the FHA Streamlined 203(k) Loan Program?• What are the program guidelines?• What types of improvements are allowed?• What are the general contractor guidelines?• How is a 203(k) appraisal different?• How to fill out the 92700 203k Worksheet and determine the maximum loan amount?• What happens after closing?• What are the most commonly asked questions?
FHA Streamlined 203(k) Loan ProgramThrough the Federal Housing Administration’s (FHA) Streamline 203(k) program, borrowers can either purchase or refinance their home and may include all rehabilitation /repair costs in the same loan.The same FHA credit and underwriting standards apply, the 203(k) streamline program is an overlay to AFR’s Premium, Standard and Portfolio products.
FHA Streamlined 203(k) Program The affordable financing solution that combines the purchase or refinance of the home along with the costs of the improvements into a single loan.• Purchase or refinance a property• “Update” a property• Fix a required repair• Make optional improvements
Increased Market Opportunity• Purchases: Homes in need of rehabilitation – Perfect for HUD REOs, foreclosures, and short sales – Out-dated kitchens, bathrooms, etc.• Refinances: Make improvements – Improve instead of move – Out-dated kitchen, bathrooms, etc. – Incomplete renovations• Both Purchases and Refinances: Appraisal subject to repairs
Improvements Allowed• Roofs, gutters and downspouts• Basement waterproofing• Mild mold remediation• Heating, ventilation and air conditioning systems• Plumbing and electrical systems• Flooring, exterior and interior painting• Minor remodeling that does not involve structural repairs
Improvements Allowed• Weatherization, including storm windows and doors, insulation, weather stripping• Replacement of window and doors and exterior wall re-siding• Appliances, including free-standing ranges, refrigerators, washers and dryers, dishwashers and microwaves.• Improvements for accessibility for persons with disabilities• Lead-based paint stabilization or abatement of lead-based paint hazards• Replacement/addition of exterior decks, patios, & porches
Improvements Not Allowed– Major structural repairs/ major rehabilitation– Moving or repairing a load bearing wall– New construction (adding a room)– Repairs requiring detailed plans and specs– Any repair taking longer than 3 months– Repairs requiring more than 2 draws– Luxury items are not eligible • Landscaping, swimming pools, hot tubs, tennis courts, gazebos, barbecue pits, saunas or alterations to support commercial use
Property Types• Owner Occupied Properties Only (FHA)• Single Family Residence• Manufactured Homes• FHA Approved Condo’s• PUD’s (planned unit development)• 2-4 Unit Properties• REO, Short Sale, Foreclosure Ok!
Streamlined 203(k) Loan• Up to $35,000 in renovation allowed – Total sum of total rehab amount + contingency fee + $300 appraisal reinspection fees• Must utilize borrower directed licensed contractor – No self help allowed – AFR permits for 1 contractor. For repairs requiring more than 1 contractor, one must be named as general contractor. The general contractor will carry over the subcontractors’ bids onto his/ her bid and be responsible for pay out upon disbursement.• 2 Draws- – Initial draw of up to 50% of repair costs is disbursed at funding – Final draw after final inspection
203(k) Contractors• AFR permits for 1 contractor. In situations where more than 1 contractor is needed, 1 must be named as the general contractor.• The general contractor will carry over all of the subcontractors’ bids onto his/ her bid. The general contractor will be responsible for overseeing that all repairs are done in a workmanlike and timely manner.
203(k) Contractor• The general contractor will also be responsible for disbursing all funds to the subcontractors when funds are released from escrow.• The general contractor must carry sufficient insurance equal to the amount of the total rehab amount through a valid and current e&o or liability insurance declarations page.
203(k) Contractor• The contractor must provide a detailed work write up or bid itemizing all the repairs that are to be completed with cost and note if permits are going to be required.• The appraiser will review the contractor bid to determine that it falls within the usual and customary range for similar work.• Licensing requirements vary in each state for contractors. If a repair calls for a specialized contractor, such as plumbing repairs, the contractor must have a plumbing license.
203(k) Contractor This is an example of a contractor’s bid or work write up for the repairs to be done to the property. It is detailed and itemized specifically stating what each repair is. The sums must add up to the total amount on the bottom which will be used to calculate the total rehab amount on the 92700 worksheet.
