FHA 203K presentation for Broker offices and LO\'s

1. FHA 203(k)
Mortgage Program
Help qualified borrowers purchase or refinance
and make improvements—all with a single loan
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2. Why FHA 203(k)
• Through the Federal Housing Administration (FHA) 203(k)
mortgage insurance program, borrowers can purchase or
refinance 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:
• Increase loan origination volume
• Expand your market reach
• Help borrowers find affordable financing and realize the dream
of homeownership
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3. Opportunity
• There are borrowers 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 or refinance with the
cost of the repairs
– May not qualify for a conventional loan
– Have limited cash for down payment or closing costs
– Want to improve their home and neighborhood
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4. Solution
• 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:
– Standard FHA guidelines apply
– Opportunity to borrow against the value of the home after improvements
– Low down payment requirements
– Flexible credit qualifying
– Fully assumable loans to qualified borrowers
– LOW interest rates
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5. Program Eligibility
• Types of mortgages
– 30-year fixed-rate mortgage
• Purchase and refinance of owner-occupied, primary residence
– Attached and detached single family residences, condos, and PUDs
– 2-4 unit properties
– REO properties
• Eligible borrowers
– U.S. citizens
– Permanent and non-permanent resident aliens
– Non-occupant co-borrowers
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6. Program Highlights
• Investor handles draws
– Up to five releases allowed
• Work can be completed by contractor or borrower
– HIGHLY DISCOURAGED
– Borrower must be qualified and approved to do the work
• Contingency reserve required
– On properties older than 30 years and over $7,500 in rehabilitation costs
• Up to six months PITI can be included in the mortgage if the property is not
occupied during construction
• Loan is fully assumable to qualified borrowers with no money down
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7. 203k Eligible Improvements
• Virtually any kind of improvement is eligible provided it becomes a
permanent part of the real property and adds value, for instance:
– Room or garage additions
– Kitchen or bath remodels
– Finished basement or attic
– Patios, decks, or terraces
– Roofing and landscaping
– Safety, energy efficiency, and electrical upgrades
– Handicapped accessibility improvements
• Luxury items are not eligible
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8. Credit
• Borrower eligibility determined by HUD 4155
• Bankruptcy (BK) and foreclosure
– Chapter 7 allowed after 24 months
– Chapter 13 allowed after 12 months provided performance has been
satisfactory
– Foreclosure allowed after three years provided the reason for foreclosure or
deed-in-lieu was due to extenuating circumstances
• Court ordered judgments and tax liens must be paid
– Tax liens may be included in the refinance
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9. Income
• Full documentation only
• Miscellaneous income is acceptable, including child support,
alimony or maintenance payments, and Note income
– Must show a 12-month history and evidence that the income will continue for
three years
• Self-employed income must be stable
– Two-year history required
• Ratios exceeding benchmarks may be acceptable with strong
compensating factors (48% may be acceptable on manual
underwrites WITH 3 compensating factors from HUD 4155)
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10. Flexible Down Payment and Source of Funds
• Minimum $5,000 rehabilitation amount
• 3% minimum down payment required
– Checking, savings, or other depository accounts
– Proceeds from 401(k)
– Gift from relative, fiancé/fiancée, or domestic partner
– Cash-on-hand
• Interest party contributions allowed up to 6%
• Nehemiah up to 6% is allowed
• Cash reserves are not required on 1-2 unit properties
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11. 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
– Available for purchase and refinance transactions
– Allowed on limited improvement types, including:
• Roofs, gutters, downspouts
• Heating and air conditioning
• Upgrade/repair plumbing, septic, well, and electrical systems
• Replacement of flooring, windows, doors, siding,
• Weatherization, painting, basement waterproofing
• Minor remodels that don’t involve structural repairs
• Purchase and installation of appliances
• Handicapped accessibility improvements
– Same guidelines as 203(k)
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12. Determining The Maximum Loan Amount
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13. Funding the Loan
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14. FHA 203(k) Draw Process
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15. Streamlined FHA 203(k) Draw Process
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16. Process Flow
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17. Resources
• For information on FHA mortgage insurance programs, visit:
http://www.fha.gov/
• For information on U.S. Department of Housing and Urban
Development, visit: https://www.hud.gov/
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