FHA 203k


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203k presentation for use by our loan officers, for the benefit of their partners and customers

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FHA 203k

  1. 1. Increasing Your Sales With FHA 203(k) Streamline Loans Brought to you by:
  2. 2. Why FHA? <ul><li>Recent surge in FHA loans. Some reasons are: </li></ul><ul><ul><ul><li>Tightening of Conventional Underwriting Guidelines </li></ul></ul></ul><ul><ul><ul><li>Increased Mortgage Insurance Costs </li></ul></ul></ul><ul><ul><ul><li>First Time Home Buyer Programs Scaled Back </li></ul></ul></ul>
  3. 3. Typical FHA Borrower <ul><ul><ul><li>Family member allowed to sign as non-occupying co-borrower! </li></ul></ul></ul><ul><ul><ul><li>May be a 1 st time homebuyer </li></ul></ul></ul><ul><ul><ul><li>May have bruised/lack of credit </li></ul></ul></ul><ul><ul><ul><li>May have minimal down payment </li></ul></ul></ul>
  4. 4. Comparison of FHA and Conventional Loans Stringent stand-alone ratios apply for primary borrower when non-occupant co-borrower is applicable No stand-alone ratios apply for primary borrower Stand-Alone Ratios: Ratio calculations more rigid. Ratio calculations more flexible Ratio Calculations: Household income calculations more rigid Household income calculations more flexible Income Calculations: Conventional: FHA:
  5. 5. FHA/Conventional Comparison continued Often 2-month PITI reserve requirement. Typically NO 2-month PITI reserve requirement. Reserve Requirements: May allow non-occupant co-borrowers but there may be additional qualifying restrictions (e.g. additional ratios for occupant co-borrowers). Allows non-occupant co-borrowers without additional qualifying restrictions. Non-occupant co-borrowers: Typically 5% must be from borrower's own funds unless 20% down. Down payment can be derived from gift.* Gifts: Required down payment typically higher than 3.5%. 3.5% down payment requirement Down Payment: Conventional: FHA:
  6. 6. FHA Overview Conventional: FHA: Less likely to qualify for Conventional loan than FHA More likely to qualify for FHA loan than conventional loan Bankruptcies & Less-Than-Perfect Credit: Typically more stringent guidelines. Typically more flexible guidelines Guideline flexibility:
  7. 7. <ul><li>More FHA Advantages: </li></ul><ul><ul><li>Seller can pay up to 6% of closing costs and prepaids </li></ul></ul><ul><ul><li>Co-signers allowed, but may add an NOO individual for approval </li></ul></ul><ul><ul><li>No prepayment penalty </li></ul></ul>FHA Overview
  8. 8. <ul><li>More FHA Advantages (cont.): </li></ul><ul><ul><li>More lenient underwriting </li></ul></ul><ul><ul><li>Compensating factors </li></ul></ul><ul><ul><li>Non-traditional credit </li></ul></ul><ul><ul><li>7 rental property maximum versus 4 maximum on conventional </li></ul></ul>FHA Overview
  9. 9. <ul><ul><li>Fairfield Mortgage has Direct Endorsement Approval. </li></ul></ul><ul><ul><li>That means: </li></ul></ul>We have the highest level of underwriting approval. <ul><ul><li>Quicker Approvals </li></ul></ul><ul><ul><li>Quicker Closings </li></ul></ul>
  10. 10. Standard FHA Terms <ul><ul><li>30 year fixed </li></ul></ul><ul><ul><li>15 year fixed </li></ul></ul><ul><ul><li>1 year and 3 year ARMs </li></ul></ul><ul><ul><li>Owner occupied, primary residences only </li></ul></ul><ul><ul><li>*Note: 203(k) </li></ul></ul><ul><ul><li>Streamline </li></ul></ul><ul><ul><li>Program: </li></ul></ul><ul><ul><li>30 year fixed only </li></ul></ul>
  11. 11. What is an FHA 203(k) Streamline Loan? <ul><li>the purchase of a property </li></ul><ul><li>AND the cost of repairs or modernization of the property. </li></ul>203(k) Streamline is a type of FHA mortgage that includes:
  12. 12. 203(k)Streamline: What are the benefits? <ul><li>Amount of repair escrow can range from $5,000 </li></ul>to $35,000 <ul><li>Can finance repairs to update the home. </li></ul>
  13. 13. 203(k) Streamline: What are the benefits? <ul><li>Property may have deferred maintenance </li></ul><ul><li>Property may be an REO, foreclosure or short sale </li></ul>
  14. 14. 203(k) Streamline: What are the benefits? <ul><li>Property may have incomplete renovations </li></ul><ul><li>Property may have an outdated kitchen </li></ul><ul><li>… or bath </li></ul>
  15. 15. 203(k) Streamline: What are the benefits? <ul><li>Provides borrowers an affordable, stable financing solution that combines the purchase of a home along with the cost of improvements </li></ul>& -all in a single loan. =
  16. 16. 203(k) Streamline: What are the benefits? <ul><li>Any left over funds are applied directly to the loan principal. </li></ul><ul><li>Help borrowers find affordable financing and realize the dream of home ownership </li></ul>
