You cannot receive Georgia C.E. credit for this course if you have taken it in the last 366 days.

Transcription

1 Selling the Good, the Bad and the Ugly with a Renovation Loan Brian Stephens Wednesday, February 5, 2014 Part 1 8:00 a.m. 9:20 a.m. Part 2 9:20 a.m. 10:20 a.m. Part 3 10:45 a.m. 11:45 a.m. GREC Course Code #64421 You must Attend 3-1 hour education sessions to earn 3 hours of CE credit. Partial credit is not given. You are not able to combine the1-hour and hour sessions for CE credit. You cannot receive Georgia C.E. credit for this course if you have taken it in the last 366 days. Due to seating capacities dictated by local fire code ordinances, seating for all education sessions will be based on a first come-first serve basis. GAR will not be allowed to have attendees sitting on the floor or standing up once the room s seating is full. In order to foster a spirit of camaraderie and to avoid the appearance of recruitment, no nametags or clothing with a company logo will be allowed in the education courses. Should an attendee have one on at the time of entering an education course, the facilitator will kindly ask you to remove your name badge or place a blank nametag over the company logo. We appreciate your cooperation in regards to this matter!

2 STUDENT NOTICE 2014 Inaugural Meeting 3 HOURS The Georgia Association of REALTORS, Inc. is approved by the Georgia Real Estate Commission (GREC) to offer continuing education, sales post license, and broker prelicense courses. The GREC school code number is 271 with a renewal date of December 31, The Georgia Real Estate Commission has approved this course for continuing education (CE) credit. However, to receive credit, you must attend three 1- hour sessions or two 1.5- hour sessions for which you will earn three hours Georgia CE credit. GAR school policy defines an instructional hour as 60 minutes. To receive continuing education (CE) credit for this in-classroom course, the student must: be on time check in with the course facilitator before the course begins for CE Card remain in the course until the end of the session return the CE card to the course facilitator at the end of the course return a completed evaluation to facilitator at the end of course attend two 1.5 hour education sessions or one 3 hour education session not have taken this course for continuing education credit within the past 366 days. There is no make-up session for this course. Electronic devices are distracting. As a courtesy to others, it is required that students keep the volume turned off during courses. Be respectful to your peers and instructor while using your device to view the online handouts and to take notes. To foster a spirit of camaraderie and to avoid the appearance of recruitment, no nametags or clothing with company logos will be allowed in courses offered for continuing education credit through the Georgia Association of REALTORS School. Entrance qualifications and standards of completion will not be based on race, color, sex, religion, national origin, familial status, or disability. No recruiting for employment opportunities for any real estate brokerage firm is allowed during this course or on the premises while this course is in session. Any effort to recruit by anyone should be promptly reported to the Education Manager; Georgia Association of REALTORS ; ; 3200 Presidential Drive; Atlanta, GA 30340, or to the Georgia Real Estate Commission; ; International Tower; 229 Peachtree Street, NW; Suite 1000; Atlanta, GA

3 Selling the Good, the Bad, and the Ugly with a Renovation Loan Presented by Brian Stephens, NMLSR ID h The Renovation Loan Guy How you can reach Brian Mobile: Toll Free: Brian@brianPstephens.com Look for me on LinkedIn 2 Who Is Brian Stephens? Renovation Loan Specialist 12+ years of mortgage origination experience with loans funded One of the top subject matter experts on Renovation Lending in the U.S. One of the top Renovation Loan originators in the U.S. Donated over 2,300 collective hours of C.E. credit to the real estate community since 2011 with this C.E. course 3 1

4 Expectations for this CE course Why are you here today? 4 What I hope you get out of class today LEARN HOW TO SELL MORE HOMES! $$$$$$$$$$$$ 5 What we will review today Introduction (10 min) FHA overview (10 min) Conventional financing overview (15 min) FHA Streamline203(k) (15 min) FHA Consultant 203(k) (15 min) BREAK (15 min) Knowledge Check (5 min) Fannie Mae HomeStyle Renovation Mortgage (10 min) Renovation Loan process (15 min) After improved appraisal (5 min) HUD Consultant/Third Party Inspector role (5 min) Contractor (10 min) How you can SELL MORE HOMES leveraging Renovation Loans (35 min) How to sell HUD Homes (10 min) Knowledge Check (5 min) 6 2

