Fha 203k Presentation_8.26

FHA 203k RENOVATION LENDING Terry Cronin of The Kent Group

Streamlined 203k Loan

203k Streamline, (203k(s), 203k mini, etc)

Up to $35,000 in Renovation Allowed

Self-Directed-Hire licensed contractors Excluded Renovations- Structural, Architectural & Landscaping

2 Draws- initial within 30-45 days of funding and the final draw after inspection.

Streamline Renovations Allowed

Bathroom Renovation

Kitchen Renovation

New Windows, Siding

Flooring

Appliances

Painting

Decks, Patios

Full 203k

Greater than $35,000 in Renovation Costs

Minimum of $5,000 in Renovation Costs

Up to 4 draws with a final draw after inspection

Structural Renovations Allowed

Borrower may finance up to 6 months PITI payments if home is considered uninhabitable

Full 203k FHA CONSULTANT

Requires an FHA Consultant to work with all parties (loan officer, lender, borrower and builder) to provide assistance with the loan process in accordance to HUD regulations.

CONSULTANT FEES per HUD

$5,000-$7,500 - $400

$7,500-$15,000 - $500

$15,001- $30,000 - $600

$30,001-$50,000 - $700

$50,001-$75,000 - $800

$75,001-$100,000 - $900

$100,001 + $1,000

https://entp.hud.gov/idapp/html/f17cnsltdata.cfm

Guidelines - Property

Owner Occupied Properties Only

Single Family Residence

Approved Condo’s

PUD’s

2-4 Unit Attached Properties

REO, Short Sale, Foreclosure Ok!

(need minimum of 12 mo. Cert. of completion, no builder spec foreclosures)

Guidelines – Loan Amount

Purchase Price + Total Costs of Rehab

$100,000 P.P. + $35,000 Rehab = $135,000

OR

100% of As Completed Value

$150,000 Appraised Value

WHICHEVER IS LESS

$135,000 - $4,725 (3.5% down payment)

= $130,275 Loan Amount

Guidelines - Credit

620 Minimum FICO

31/43 DTI (for manual underwrite only)

36/48 DTI (for AUS approvals-can go higher with compensating factors),

DU Approval on 203k loan (can use any lenders approval through DO)

BK and Foreclosure Leniency

Ch 7 allowed after 24 months

Ch 13 or CCC allowed after 24 months provided performance has been satisfactory

Foreclosure allowed after 3 years provided the reason for FC or Deed- in-Lieu was due to extenuating circumstances

Guidelines - General

30 Year Fixed Rate Mortgages

LTV cannot exceed 110% of “As Completed” value

No Declining Market Issues

One Closing-Entire Loan Amount Paid at Closing.

Rehab Amount is Paid into Interest Bearing Escrow Account at Closing.

Broker is paid in full and job is complete.

BOTH UPMIP and MIP are charged on 203k loans.

Guidelines – Income

Full documentation ONLY

Miscellaneous income acceptable including child support, alimony or maintenance income and note income.

Must show 12 month history and evidence that income will continue for 3 years.

Self Employment income must be stable with 2 year history.

Rental income ok with 2 year history on 1040.

Higher qualifying DTI ratios acceptable with compensating factors.

Non-Occupant Co-Borrower income used (purchase, or refinance if they were on original note)

Guidelines – Purchase

3.5% Minimum Down Payment

Down Payment can be 100% gift

Can use cash on hand or mattress money

Proceeds can come from 401k

Seller can contribute up to 6%

Cash reserves not required for 1-2 Units

(3 mo PITI reserves required for 3-4 Units)

Guidelines – Mandatory Repairs

Corrections to Code Violations

Health and Safety Repairs

Correcting Structural Deficiencies

Smoke Detectors

If Utilities are turned off at time of inspection, a 15% contingency reserve is required

Guidelines – Appraisal

Order an Appraisal from an approved FHA Appraiser.

Appraised value to derive from plans and specifications on renovation to be completed, “As Completed Value”.

Appraiser to complete final inspection when project is completed.

Guidelines – Fee Schedule

Due to the nature of the 203k program, there are a number of fees which the borrower will incur throughout the completion of the renovation. To save the borrower the immediate expense, HUD has made provisions which allow for various fees to be financed. Guidelines have been established to what fees can be charged.