  17. 17. What types of improvements are eligible for 203(k) Streamline? <ul><li>Kitchen or bath remodel (does not include structural repair) </li></ul>
  18. 18. What types of improvements are eligible for 203(k) Streamline? <ul><li>Flooring repair/replacement </li></ul><ul><li>Basement waterproofing </li></ul><ul><li>Repair/replacement of roof , gutters or downspouts </li></ul>
  19. 19. Eligible improvements (continued) <ul><li>Repair/replacement of patio , deck , porch or terrace </li></ul><ul><li>Repair/replacement/upgrade of existing heating , ventilation and air conditioning system </li></ul><ul><li>Repair/replacement of plumbing and electrical systems </li></ul>
  20. 20. <ul><li>Handicapped accessibility improvements </li></ul>Eligible improvements (continued) <ul><li>Purchase and installation of appliances including free standing ranges, refrigerators, washers and dryers, dishwashers and microwaves </li></ul>
  21. 21. Eligible improvements (continued) <ul><li>Exterior and interior painting </li></ul><ul><li>Lead based paint stabilization or abatement of lead based paint hazards </li></ul>
  22. 22. What improvements are NOT eligible for 203(k) Streamline? <ul><li>Luxury items: </li></ul><ul><li>swimming pools </li></ul><ul><li>tennis courts </li></ul><ul><li>Gazebos </li></ul><ul><li>barbeque pits </li></ul><ul><li>saunas </li></ul><ul><li>hot tubs, or </li></ul><ul><li>alterations to support commercial use </li></ul>
  23. 23. What improvements are NOT eligible for 203(k) Streamline? <ul><li>Landscaping </li></ul><ul><li>Major remodeling or room additions </li></ul>
  24. 24. Ineligible improvements (continued) <ul><li>Improvements to detached structures </li></ul>(such as garages)
  25. 25. Ineligible improvements (continued) <ul><li>Any repair or improvement requiring a work schedule longer than 6 months or more than 2 payments per specialized contractor </li></ul>
  26. 26. FHA 203(k) Streamline Application Process Realtor helps borrower locate property. Borrower* and realtor determine improvements based on need or preference. Borrower* obtains contractor bids and cost estimates as soon as possible. *or Cost Consultant hired by borrower
  27. 27. FHA 203(k) Streamline Application Process Appraiser determines “as-is” and “improved” values. Loan closes. Initial draw may be disbursed, @ 50% of contract amount. Loan is underwritten and approved.
  28. 28. FHA 203(k) Streamline Application Process Construction MUST begin AS SOON AS POSSIBLE AFTER closing, but no later than 30 days from closing Work is completed; final inspection by appraiser; final draw disbursed. MUST BE COMPLETED WITHIN 6 MONTHS OF CLOSING
  29. 29. Contractor & Sub-Contractor Requirements <ul><li>Must be licensed by state or industry board for each specialized repair or improvement </li></ul><ul><li>Must sign “Homeowner/Contractor Agreement” and W-9 prior to closing. They will receive a 1099 reflecting amount paid. </li></ul><ul><li>Must provide estimates for supplies and labor. Must agree in writing to complete work for the amount of the cost estimate and within the allotted time frame. </li></ul><ul><li>Must be approved by our DE underwriter. </li></ul>
  30. 30. What is the contingency reserve? <ul><li>10% of the cost of the rehab that is held in the repair escrow account. In certain circumstances, this can be 15% or even 20%. </li></ul><ul><li>Can only be used on changes that affect health or safety, or an increase in cost due to a necessary item. </li></ul>
  31. 31. Contingency Reserve <ul><li>If reserve amount is insufficient, the borrower must place additional monies into the reserve fund. </li></ul><ul><li>If the additional improvements do not meet the guidelines, borrower must pay for them, but not out of the contingency reserve fund. </li></ul>
  32. 32. Contingency Reserve <ul><li>Upon completion of the project, any remaining contingency reserve funds MUST be applied to the principal balance of the loan. </li></ul>
  33. 33. FHA 203(k) Streamline Program Summary <ul><li>Finance cost of home PLUS repairs/modernization </li></ul><ul><li>Benefits buyer, realtor and lender </li></ul>
  34. 34. FHA 203(k) Streamline Program Summary <ul><li>Kitchen/bath remodel </li></ul><ul><li>Painting </li></ul><ul><li>Purchase/install appliances </li></ul><ul><li>Repair/replace: </li></ul><ul><ul><li>gutters </li></ul></ul><ul><ul><li>porch </li></ul></ul><ul><ul><li>roof </li></ul></ul><ul><ul><li>patio </li></ul></ul><ul><ul><li>heating/ac </li></ul></ul><ul><ul><li>plumbing </li></ul></ul><ul><ul><li>electrical </li></ul></ul>Includes: <ul><li>Luxury items </li></ul><ul><li>Landscaping </li></ul><ul><li>Detached structure improvements </li></ul><ul><li>Major remodeling / additions </li></ul>Excludes:
  35. 35. FHA 203(k) Streamline: Questions?