5 Types of Renovation Financing Renovation loan programs Consultant 203(k) Streamline 203(k) Conventional conforming 7 FHA loan notes Allows for non occupant co borrower 78% of FTHB s in U.S. use FHA Maximum loan size varies by county: Answers to common questions regarding FHA financing: 2 years out of bankruptcy 3 years out of foreclosure/short sale Maximum seller paid closing costs: 6% Down payment? Down payment on a HUD Home? 8 More FHA loan notes Owner occupant only Gift funds allowed 1 4 unit dwellings only Several versions there isn t just one type of FHA financing Watch out for the 203B program! 9 3

6 Conventional financing notes Does NOT allow for non occupant co borrower Maximum loan size: $417,000 Answers to common questions regarding Conventional financing: Years out of bankruptcy: 2 4 Years out of foreclosure: 3 7 Years out of short sale: 2 7 Maximum seller paid closing costs: 3% up to 9% Down payment? 10 More Conventional loan notes Owner occupant, second home/vacation home, investors Gift funds are allowed after buyer makes minimum investment 1 4 unit dwellings only 11 Know the FHA 203(b) and traditional Conventional programs Home must be move in ready i.e. No deficiencies that affect the health and safety of buyer and marketability of the property 12 4

7 Why can t this house get FHA 203B traditional conventional financing? Health and/or safety issues Mold/mildew/dampness or water in basement All windows must freely open/close Missing electrical fixtures, switches, covers Needing handrails if more than 3 steps Water stains on walls/ceilings Missing bathroom fixtures Exposed wiring/plumbing Damage to exterior of home including soffit, fascia and siding Non functioning hot water heater Inadequate access/egress from bedrooms to exterior of home Leaking or worn out roofs Evidence of structural problems Defective paint surfaces in homes constructed pre 1978 Defective exterior paint surfaces in homes constructed POST 1978 where the finish is otherwise unprotected Missing smoke detectors 13 Guess which house probably qualifies for FHA 203(b) or traditional Conventional financing? 14 Inspection Requirements FHA and Conventional loans do not require inspections for the following in EXISTING properties: Wood Destroying Insects/Organisms Well Septic Inspections may be lender specific If appraiser comments on any of the above, an inspection would be mandated 15 5

8 The Million Dollar Question Does the FHA 203B program, or a traditional conventional loan require a stove? 16 Answer FHA 203B and traditional Conventioal loans do NOT require appliances HOWEVER: If the absence of an appliance creates a safety/health issue, a condition to remedy the problem must be made. 17 What does FHA 203(k) mean? And no, the k doesn t stand for kill my deal. Introduced in 1961! Allows buyer to purchase a home and finance the cost of rehabilitation with one FHA loan One FHA mortgage, one closing, one monthly payment Repairs done AFTER closing Mortgage amount calculated on the after improved value of the home, not the as is value Repairs can be for FHA Minimum Property Requirements AND for improvements: NOT a loan of last resort Home must have had a C/O at some time and be at least ONE YEAR OLD 18 6

9 Two types of FHA 203(k) financing FHA Streamline 203(k) Consultant FHA 203(k) No minimum for repairs Maximum of $35,000 for repairs No structural repairs Up to 35% of the repair funds are disbursed to contractor a few days after closing No new luxury items Minimum of $5000 in renovations Maximum loan amount is county FHA loan limit Repairs for any purpose up to FHA loan limit a home can be torn down HUD consultant required Fee involved No funds disbursed to contractor at closing paid via a draw schedule Repair for existing luxury items up to $1500 Up to 6 months PITI can be financed 19 Loan-to-value calculation for the FHA 203K programs: Purchase price: $100,000 Renovation costs: $10,000 (Acquisition cost is price plus rehab costs: $110,000) After improved appraisal: $105,000 (110% of appraisal is $115,500) Maximum loan: $111,457 (96.5% of $115,500) OR $115,400 if HUD Home (k) Streamline particulars Repairs can be required and/or desired Maximum limit for repairs of $35,000 Includes 10% contingency reserve and financed closing costs max bid of $31,

