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Fha 203 (k) rehab
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  • 1. FHA 203 (k) Rehab Qualified buyers can purchase and make improvements—all with a single loan
  • 2. Through the Federal Housing Administration (FHA) 203(k) mortgage insurance program, buyers can purchase their home and include the costs to rehabilitate and repair it in the same loan. This program can help you expand homeownership opportunities while at the same time revitalizing the communities you serve. • FHA 203(k) can help you: • Move distressed properties that cannot secure traditional financing • Expand your market reach • Help borrowers find affordable financing and realize the dream of homeownership • Turn a house into a home
  • 3. There are buyers who: • Are interested in purchasing a property that needs repairs • Are existing homeowners who need funds to rehabilitate their property • Want to save time and money by financing the purchase with the cost of the repairs • May not qualify for a conventional loan • Have low-to-moderate incomes or need co-signers to help qualify • Are first-time homebuyers • Want improvements to be tax deductible • Want to improve their home and neighborhood • Like the target neighborhood but cannot find the perfect property • Can’t get into escrow on a “turn-key” property
  • 4. 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. • Standard FHA guidelines apply • Opportunity to borrow against the value of the home after improvements – Up to 110% of Future Value!! • Low down payment requirements - 3.5% • Gift Funds “OK” • Flexible credit qualifying • 3% Concessions allowed on FHA • Owner-occupied 1-4 unit properties, PUDs, condos and REO properties
  • 5. Your target market would be: Buyers purchasing a home in need of rehabilitation: * May be REOs, short sales and foreclosures * Incomplete renovations ** * Cure un-permitted additions * Out-dated kitchens, bathrooms, etc. * Cracked slabs and foundation issues OK
  • 6. • Escrow closed in property’s current condition • Realtor paid at close of escrow • Work can be completed by contractor or * Buyer buyer must be qualified and approved to do the work * Work must be completed within the agreed upon timeframe (no more than six months after closing) • Up to six months PITI can be included in the mortgage if the property is not occupied during construction (Full 203k Only)
  • 7. Virtually any kind of improvement is eligible provided it becomes a permanent part of the real property and adds value, for instance: • Additions to the structure • Kitchen or bath remodels • Patios, decks or terraces • Roofing and landscaping • Safety, energy efficiency and electrical upgrades • Handicapped accessibility improvements • Foundation issues • Termite/Pest issues • Completion of un-permitted structures • Luxury items are not eligible: • Swimming pools, hot tubs, tennis courts, gazebos, barbecue pits, saunas or alterations to support commercial use
  • 8. • FHA guidelines apply:Credit * Minimum Score 620 * Occupant Co-Borrower with no FICO OK with DU Approval and 1 scoring borrower with 620 FICO • Debt to Income Ratios * Determined by DU. • Limited Tradelines OK with DU Approval * No Alternative Credit Needed • Court Ordered judgments and tax liens must be paid * Collections may also be required to be paid
  • 9. • Minimum $5,000 rehabilitation amount minimum 100k loan amount • 3.5% minimum down payment required * Checking, savings or other depository accounts * Proceeds from 401(k) * Gift from relative, fiancé/fiancée or domestic partner • Interest party contributions allowed up to 3% toward closing costs • Cash reserves are not required on 1-2 unit properties may be required for DU Approval
  • 10. • Standard/Full203k • Structural changes • No limit to the amount of rehab • Loan amounts up to County Limit • Streamline 203k • Up to 35k in total rehab • No structural changes or repairs • Can be 100% cosmetic improvements
  • 11. FHA 203 (k) Streamline Allows borrowers to easily finance an additional $35,000 into their mortgage to make improvements Cover improvements identified by home inspector or FHA appraiser Allowed on limited improvement types, including: * Roofs, gutters, downspouts * Upgrade/repair plumbing, septic, well & electrical systems * Heating and air conditioning * Replacement of flooring, windows, doors, siding * Purchase and installation of appliances minor that don’t involve structural repairs * Handicapped accessibility improvements * Weatherization, painting, basement waterproofing Streamlined 203(k) is subject to the same guidelines as FHA 203(k) It is the disbursements that are “streamlined”
  • 12. FHA 203 (k) Standard Allows buyers to make larger and structural improvements to their home, including room additions •No limit on repair amount •Minimum $5000 rehabilitation amount Foundation repairs Repair or add a retaining wall Add a second story Increase square footage Get an un-permitted addition up to code Repair chimney damage Add attached units Remedy a property after natural disaster •HUD Consultant required
  • 13. The loan- to -value is based on the lesser of: · The sales price or “as is” appraised value plus cost of rehabilitation · or · 110% of “as completed” appraised value - Max LTV is 96.5%
  • 14. Determining the Maximum Loan Amount EXAMPLE: purchase of a 1 unit property with 96.5/96.5% LTV – owner occupied only - Purchase and Renovation Costs Sales Price (“as is” appraised value) $ 120,000 Labor/Material $ 24,500 Soft Costs (HUD Consultant, Inspection Fees, Title Updates) $ 2,200 Contingency (utilities functioning – 10% required) $ 2,670 Monthly PITI (Full 203k only) $ 0 Total for Purchase and Renovation $ 149,370 “As is completed” value (determined by appraiser) $ 160,000 Value to use for determination of LTV must be the lesser of the sales price or “as is” appraised value plus cost of rehabilitation minus sales concessions, or 110% of the “as completed” appraised value. In this example, $149,370 is less than 110% of the “as completed” appraised value of $176,000, therefore the value you must use when determining the maximum loan amount is $149,370. Maximum Loan Amount at 96.5% LTV $ 144,142