Inspection Fees

For each draw request the lender is required to obtain a compliance inspection stating that the work for that particular draw has been satisfactorily completed. The HUD Consultant is permitted to do these inspections. Max fees for compliance inspections on completed work will continue to be set by each Homeownership Center. (Use $100.00 per inspection as a general figure).

Feasibility Study

An FHA Consultant can provide a feasibility study at the request of the borrower prior to submitting an offer to a seller. An additional fee of $100.00 can be included in the mortgage for this service.

Title Update Fees

In order to ensure that the mortgage position remains intact on title, a title update or lien waiver is required prior to any draw releases. The amount allowed to be financed for any of these title updates is $50.00 per draw, and any unused moneys will be used to pay down the mortgage amount at the completion of the project. (Fees can be higher, use $50.00 as an estimate).

Other Fees

Contingency Reserve

(10% - 20% of total rehab costs)

Supplemental Origination Fee

1.5% of the rehab portion of the loan amount only

Presidents First Commitment Fee

Initial Fee $1195.00

Reduced fees based on volume

Steps for Success

The 203k Loan

STEP #1: Borrower Finds a Property Preliminary Feasibility Study

After the property is located, the homebuyer and real estate agent or (HUD Consultant) should make a marketability analysis prior to signing the sales contract. The following should be determined.

The extent of the rehab work to be completed

Rough cost estimate of the work and

The expected market value of the property after completion of the work. NOTE: the borrower does not want to spend money for appraisals and specs, then discover that the value of the property will be less than the purchase price plus the cost of improvements

Review the Purchase Contract

Contract should be contingent upon approval

Seller should allow inspectors, contractors, or HUD consultant access to the property for estimates

Within 7-10 days of the agreement, the buyer should obtain an inspection of the property by a professional home inspector and termite company.

If the borrower is purchasing a HUD-REO, it should be stated in the sales contract what portion of the closing costs HUD is going to pay, and any incentive programs HUD is willing to offer at the time.

Borrowers and Consultant Meet at the Property

HUD Consultant conducts an inspection of the property and determines what repairs are needed to meet HUD minimum property requirements.

Borrower will also indicate any work they wish to have done at this time.

Obtain the Plans and Specs

You should receive a copy of the work to be completed (specifications of repairs). From the HUD Consultant that includes the consultants cost estimates for the completion of the project.

The plans, specs and contractor estimates should match up dollar for dollar prior to underwriting submission.

Request a HUD Case Number

Order an Appraisal – Obtain Bids

Make two copies of the plans and specs

Send one copy to the appraiser to order the “as completed” appraisal.

The second copy should go to the borrower to obtain a contractor.

The borrower consults with a contractor to provide a detailed written estimate for the work they will complete.

Builders Agreement

Once the borrower receive the copy of the specifications of repairs, they will select the contractor they wish to use and obtain their insurance, license and a copy of the builders application.

Disclosing Fees

All renovation-related costs must be disclosed. The following costs are disclosed on the Maximum Mortgage Worksheet:

Contingency Reserve

Consultant Fee

Architecture Fees

Draw Fees

Supplemental Origination Fee

Permits

Presidents First Commitment Fee

Maximum Mortgage Worksheet

Is used for mortgage calculation purposes to determine the maximum insurable mortgage amount (loan amount).

http://www.hud.gov/offices/adm/hudclips/forms/files/92700.pdf

Information from the MMWS is transferred to the Mortgage Credit Analysis Worksheet following directions on the reverse of the MMWS.

Maximum Mortgage Worksheet Basic Information Section Be sure to include FHA case number

Section A

A1. Contract Sales Price or Existing Debt

The contract sales price of the sales property should be filled in this box. If the mortgage is a refinance, then insert the existing debt on the property and the box for existing debt is checked.

$170,000 A1

A2. “As-Is” Value

This value will be derived from the sales price in most cases. If the underwriter feels that an “as is” appraisal is necessary (HUD Homes), then that value will be entered here. This is the value of the property prior to any renovation being done. You must use the lesser of A2 or the Original Acquisition Cost plus Debts incurred for renovation since acquisition if the property has been owned for less than 1 year on a refinance.

$170,000 A2

A3. “After-Improved” Value

This value will come from the 203k appraisal. This appraisal is the appraisers estimate of the property value after completing the proposed renovations. This value is determined by the use of comparisons in the immediate area around the subject property in similar condition to the condition anticipated for the improved property.