Appraisal• Appraisal is ordered as an FHA 203k appraisal• Both purchases and refinances the GC Estimate is forwarded to the appraisal company upon the order• Appraiser does the appraisal “subject to” the completion repairs/improvements and will give an “after improved value” based upon the list of repairs• On purchases the after improved value is the only value necessary the purchase price is to be assumed the current or “as-is” value• On refi’s the appraiser must provide the after improved value and the current or “as-is” value
Total Rehab Cost• The 203(k) streamline program can be done on a purchase or a rate & term refinance, where the borrower can finance the total cost of repairs/ rehab into their loan amount.• Remember, your base loan amount can never exceed the max loan limits for the area.
Total Rehab Cost• Rehabilitation cost include all of the following and can not exceed $35,000: - cost of rehab (including labor) - contingency fee (10% and note this is at the underwriter’s discretion) - $300 final inspection fees (there are 2 inspections at $150 each)
Total Rehab Cost• Borrowers may not provide the additional money to escrow if the repairs exceed the $35,000. The actual costs will have to be reduced to include all of the required fees.• For example, in order to utilize the maximum amount allowed under the program, the contractor bid can not exceed $31,545 if a contingency fee is being factored. - $31545 X 10% or $3154.50 + $300 = $34999.50
92700 203(k) Worksheet• On a purchase or rate & term refinance, the 92700 worksheet must be completed in calculating the max loan amount and the total rehab amount.• On a purchase, typically your loan amount will be calculated off the sales price plus the total rehab amount (line B14 on the 92700 worksheet).
92700 203(k) Worksheet• However, there are times when the after improved value is not supported with all of the repairs that are completed. Deferred maintenance, such as peeling paint, does not add value.• In cases where the 110% of the after improved value is less than the sales price plus the total rehab amount, the base loan amount would be equal to 110% of the after improved value (line a4 on 92700 worksheet).
line B1 = amt from contractor bidIn this example, the base loan amount is calculated as: sales price $100,000 plus total rehab amount $11300 (line b14) = $111300 x 96.5% = $107404. Your base loan amount would be $107404.
92700 203(k) Worksheet• To import your figures onto the 1003, you would take line b14 (the total sum of the repair) and place this figure under details of transaction line b alterations, improvements or repairs. The sales price will be from the purchase contract. In our example, line a purchase price would be $100,000. Line b would be $11,300 or line b14 of the 92700 worksheet. Your base loan amount off the 92700 worksheet would be placed under loan amount. Remember the loan amount on the worksheet is BEFORE the UFMIP factor, or in our example, base loan amount is $107,404.
92700 203(k) Worksheet• Borrowers looking to refinance may choose the option of obtaining a 203(k) streamline for required or “wish list” repairs, that are allowable under the 203(k) streamline program.• They do this under a rate & term refinance, where even though they are financing the cost of the total rehab, the max cash out permitted to the borrowers is $500 and they only pay off any mortgages attached to the property.
92700 203(k) Worksheet• On all 203(k) streamline refinances, the appraiser provides two values: – “As is” value: value before the repairs are completed. – “After improved” value: value after all of the repairs are completed.
92700 203(k) Worksheet• On all 203(k) refinances, there are 4 different numbers you are calculating in order to determine final loan amount. – Calculation a: The total sum of the mortgage pay off plus the total rehab amount (line b14 of the worksheet) plus the total closing costs and prepaids – Calculation b: The sum of the as is value plus the total rehab amount OR 110% of the after improved value. – Calculation c: Whichever is less of the total sum of rehab plus as is or 110% after improved value, you would take 97.75% for its sum. – Now whichever is less between calculation a or calculation b, this will be your base loan amount. – NOTE : If you are paying off an existing FHA insured loan, you must subtract the MIP refund
This is the only difference from the purchase 92700 worksheet. You need the total closing costs and prepaids for all 203k streamline refinances. Calculation on line D2 is whichever isless from the sum of the as is value plus the total rehab amount (a2 + b14) or 110% of the after improved value (a4). Whichever is less, that will be the amount you put on that line as the sum. Then on line D3, you will take 97.75% off that sum. In this scenario, the sum of D1 is $114300 and the sum of 97.75% off the as is plus the rehab amt is $118570.75 since $121300 is less than 110% off the after improved value. Our base loan amount will be $114300, since it is less.