  • 15. Used to cover health, safety and unplanned issues that arise during construction • Required on Standard and Streamline 203k * A minimum of 10% of the cost of rehab and maximum of 20% a 15% contingency will be used if utilities are not on at time of inspection If not used (after all construction is complete) the remaining amount can be applied to principal OR Used to make other improvements (additional approval is required) • Upgrade flooring, tile, paint, etc
  • 16. • 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 consultantInspections are required prior to each disbursement • A maximum of five draws allowed • Draw amounts may vary and are based on the work performedA 10% reserve is withheld on each draw – a “holdback”“Holdback” funds are disbursed upon completion of all work
  • 17. • After the loan is purchased • 50% of the rehabilitation funds are disbursed 4-6 weeks after close • For borrowers doing the work themselves, a self-help agreement is required before any funds are disbursed – the check is made payable to the borrower • For borrowers working with a contractor, a two-party check is made payable to both the borrower and the contractor, the check will be sent to the borrower Included with the initial disbursement is an instruction letter detailing the receipt of the final disbursement The balance is disbursed upon completion of all work • Two disbursements are made • One shortly after loan purchase • Second and final disbursement once all work has been completed
  • 18. Make sure all parties understand the draw process When the first and all subsequent draws are made? How many draws are allowed ? • maximum five for 203(k) • two for Streamline 203(k) Cost consultants can help make the process easier – they are listed by location • Build relationships with contractors in your area • Create opportunity with Asset Managers
  • 19. So.... What is the Process
  • 20. 203k and 203k Streamline Flow Chart
  • 21. Bids - What are we looking for??? Complete and specific LINE ITEM FORMAT that breaks down LABOR & MATERIALS ·On contractor’s letterhead with license # ·License must be active ·Signed by all borrowers and contractor ·Contractor should comment if permits are required. If so, contractor to add cost of permits to bid or comment that permit fees are included in bid ·Contractor should be in line with current market labor and material costs ·If termite report included, contractor should reference Section 1 items specifically
  • 22. Not Acceptable
  • 23. Acceptable
  • 24. • HUD Consultant Report: HUD consultant and contractor descriptions and figures should matchMust list accurate contingency reserve and number of inspections + cost of inspectionMust include a draw sheetAllocate cost for permits if applicableIf consultant references engineer’s report or architectural exhibits, these must be provided at time of submissionIf termite report, HUD consultant should reference Section 1 items specifically
  • 25. • Borrower Self-Help: Borrower must be qualified and approved to do the work. Work must be completed within 6 months. Borrower cannot be reimbursed for labor. must have a third party contractor’sbid for labor and materials if using a home improvement store such as Home Depot or Lowe’s, Self Help guidelines would apply and a W-9 is not necessary as the check is made directly to the borrower who is technically acting as the General Contractor Borrower must show adequate reserves to start rehab
  • 26. Appraisal: Original Color Appraisal • Completed “subject to” work being done with comps supporting “subject to” value. • Must provide “as is” value in addendum. • Report needs to include either complete contractor’s bid or HUD consultant report. • Must comment whether all utilities were on at time of inspection. • Should comment on any health and safety issues
  • 27. How to sell
  • 28. Realtors IMPROVE YOUR LISTING POWER!! • Get the listing by assuring the seller • a quick sale by advertising their home as the • “Create your own Dream Home!!!” • Turn and old listing into a SOLD LISTING • Paint the picture for the buyer!! • Use a contractor to draw up plans or drawings for the potential renovation • Inquire with other realtors as to why there listing is not moving • LOCATION LOCATION LOCATION!!!! • Close property in current condition
  • 29. REO Property =FHA 203(k)
  • 30. • 203k Pitfalls: What will slow the loan process? • INCOME, CREDIT, COLLATERAL, CASH • Loan does not meet 203(b) guidelines. • Make sure your borrower qualifies!! • Contractor Bid does not break down labor and materials. • Contractor not licensed to do work. • License or insurance expired prior to funding date. • Appraisal Not done as a 203k. or not done “subject to” Comps do not support “subject to” • No comments in regards to utilities • Not properly addressing non permitted additions
  • 31. • 203k Pitfalls: What will slow the loan process? • Utilities off but 203k • Worksheet has 10% contingency15% could push over 35k • Termite reportNot included but referenced in contractor’s bid, HUD report, or appraisalTermite report comments about further inspection requirements or inaccessible areas.Who is paying for termite? Seller? Or do repairs need to be included in bid?Section 1 items not all being addressed in bidAppraisal, HUD report or contractor’s bid refers to home inspection, engineers report, etc. and reports are not provided.Can open up a can of worms
  • 32. 203k Pitfalls: What will slow the loan process? Trying to squeeze a deal as at Streamline K Bids under market value Health and safety items not addressed Streamline K submitted as a Full K Not acceptable by investor If a Streamline, no HUD Consultant HUD consultant report, contractor’s bid and appraisal not matching All parties need to be on the same page Self Help We highly discourage Self Help on203k Borrower’s not qualified to do work Need third party contractor bid
  • 33. Important Links ***HUD Website for 203k*** http://www.hud.gov/offices/hsg/sfh/20 3k/203kmenu.cfm HUD Mortgage Limits https://entp.hud.gov/idapp/html/hic ostlook.cfm HUD Inspectors and Consultants http://www.hud.gov/offices/hsg/sfh /insp/inspectr.cfm
  • 34. Becky Roach - NMLS #179855 Mortgage Specialist Evergreen Home Loans #9042 11160 Hwy 62, Suite B Eagle Point, OR 97524 541-826-0622 541-326-2514 cell broach@evergreenhomeloans.com *Evergreen Home Loans is a registered trade name of Evergreen Moneysource Mortgage Company