$220,000 A3

A4. 110% After-Improved Value

This is simply the After-Improved value multiplied by 110% ($220,000 x 110%).

$242,000 A4

A5. Borrower’s Estimated Closing Costs

These costs should include FHA allowable closing costs such as the origination fee, credit report, appraisal fees, mortgage tax, title search, insurance premiums, and re-cert fees.

$0 A5

A6. Allowable Energy Improvements

The Allowable Energy Improvements will be determined by the energy audit (HERS Report) and will consist of those items that will return a measurable savings in energy costs over the life of the improvements. Mortgagee Letters 93-13, 95-46 and 98-02 discuss the alternatives for testing and criteria for the improvements.

$0 A6

Section B:

Rehabilitation and Other Allowable Costs

B1. Total Cost of Repairs (Line 36, HUD – 9746-A (8/95))

On a Full 203k, once the signed specifications of repairs has been reviewed or completed by the HUD Consultant, the Consultant signs a template draw request form (HUD 9746-A) which lists the agreed upon total of the specifications of repairs. The total on the Draw Request form (line 36) is entered on this line. Your borrower might not have met with the HUD Consultant yet, if that is the case, this will be a “best guess”. This form can be updated later in the transaction.

$37,000 B1

B2. Contingency Reserve on Repair Costs

This amount should be between 10% and 20% of the renovation amount, and is determined by the underwriter after considering the recommendation of the consultant. The contingency reserve can be paid in cash. If the contingency reserve is paid in cash enter a “0” in this section. Make a note in the remarks section that the contingency has been paid in cash and note the amount. That amount must be placed in the repair escrow account at closing. If the contingency reserve comes from someone other than the borrower, document the file with the donors name. If the contingency reserve is not used in the case, the funds will be returned to the donor.

$3,700 B2

B3. Inspection and Title Update Fees

Inspection Fees:

Maximum fees for compliance inspection on completed work will continue to be set by each HUD Office. The number of inspection allowed on a project is case by case, and depends on the complexity of the work. The lender is responsible to ensure that payment is made to the inspector even though the fees are paid my the mortgagor so having the fees readily available in the escrow account is desirable.

# of Inspections 4 x $100 = $400

Title Update Fees:

To protect the lenders first lien mortgage position from mechanics liens on the property, reasonable fees charged by a title company may be included as an allowable cost of rehabilitation. Where the mortgage position is protected and is not in jeopardy, this fee may not apply.

# Title Updates 4 s $75 = $300

Sum of Inspection Fees & Title Update Fees

$700 B3

B4. Mortgage Payments

The borrower is permitted to finance in the escrow account up to 6 months mortgage payments on a 203k. This is allowed ONLY when the property is uninhabitable. If the renovation is complete prior to the 6 months, the remaining mortgage payments will be used to pay down the principal at the Final Release. They cannot be used to make monthly mortgage payments while living in the subject property. PITI and monthly MIP payment are to be used in the calculation of the mortgage payment.

# Mortgage Payments x $ = $0 B4

B5. Subtotoal for Rehabilitation Escrow Account (sum of B1 through B4)

$41,400 B5

B6. Architectural and Engineering Fees

The borrower may finance the fees charged by an architect to do the necessary drawings of the plans for the Appraiser to review.

$800 B6

B7. HUD Consultant Fees

Not necessary for 203k Streamlined but, in cases where the rehabilitation project is large, less than $35,000 in total rehabilitation cost or there are structural changes, you must have an HUD Consultant. The most current schedule of maximum are listed below. An additional fee of $100 can be financed if the borrower requests a feasibility study prior to submitting a sales contract to a seller. The amount entered here must also be contained in the written agreement between the consultant and borrower.

$700 B7

CONSULTANT FEES per HUD

$5,000-$7,500 - $400

$7,500-$15,000 - $500

$15,001- $30,000 - $600

$30,001-$50,000 - $700

$50,001-$75,000 - $800

$75,001-$100,000 - $900

$100,001 + $1,000

B8. Permits

Building permits can be financed and should be shown on this line. Permits must be in place prior to the first release of funds.

$700 B8

B9. Other Fees (explain in remarks)

$0 B9

B10. Subtotal B5-B9

$43,600 B10

B11. Supplemental Origination Fee

1.5% of the rehabilitation amount or $350.00 (whichever is greater). This fee goes to the lender.