10 Eligible repairs for 203(k) Streamline Cosmetic changes (i.e. paint, flooring, new siding, etc.) Mold remediation New appliances Health and safety items Replacement of HVAC system Improvements for accessibility to the Handicapped Connecting to public water/sewer New roof Interior remodeling 22 Ineligible repairs for 203(k) Streamline Structural repairs (i.e. moving a load bearing wall) Repair of structural damage Landscaping or similar site improvements A rehab work schedule longer than 6 months Repairs exceeding $31,000 (not including contingency reserve) No luxury items are allowed 23 Consultant 203(k) particulars $5,000 minimum requirement for repairs The maximum mortgage amount is based on the lesser of the FHA Statutory loan limit for the area, the as completed" value that is determined by the appraisal, or the purchase priceplus plus the total renovation cost Luxury items cannot be added to the home, however, if they exist we can add up to $1,500 to repair them (such as a pool) A HUD consultant and a Work Write Up is required 24 8

11 Eligible repairs for Consultant 203(k) Structural alterations and reconstruction Changes for improved functions and modernization Elimination of health and safety hazards Changes for aesthetic appeal and elimination of obsolescence Reconditioning or replacement of plumbing (including connection to public water and/or sewer systems), heating, air conditioning and electrical systems Installation of new plumbing fixtures is acceptable 25 Eligible repairs for Consultant 203(k) Roofing, gutters, and downspouts Fencing, decks and patios Flooring, tiling and carpeting Energy conservation improvements Major landscape work and site improvement, Patios, decks and terraces Tree removal Repair of existing walks and driveway Improvements for accessibility to the handicapped 26 Project Feasibility Study for a Renovation Loan Feasibility Study for a Renovation Loan performed by a HUD Consultant: A home analysis Itemization of required edand recommend e repairs, along with a review of the borrower wish list Pricing estimate of renovations/repairs Cost for Study is set by the Consultant and payment is due at appointment 27 9

12 Guess which house probably qualifies for 203(k) Streamline financing? 28 Guess which house probably qualifies for 203(k) Consultant financing? MINUTE BREAK 30 10

13 TRIVIA! What is the maximum amount of repairs allowed on the bid for the FHA 203(k) Streamline loan? What is the maximum amount of repairs for the Consultant FHA 203(k) loan? Can an investor use the 203(k) program? What is the minimum number of years a buyer has to be out of foreclosure to qualify for FHA financing? Can you use the Streamline 203(k) for mold remediation? How much can be added to the 203(k) loan to install a pool? Can appliances be added to the Streamline 203(k)? What percent above the after improved value appraisal can be financed? 31 Conventional Renovation Mortgage Option Fannie Mae HomeStyle Renovation Mortgage $417,000 loan limit New Luxury items permitted Unfinished new construction Owner occupants, second home/vacation home buyers, investors 32 More on the Fannie Mae HomeStyle Renovation Mortgage Down payment for owner occupants: 5% Down payment for vacation homes: 10% Down payment for investors: 20% Alternative ti option if buyer already has FHA loan in their name PMI if down payment is less than 20% Third Party Inspector vs. HUD Consultant 33 11

14 Number of FHA 203(k) loans closed annually since 2002 source: HUD 203K Endorsements HUD 203K Endorsements Linear (HUD 203K Endorsements) Importance of finding an experienced Renovation lender Know who your buyers are using for their financing Experience counts 35 How do I get a Renovation Loan closed? Competent lenders will lay out a plan Look out for smoke screen objections The buyer, real estate agent, and lender all have defined roles ABOUT 60 CALENDAR DAYS FOR CLOSING ON AVERAGE! Lending world operates in business days 36 12

