FHA 203(k) Rehabilitation Loans

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1 Everything You Need to Know About FHA 203(k) Rehabilitation Loans Presented April 10, 2009

2 Senior Loan Officer, FHA Consultant FHA/VA Since 1970

3 CLASS TOPICS Finance Rehabilitation FHA 203k FHA 203k Streamline Finance Energy Savings FHA Energy Efficient Mortgage (EEM) Mortgage Mentor

4 FHA 203(k) Rehabilitate, Repair, Remodel Purchases or Refinances FHA 203(k) combines everything into one loan.

5 Remodel Turn this Into This

6 Update New Roof Air Conditioning Add a Bedroom Remodel kitchen Add a Garage Insulate Attic Landscape Insulate Windows Eliminate Mold Add a Bath

7 Rebuild Rebuild from foundation up

8 Move Home 203k cannot be funded until home is permanently secured to new foundation.

9 Purchase Offer Written similar to any other offer. Seller can pay buyer s closing costs up to 6% of purchase price. Buyer discloses 95.50% FHA financing. No Personal property included Except Repairs are completed after close.

10 Seller Advantages Distressed properties are available to buyers with limited funds. Property can be sold As Is. Repairs will not delay closing. The 203(k) does not incur costs to the seller.

11 Eligible Borrowers Not limited to First Time Buyers. There are no borrower income limits. No purchase price restrictions. Borrower qualifies per normal FHA guidelines. Borrower s minimum investment is 3.5% of purchase price plus repairs.

12 Occupancy Owner Occupants Purchase Refinance Investors are NOT allowed

13 Eligible Properties Homes must be One year or older Single family dwellings. Condominiums and PUDs. Units maximum of four. Units can be increased or decreased while conforming to local zoning laws. Manufactured homes. built after Mixed Use Properties. Seller can be any legal entity.

14 Appraisal Property is appraised: As Is: At Lender Discretion As Improved Improved Value must supported by comparable sales of similar properties Loan is based on As Improved.

15 Example of As Improved Actual purchase price $300,000 Cost to rehabilitate. 50,000 Must appraise at Improved Value $350,000 Loan amount is based on improved value or appraised value whichever is less. Loan: 96.50% x $350,000 $337,750 Downpayment 3.50% 12,250

16 Eligible Improvements Virtually any kind of non-luxury improvement is eligible provided it becomes a permanent part of the property and it must add value, such as: Rehabilitate Deferred Maintenance. Room additions Health and safety upgrades Handicapped accessibility improvements Energy conservation improvements Kitchen and bath remodels Major landscape work and site improvement

17 Eligible Improvements Non-Construction costs can also be included in the 203k loan such as: Contingency reserve (10%-20%) Unused reserves are credited to loan. Up to 6 months PITI mortgage payments. Permit costs. Consultant fees. Inspection and title update fees Architectural & Engineering fees

18 Not Eligible Luxury items and improvements that do not become a permanent part of the real property. Items below are examples of unacceptable improvements. Barbecue pits; bathhouses; dumbwaiters; exterior hot tubs, saunas, spas and whirlpool baths; outdoor fireplaces or hearths, photo murals; swimming pools; television antennas and satellite dishes; tennis courts; tree surgery. Additions or alterations to provide for commercial use are not eligible.

19 Home Buying Steps FHA 203(k) Renovation Loan.

20 Buyer s Support Team RE Agent Finds Home and Accurately Comps improved Value. Contractor Must correctly estimate costs and complete work on time. Loan Officer Must thoroughly understand FHA Guidelines

21 1. Locate the home and conduct a preliminary feasibility analysis. Determine the value of comparable homes in the area. Contractor, and Buyer consult to identify repairs and upgrades. Total of Purchase price plus proposed repairs must remain in line with values of similar homes in the area.

22 2. Submit purchase offer contingent on Home inspection Buyer s FHA loan approval. Buyer s acceptance of any additional improvements required by HUD 3. Once the offer is accepted, the buyer and contactor and possibly an architect prepare a detailed rehabilitation budget and work list.

23 4. A meeting is then Scheduled with a FHA Approved 203(k) Consultant The FHA 203(k) consultant checks that the proposed budget and work list to insure that it meets FHA guidelines. Once the budget is approved, the 203(k) Cost Consultant prepares the work write up for the appraiser and lender.

24 5. Appraiser uses FHA Consultant s work writeup to value home as repaired. 6. Once the Appraisal is completed Loan closings occurs within 30 days. 7. Due to initial analysis and inspections prior to appraisal the typical 203k takes days. 8. Renovation begins after close. Must begin within 30 days of closing 8. Project must be completed within 6 months.

25 Streamline 203k

26 Streamlined 203k Limited Repair Program allows owner/buyers to finance up to $35,000 of repairs into their mortgage without the additional costs of consultants and architects. Uncomplicated improvements that do not require permits or the services of an architect or consultant. Improvements over $15,000 require a final Lender inspection. Other than not requiring a FHA 203(k) consultant the Streamline follows 203k guidelines.

27 EEM Energy Efficient Mortgage

28 Resale Homes The basic loan for Energy Efficient Mortgage (EEM) is initially underwritten on the purchase price without the cost of the energy package, using basic FHA guidelines. Note: EEM is also available for conventional and VA loans using slightly different guidelines.

29 Once borrower and property qualify for a FHA loan. An Energy consultant prepares the Energy Rating report. And, a FHA EEM worksheet will determine the dollar amount of the cost-effective energy package that may be added to the loan amount. The cost of the improvement must be less then the energy savings gained over the life of the improvement. The minimum EEM amount is $4,000 and, the amount cannot exceed 5 percent of the property's value or $8,000 whichever is less.

30 EEM loans on new construction, as well as those homes that were built to the 2000 IECC or, are being retrofitted to that standard, allow "stretch ratios" of 33% and 45%. The energy package cost is subtracted from the sales price and the qualifying ratios calculated on this lower amount

31 Energy Improvements costing less than $3,500 can be added to a FHA loan without the need for an Energy Consultant. FHA requires: Contractor's bid or, Home owner s paid receipts.

32 Recap of Improvement Options Energy improvements without a consultant up to $3,500 can be added to FHA loans based on a contractor's bid or homeowner s documented cost. EEM allows energy improvements from $4,000 to 8,000 can be added to FHA loans based on Energy Rating report by a qualified energy consultant. 203k Streamline allows up to $35,000 to pay for minor improvements to be added to FHA loans based on contractor bids. 203k allows major improvements with the help of a FHA 203k Consultant.

33 Presented by Loan Officer Closing FHA Loans since 1970 Applications are taken personally Every borrower thoroughly understands their loan. Total Cost To Close is accurately disclosed. Mortgage Trainer Training is tailored for each company s needs. Consulting Individual FHA Loan Setup and Loan Qualifying Establish In-House lending. Obtain Approval as FHA correspondent. Obtain Approval as a California Finance Lender (CFL) Call: Bill@YourFhaGuru.com