FHA203k Financing


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  • PLEASE REVIEW ALL SPEAKES NOTES. This deck is designed to deliver to a Real Estate Referral Partner, in their sales meeting, to listing and/or selling agents. It is particularly effective with REO Brokers both listing and selling Brokers.
  • Then we calculate the loan and validate the qualification on real numbers. You can see here where, if you simply qualify someone on their income and they go to look for a house at the max loan amount you gave them, its not going to work. As an example, if we qualify someone traditionally for $200,00 and they go look at REO being sold at $200,000 once we add in the repairs it isn't going to work. When we qualify someone we council them on this being the loan amount, not the sale price, and they should look in the $150,000 range that might need $50,000 in work . We need to qualify our buyers for the loan amount not the sales price.
  • When we close it is a fully funded loan, we payoff the seller, you get paid and go to the next deal, and we put the money for the repairs in escrow and administer them through a system of inspections, draw requests and partial fundings through the project.
  • FHA203k Financing

    1. 1. Bank of America Home Loans Presents Renovation Lending
    2. 2. PRESENTED BY <ul><li>MICHAEL RISLEY </li></ul><ul><li>203k RENOVATION SPECIALIST </li></ul><ul><li>BANK OF AMERICA HOME LOANS </li></ul><ul><li>99 FOUNDERS PLAZA </li></ul><ul><li>EAST HARTFORD CT 06108 </li></ul><ul><li>860-244-4432 OFFICE </li></ul><ul><li>860-306-8149 CELL </li></ul><ul><li>866-923-8728 FAX </li></ul>
    3. 3. Why FHA 203(k) <ul><li>Through the Federal Housing Administration (FHA) 203(k) program, borrowers can purchase or refinance their home and include rehabilitation and repair costs in the same loan. This program can help you expand homeownership opportunities by offering a renovation program to people who want to revitalize the communities they serve. </li></ul><ul><ul><li>FHA 203(k) can help you: </li></ul></ul><ul><ul><ul><li>Expand your market reach </li></ul></ul></ul><ul><ul><ul><li>Help borrowers find affordable financing </li></ul></ul></ul>
    4. 4. Solution <ul><li>Provide borrowers an affordable, stable financing solution that combines the purchase or refinance of the home along with the costs of the improvements into a single loan </li></ul><ul><ul><li>FHA guidelines apply </li></ul></ul><ul><ul><li>Opportunity to borrow against the value of the home after improvements </li></ul></ul><ul><ul><li>Flexible credit qualifying </li></ul></ul><ul><ul><li>Owner-occupied 1- to 4-unit properties, PUDs, condos and REO properties </li></ul></ul><ul><ul><li>Work must be completed by contractor-self help limited to painting </li></ul></ul><ul><ul><li>Up to six months PITI can be included in the mortgage if the property is not occupied during construction </li></ul></ul><ul><ul><ul><li>Not permitted on Streamlined </li></ul></ul></ul>
    5. 5. Program Eligibility <ul><li>Types of mortgages </li></ul><ul><ul><li>30-year fixed rate mortgages </li></ul></ul><ul><li>Interested party contributions allowed up to 6% </li></ul><ul><li>Standard FHA investment required – max 96.50% LTV </li></ul><ul><li>Purchase and refinance of owner-occupied, primary residence </li></ul><ul><ul><li>Attached and detached single family residences, condos and PUDs </li></ul></ul><ul><ul><li>2- to 4-unit properties </li></ul></ul><ul><ul><li>REO properties </li></ul></ul><ul><ul><li>Mixed Use properties </li></ul></ul>
    6. 6. Credit and Income <ul><li>FHA guidelines apply </li></ul><ul><li>Full documentation only </li></ul><ul><li>31%/43% qualifying ratios – may be exceeded with compensating factors </li></ul><ul><li>Cash reserves are not required on 1- to 2-unit properties </li></ul><ul><ul><li>3- to 4-unit purchase transactions require 3-month reserves </li></ul></ul>
    7. 7. Eligible Improvements <ul><li>Virtually any kind of improvement is eligible provided it becomes a permanent part of the real property and adds value. Eligibility may differ between FHA 203(k) Standard and Streamlined loans* </li></ul><ul><ul><li>Additions to the structure </li></ul></ul><ul><ul><li>Kitchen or bath remodels </li></ul></ul><ul><ul><li>Finished basement or attic </li></ul></ul><ul><ul><li>Patios, decks or terraces </li></ul></ul><ul><ul><li>Roofing and landscaping </li></ul></ul><ul><ul><li>Safety, energy efficiency and electrical upgrades </li></ul></ul><ul><ul><li>Handicapped accessibility improvements </li></ul></ul><ul><li>Luxury items are not eligible </li></ul><ul><ul><li>Swimming pools, hot tubs, tennis courts, gazebos, barbecue pits, saunas or alterations to support commercial use </li></ul></ul>
