PROBLEM: In the current real estate market, there is no shortage of prospective buyers who want to purchase a home and real estate agents who want to help them accomplish this goal. What there is a shortage of, however, is homes for sale. Properties that are distressed financially or just in need of repair generally tend to sit on the market longer, as buyers often want a turnkey home. But with low inventory dogging the market, buyers may want to take a second look at purchasing a home in need of rehabilitation or repair. SOLUTION: The Federal Housing Administration (FHA) 203k loan helps homebuyers finance both the purchase and rehabilitation of a home with one mortgage. Although this underutilized loan product can help real estate agents get more of their clients into homes, they first need to know how it works and could help their buyers.

1. 1
HOMEBUYER &
RENOVATION
LENDING WORKSHOP
“It’s not just a mortgage, it’s part of a plan”
Presented by Steven Yegher
11/10/2020

2. Keeping Up With Demand
2
1 What buyers’ want.
2 Types of 203k renovation loans
a. Standard
b. Limited
c. Repair Escrow

3. 3
RENOVATION MORTGAGE
DEFINITION…
1 A first mortgage program that lends
money today, based on tomorrow’s
value.
2 Wraps both acquisition costs and
needed renovation funds all into one
loan based on “after-improved” market
value.
“THE WORSE THE HOUSE THE BETTER”

4. 4
LOANS FOR THE FOLLOWING
PURPOSES
 Loan programs
 Purchase
 Refinance
 Cash out refinance
 Types of renovation
 Minor / cosmetic
 Major / infrastructure
 Additions

5. 5
Programs / differences
 Govt. (FHA/VA) – Owner occupant only, liberal on credit,
houses in “as-is” w/restrictions, renovation (FHA only)
 203b (regular), 203K & 203kL (renovation), EEM
 VA (regular), EEM, VA (renovation).
 Conventional (Fannie) – Owner, 2nd home, investor, houses
in “as-is” w/restrictions, renovation
 Standard “regular loan”
 Homestyle Fannie Mae Renovation

6. 6
Steps of a Renovation Loan
 1. Application / approval
 2. The Work Write-Up/GC Bid
 3. The Appraisal
 4. Project Management
 5. Close / renovate

7. 7
Eligible properties
 1 & 2 family dwellings
 Mixed use properties (203K FHA only)
 Urban, suburban & rural properties
 No Manufactured housing (mobile)
 Condo’s ok
 MUST BE MARKETABLE!
 5 and above go Commercial

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 All minimum property standards (code) items
 System repairs - HVAC, plumbing, electrical
 Structural and envelope – roofing, siding, joist and
foundation
 Appliances (if missing)
 Wish list items: optional but enhance property
 Additions
 Interior alterations
 Renovated or added kitchens and baths
 Misc…move, units, pop a top, etc…
Eligible Repairs & Renovations

10. 10
Step 2.
The Work Write-Up/Bid
 Why is a WWU/bid required?
 What they should/can include…
 Minimum property standards
 Wish list
 Bid required on all renovation loans
 WWU required on Standard & Limited
 The 3 limitations

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Step 4.
Project Management
 GC - General Contractor always allowed
 Required to validate - License, Insurance,
profile
 Self-help
 Team of Pros
 Set Limits
 99.9% you need a GC

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Step 5. Close / Renovate
 Where does the money go
 Time to complete renovation
 Draw Process
 Contingency - can use it, never lose it
 Monitor, communicate, document,
meet…

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E.E.M.
 Energy Efficiency Mortgage
 The Rating
 The Report
 Benefits with renovation
 Mortgage amount based on home value
plus projected cost of energy efficient
improvements.

15. 15
E.E.M. Example
1.1400 S.F. house
Loan amt.:$100,000
Terms: 30 yr. 3.5%
PITI $449.00
Gas/Elect. $264.00
Total $713.00
2. 1400 S.F. house
Loan amt. $107,000
[incl.
energy retrofits]
Terms: 30 yr. 3.5%
PITI $480.83
Gas/Elect. $177.00
Total $657.83
*Savings of $55.17 per month is equal to getting the same
loan at an interest rate of under 2.875%.
Which lender scenario would you choose?

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DO THE NUMBERS WORK?
 These are the numbers you should have
before making an offer on a property:
 _________An estimated cost of renovation
 _________Estimate of “after-improved value”
 _________The dollar value of incentives
 _________The sales price (you will pay)
 On a refinance add the renovation budget to the
mortgage balance (if any) and compare
acquisition to comparables.

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For Smoothest Transaction…
 Consult with a lender before contract
 Have the lender and real estate agent
talk
 45-60 days to close
 Apply quickly, THIS IS HUGE
 Contingencies are recommended
 Get Step 2 done ASAP

20. Special Features
Finance mortgage payments
One loan, one low rate, tax deductible
You have an ally
Keep investments intact
Very flexible, addresses many property
situations/challenges/cures
Mixed use properties
Unless cash, often the best way to secure a
fixer upper
20

21. 21
To Renovate or Not to
Renovate?
 Advantages of renovation
 Save a house
 Built in equity
 Your vision
 Improve neighborhood
 Buy “as-is”
 Tax advantages
 Economic advantages