92700 203(k) Worksheet• To import your figures onto the 1003, you would take line b14 (the total sum of the repair) and place this figure under details of transaction line b alterations, improvements or repairs. The mortgage pay off amount will still fall under section d refinance (incl. debts to be paid off) In our example, the total pay off amount for refinance would be $100,000. Total rehab amount or section b would be $11300. Since the total sum of the pay off amount plus rehab amount plus closing costs & prepaids is less than the other calculations, your base loan amount will be $114300.
After Closing/Renovation Period• The GC should receive first draw (up to 50% of repair costs) at closing/funding in order to buy materials and start the renovations• The renovation should begin within 30 days of closing• Borrowers will make their regular mortgage payments throughout the course of construction• Maximum renovation period is 3 months
Final Inspection - Completion• When the work is complete, simply send an email requesting final funds to firstname.lastname@example.org • Include the Conditional Waiver & Release and the Mortgagor’s Letter of Completion• Once the documents are received, AFR will order the final inspection from the original appraiser• Upon the receipt of the acceptable final inspection, a final disbursement will be made to the contractor• All remaining funds in escrow will be made as a principal reduction to the mortgage
AFR’s FHA Streamlined 203(k) Forms found on www.AFRWholesale.com – Contractor Profile – Consumer Renovation Information – Rehabilitation Loan Agreement – Homeowner Contractor Agreement – Disclosure Statement - Texas – IRS W9 Form – Identity of Interest Form – 203K Maximum Mortgage Worksheet - HUD 92700 – 203K Borrowers Acknowledgement - HUD 92700aWhen the work is 100% complete, please have the following forms completed and executed.. – Conditional Waiver & Release – Mortgagors Letter of Completion
A Few Commonly Asked Questions (See guidelines for complete details)• What are the minimum and maximum amounts for repair costs under this program? – There are no minimum repair costs. The maximum total repair costs including the contingency reserve (10%) and costs are $35,000 subject to a maximum loan to value.• What FICO score does AFR require for the 203ks Program? – There is no FICO requirement, the 203ks Program is simply an overlay to our Portfolio, Standard and Premium Products, FICO score is determined by product• Is there a final inspection required to be done once all the work is completed? – Yes, an inspection to determine that all listed repairs and or renovations were satisfactorily completed is required regardless of the amount borrowed for the repairs• Can this program be used for the purchase of HUD homes? – Yes. The Streamlined 203(k) program may be used for single-family housing sold by HUD. REO properties that have been designated by FHAs Management and Marketing contractor as "insurable" with repair escrow ($5,000 or less repairs) or "uninsurable" (with m ore than $5,000 but no more than $35,000 in required repairs) are eligible• How much time is permitted to complete the work? – The contractor must finish the work within 90 days. If the work is not completed within 90 days of closing, a principal reduction will be made towards the remaining unpaid balance of the mortgage.
A Few Commonly Asked Questions (See guidelines for complete details)• Are there additional costs to the mortgagor? – AFR will hold back $300 to be used towards final inspection. Unused inspection fees will be credited against the unpaid principal balance within 30 days of the projects completion.• What is the maximum LTV for the 203Ks Program? – The maximum LTV is a moving target, it is as determined by the 92700 FHA 203k Worksheet• Can the Streamline 203(k) program be used for Manufactured Housing? – Yes. The program can be used for a loan on a manufactured home however, it cannot be used to permanently affix the home to the foundation. The home must be completely secured to the foundation as evidenced by an engineers certification and appraisal prior to closing.• How much is the contingency reserve? – The contingency reserve is up to 10% of all repairs or rehabilitation expenses. The amount of reserve is at the underwriters discretion. All funds remaining in the escrow account after final payment to the contractor is made, including any remaining reserve amount will be used as a principle reduction.• Where can I go if I have questions or need additional information about the Streamlined 203(k) program – Further questions: email@example.com or Chat Icon on our website: www.afrwholesale.com
American Financial Resources, Inc.• About Us – AFR Wholesale, a division of American Financial Resources, Inc. – Nationwide wholesale residential mortgage lender – Headquartered in Parsippany, NJ. – GNMA approved seller/issuer, FHA Mortgagee and FNMA seller/servicer. – Serve thousands of mortgage brokers and lenders throughout the country – In business since 1997 – Grown to one of the largest FHA lenders in the country.• Become an Approved Lender – As an approved lending partner, you can be set as: • TPO – Third Party Origination, • TF – Table Funded, • C – Correspondent, and/or • CDE – Correspondent, Direct Endorsement.