    8. 8. FHA 203(k) Streamlined <ul><li>Allows borrowers to finance an additional $35,000 into their mortgage to make improvements </li></ul><ul><li>Available for purchase and refinance transactions </li></ul><ul><li>Allowed on limited improvement types </li></ul><ul><ul><li>Can be 100% cosmetic improvements </li></ul></ul><ul><ul><li>Can not be used for structural improvements or repairs </li></ul></ul><ul><li>Streamlined 203(k) is subject to the same guidelines as FHA 203(k) — it’s the improvements that are “streamlined” </li></ul>
    9. 9. Streamline 203k List of Eligible Repairs <ul><li>Repair/Replacement roofs, gutters, and downspouts </li></ul><ul><li>Repair/Replacement/Upgrade of existing HVAC Systems </li></ul><ul><li>Repair/Replacement/Upgrade of plumbing and electrical systems </li></ul><ul><li>Repair/Replacement of Flooring </li></ul><ul><li>Minor Remodeling, such as kitchens, which does not involve structural repairs </li></ul><ul><li>Exterior and interior painting </li></ul><ul><li>Weatherization, including storm windows and doors, insulation weather stripping etc.. </li></ul><ul><li>Purchase and Installation of appliances including free-standing ranges, refrigerators, </li></ul><ul><li>Washers/ dryers, dishwashers and microwaves. </li></ul><ul><li>Improvements for persons with disabilities </li></ul><ul><li>Lead based paint stabilization or abatement of lead paint hazards. </li></ul><ul><li>Repair/replace/add exterior decks, porches, patios </li></ul><ul><li>Basement finishing and remodeling, which does not involve structural repairs </li></ul><ul><li>Basement waterproofing </li></ul><ul><li>Window and door replacements and exterior wall re-siding </li></ul><ul><li>Septic system and/or well repair or replacement </li></ul>
    10. 10. FHA 203(k) Standard <ul><li>Allows borrowers to make larger and structural improvements to their home, including room additions </li></ul><ul><li>No limit on repair amount </li></ul><ul><li>Minimum $5,000 rehabilitation amount </li></ul><ul><li>Minimum $5,000 must be used towards eligible improvements on the existing structure </li></ul><ul><ul><li>Refer to HUD guidelines for details </li></ul></ul><ul><li>Available for purchase and refinance transactions </li></ul>
    11. 11. Determining the Value <ul><li>The loan-to-value is based on the lesser of </li></ul><ul><ul><li>The sales price or as is appraised value plus repair costs minus sales concessions, or </li></ul></ul><ul><ul><li>100% of as completed appraised value </li></ul></ul>
    12. 12. Contingency Reserve <ul><li>Used to cover health, safety and unplanned issues that arise during construction </li></ul><ul><li>A minimum of 10% of the cost of rehabilitation and maximum of 20% is required on a Standard 203k transaction. A contingency reserve of 20% is required on a Streamline 203K transaction. </li></ul><ul><li>If not used (after all construction is complete) the remaining amount will be </li></ul><ul><ul><li>Applied to principal </li></ul></ul><ul><ul><li>Used to make other improvements. Not on Streamline </li></ul></ul>
    13. 13. The Secret Formula Renovation Mathematics 1.) Sales Price 2.) + Repairs (+15%) 3.) = Total Investment 4.) < After Improved Value 5.) = Good Opportunity X LTV 96.5% 6.) = Loan Amount times X =Payment (P&I) + Taxes + HO Insurance + MIP 7.) = Total Monthly Payment 8.) = Affordability
    14. 14. Example: Determining the Maximum Loan Amount EXAMPLE: purchase of a 1-unit property with 96.50% LTV/CLTV Purchase and Renovation Costs Sales Price $ 120,000.00 Labor/Material $ 24,500.00 Contingency (10%) $ 2,450.00 Soft Costs (permits, consultant fees, inspection fees, PITI, etc.) $ 2,420.00 Supplemental Origination Fee (greater of $350 or 1.5% of the renovation costs) $ 440.55 Total for Purchase and Renovation $ 149,810.55 “ As-completed” value (determined by appraiser) $ 160,000.00 Value to use for determination of LTV must be the lesser of the total cost of renovation or the “as-completed” value. In this example, $149,810.55 is less than $160,000, therefore the value you must use when determining the maximum loan amount is $149,810.55. Maximum Loan Amount at 96.50% $ 144,567.13
    15. 15. Key Steps for the Listing Broker <ul><li>Know the property and acknowledge the repairs. </li></ul><ul><ul><li>Cost to Cure, BPO, Appraisal </li></ul></ul><ul><ul><li>Contractor estimate to get to a CO </li></ul></ul><ul><li>Make sure buyer’s prequalification is for a product that will close as is and is structured on the necessary loan amount not just the sales price. </li></ul><ul><ul><li>Verify they have considered a reasonable cost of repairs. </li></ul></ul><ul><ul><li>Confirm that the buyer is dealing with a Renovation Lending Specialist. (sales price + repairs x 96.5% = Loan Amount) </li></ul></ul><ul><li>Estimate the After improved value to be sure the values work. </li></ul><ul><ul><li>Sales Price + Repairs < After Improved Value </li></ul></ul><ul><li>Prepare for Contractor Package required by lender. </li></ul><ul><ul><li>License, Liability Insurance, Workman’s Comp </li></ul></ul><ul><ul><li>Home Owner Contractor Agreement (HOCA) and detailed bid </li></ul></ul><ul><ul><li>Home Depot or Lowe’s </li></ul></ul>