$654.00 B11

B12. Discount Points on the Repair Costs and Fees

The discount points on the portion of the mortgage amount allotted to rehabilitation can be financed on the 203k. This is based off of multiplying the discount by line 10 and the product should be shown on this line. The borrower can choose not to finance this portion. The number of discount points being charged on the rehabilitation costs cannot exceed those being charged on the total mortgage amount and is a portion of the total discount charged, not in addition to.

The total discount should be shown on the Firm Commitment

The cash discount should be shown on the Mortgage Credit Analysis Worksheet, MCAW

The financed discount should be shown on the Line B12 of the Maximum Mortgage Worksheet, MMWS.

$0 B12

B13. Subtotal for Release at Closing

The costs financed in items on lines B6 through B9 & B9, B11 and B12 may be released at closing provided that paid receipts or contractual agreements requiring payment are obtained.

Sum of B6 through B9 $2,200

Sum of B11 and B12 $654

Total =$2,854 B13

B14. Total Rehabilitation Cost

The numbers in B14 are carried forward to the mortgage calculation. You must remember to subtract A6, the EEM amount.

$41,400 Subtotal (B1->B4)

+$2,854 Subtotal (B6->B9+B11+B12)

-$0 Allowable Energy Improvements

=$44,254 B14

SECTION C: Mortgage Calculation for Purchase Transactions

C1. The Lesser of the Sales Price (A1) or As Is Value (A2)

$170,000 C1

C2. Total Rehabilitation Cost (B14)

$44,254 C2

C3. The Lesser of the sum of (C1=C2) or 110% of the After Improved Value (A4)

$170,000 Lesser of the sales price or As-Is value (C1)

+ $44,254 Total rehab cost (C2)

= $214,254 Total

OR $242,000 110% of the After-Improved Value (A4)-whichever is less

$214,254 C3

C4. Mortgage Amount

This is the sum of C3 +/- Required Adjustments (ie. sales concession in excess of 6% of the sales price or HUD incentives). You then multiply that by the LTV Factor of Less Allowable down payment/HUD-Owned Properties. From time to time HUD has sales incentives which allows borrowers to purchase a home with a minimum down payment of $100 instead of 3.5%.

$207,826.37 C4

C5. Statutory Investment Required

Take the value from C3 and multiply by 3%. If this is the HUD $100 Down Payment Incentive Program, then $100

$6427.62 C5

C6 . Actual Cash Investment Required

To calculate the actual cash investment the borrower has contrinuted, you must take the sum of C3 and A5, then subtract C4 ($6427.62). This figure must be equal to or greater than C5. If this is less, then you must make an adjustment to C4 to make sure the borrower has a 3% investment.

C7. Adjusted Maximum Mortgage Amount (if required in C6)

$0 C7

Section D is not needed on a

Purchase Transaction

E1 . Energy Efficient Mortgage Amount

Take the Maximum Mortgage Amount from Section C (either C4 or C7) and add in A6. The Maximum County Limit be exceeded by A6, up to $8,000. Mortgagee Letters 93-13, 95-46 and 98-02 discuss the alternatives for testing and criteria for the improvements.

$0 E1

Remarks Section

It is in the remarks section that you will make notations about Cash Contingency Reserves and Other Fees. Note: UFMIP is added in this section.

Also, it is recommended that the 203k Maximum Mortgage Worksheet is signed prior to submission to underwriting. Many Lenders require it.

Submit to Underwriting

By the time that the borrower selects their contractor and signs the necessary contract, the appraisal should be completed.

Upon receipt of the appraisal, you should have all of the figures needed to complete the final Maximum Mortgage Worksheet.

All permits must be in place prior to the first draw release.

At Closing

Seller or remaining balance (refinance) on the current mortgage is paid off.

Remaining Funds are put into an interest bearing escrow account.

1 st disbursement to pay consultant, appraisal, permits etc.

Borrower begins to make mortgage payments on the entire principal of the loan, including the escrowed amount not yet disbursed.

Renovation Period

Renovation should begin within 30 days of closing.

Borrowers will make their regular PITI mortgage payments throughout, unless the home is inhabitable.

Escrowed funds are released to the borrower/contractor through draw requests, less 10% contingency which is paid at final draw.

Maximum renovation period is 6 months.

Final Inspection - Completion

Final inspection will require the appraiser to inspect the property to ensure that all required renovations were completed. Appraiser will issue final inspection certificate.