    16. 16. Key Steps for the Selling Broker <ul><li>Make sure buyer’s prequalification is for a product that will close as is and is structured on a loan amount not just a sales price. Make sure you are dealing with a Renovation Lending Specialist. Qualifying for just a loan amount if your buyer is considering properties listed AS IS will not work. Make sure the buyer understands that the Loan Amount must include the Sales Price PLUS the necessary Repairs.(sales price + repairs x 96.5% = Loan Amount). </li></ul><ul><li>Investigate the property condition with the Listing Broker and acknowledge the repairs that are necessary. </li></ul><ul><ul><li>Cost to Cure, BPO, Appraisal </li></ul></ul><ul><ul><li>Contractor estimate to get to a CO </li></ul></ul><ul><li>Estimate the After improved value to be sure the values work. </li></ul><ul><ul><li>Sales Price + Repairs < After Improved Value </li></ul></ul><ul><li>Prepare for Contractor Package required by lender. </li></ul><ul><ul><li>License, Liability Insurance, Workman’s Comp </li></ul></ul><ul><ul><li>Home Owner Contractor Agreement (HOCA), and detailed bid. </li></ul></ul><ul><ul><li>Home Depot or Lowe’s </li></ul></ul>
    17. 17. Application Process Borrower locates property in need of repairs or determines that his/her current home needs improvements Borrower determines improvements needed and schedules an inspection with a cost consultant (or creates a list of improvements) Note: A cost consultant is not required on Streamline transactions Cost consultant or borrower completes the work write-up and prepares contractor bid packages to obtain cost estimates Appraiser uses work write-up to determine “as-is” and “improved value” Construction begins within 30 days of loan closing — must be completed in six months or less
    18. 18. The Process Fulfillment 4.) Mortgage Application Documentation, Credit, Income, Assets $$$ App Fee, Inspection, Appraisal 5.) Processing – Underwriting Documentation, Verification Contractors Package 6.) Closing - $$$$$$ Development 7.) Repair Project Schedules, Draws, Responsibilities 8.) Enjoy A Home Of Your Own Homework 1.) Prequalification Documentation, Credit, Income, Assets (SP + R) X LTV = Loan Amt 2.) Property Analysis (SP + R) < AIV, Loan, Paymt, Affordability, Contractor Choice 3.) Contract of Sale - $$$ Deposit
    19. 19. Holdback Funds <ul><li>Used as an incentive to ensure all work is completed </li></ul><ul><li>Not required on FHA 203(k) Streamlined </li></ul><ul><li>10% of the cost is withheld from each draw </li></ul><ul><ul><li>All payments are impacted by this requirement </li></ul></ul><ul><ul><li>For deposits on flooring, roofing, cabinets and windows there is no holdback on the deposit, but the final payment is subject to the holdback </li></ul></ul><ul><ul><li>Disbursed after all work has been completed and inspected </li></ul></ul><ul><li>Make sure all parties involved in the rehabilitation understand the holdback requirement </li></ul>
    20. 20. Streamlined Draw Process <ul><li>After the loan is closed and sent to the disbursement area(Note: setup can take anywhere from 7-10 days) </li></ul><ul><ul><li>50% of the rehabilitation funds are disbursed after draw setup </li></ul></ul><ul><ul><li>Included with the disbursement is an instruction letter that explains how the final disbursement works </li></ul></ul><ul><ul><li>The balance is disbursed upon completion of all work </li></ul></ul><ul><ul><li>An inspection by the original appraiser is required. </li></ul></ul><ul><li>Two disbursements are made </li></ul><ul><ul><li>Second and final disbursement once all work has been completed </li></ul></ul>
    21. 21. Bank of America, N.A. Member FDIC. Equal Housing Lender. © 2009 Bank of America Corporation. Trademarks are the property of Bank of America Corporation. Some products may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice. All rights reserved. THIS INFORMATION IS INTENDED FOR MORTGAGE AND REAL ESTATE PROFESSIONAL USE ONLY AND SHOULD NOT BE DISTRIBUTED OR SHOWN TO CONSUMERS OR THIRD PARTIES. Fannie Mae®, Community Seconds®, Desktop Underwriter®, DU® and HomeStyle® are registered trademarks of Fannie Mae. Loan Prospector® is a registered trademark of Freddie Mac. Home Depot® is a registered trademark of Homer TLC, Inc. Lowe’s® is a registered trademark of LF, LLC. 09-24-2009 PRGM-01-09-0034_PPT AR91015