15 Borrower Task List 1 APPLICATION DATE 4 FEASIBILITY STUDY IN FILE TO PROCESSING Order title 10 CONTRACTOR BID REC D CONTRACTOR DOCS REC D 11 ORDER APPRAISAL Send bid/contract to appraiser 15 CONTRACTOR VALIDATED 19 LOAN COMITTMENT RECD Review conditions Introduce processor 24 TITLE REC D HOINS Dec pg rec d 25 APPRAISAL IN Value Review for additional repairs 38 ALL CONDITIONS CLEAR Schedule closing date/time 40 PACKAGE OUT BY 42 REVIEW HUD Cash to close 43 CLOSE 37 REALTOR Task List 1 APPLICATION Inspections 4 3 IMPROVED COMPS ASSIST W/ UTILITIES GET ATTORNEY INFO Package out instructions 8 EXECUTED CONTRACT 10 MEET APPRAISER ON SITE Comp data UTILITIES ON On INSIDE home 24 ASSIST W/LOAN COND S 38 SCHED CLOSE DATE/TIME 42 REVIEW HUD 38 After Improved appraisal Appraisal is done as a ARV appraisal Loan will be based on ARV Rehabilitation bid must be supplied to the appraiser by the lender Comparables used should reflect the scope of the work being done on the subject property: NEED HELP FROM REAL ESTATE AGENTS List price has no bearing on offer price if financing purchase pull sold comps for average sales price, subtract guess of amount of rehab and remaining figure is max offer price 39 13

16 After improved appraisal, continued Appraiser will note if utilities were on at time of inspection: If not on, they will need to be turned on for a final inspection If they cannot be turned on a 15% contingency reserve will be added to the repair escrow 40 What is the role of the HUD Consultant and Third Party Inspector? A HUD Consultant is a requirement for the full FHA 203(k) loan (NOT the Streamline version) and a Third Party Inspector is a requirement for the Fannie Mae HomeStyle Renovation Mortgage Their role prior to closing: Perform a home analysis Determine which h repairs are necessary for the home to meet HUD s/fannie Mae s MPR Prepare a report specifying what repairs are going to be done The fee charged by the HUD Consultant is set by HUD The fee charged by the Third Party Inspector is $430 $530 Fees can be financed 41 HUD Consultant Fee Schedule 42 14

17 HUD Consultant/Third Party Inspector role AFTER closing Consultant/Inspector becomes the draw inspector after closing NOTE: The consultant will charge the buyer for each draw for their time and cost of travel Once a draw is requested, the Consultant will do a site visit Draws cannot be made without the contractor proving the proper permits have been issued 43 The role of the contractor BEFORE your buyers find a home, they need to start interviewing contractors. 44 Is a contractor required to do the work? If the borrower wants to do any of the work, they must be qualified to do the work, do it in a timely and workmanlike manner, demonstrate they have the time and expertise to do the repairs, as well as have the funds to pay for materials up front Self Help in allowed in certain circumstances however, IT IS GENERALLY NOT ADVISED 45 15

18 How do we find a contractor? ONE General Contractor preferred It is up to the buyer to find a General Contractor Here are some ways to search for contractors: Contact your Secretary of State for a list of licensed contractors This site will give you a list of HUD Consultants and they may be able to recommend contractors Ask other agents in your office and your Broker 46 Contractor notes, continued Their choice of contractor is probably the most important decision they will make during this transaction Questions for your buyer to ask the contractors they are interviewing: Do you have a CURRENT state Contractors License? Do you have the necessary CURRENT Business License(s) to pull permits? Do you have General Liability Insurance? Do you have good personal and business credit? Have you ever worked with a client who is financing a home purchase with a Renovation Loan loan? Can you have all of the work done in 6 months? Are you aware that you will be paid on a draw schedule? 47 Do you think you can sell this house? With a Renovation Loan you can! 48 16

19 Why do you need to know about Renovation Loans? Will these programs help you sell MORE homes and sell them faster? Will these programs increase your buyer pool? Will these programs help you overcome objections about the house? Will these programs help you list more homes? A Renovation Loan allows your buyers to finance to cost of making their new home their DREAM HOME! 49 What buyers want Per NAR survey what matters most to buyers is: Quality of neighborhood LOCATION Convenience to job LOCATION Overall affordability PRICE Overall 25% said schools but 46% said schools when there are children in home under age What younger buyers (FTHB s) want- 39% OF BUYERS! Video of listings (YouTube) 91% sleep next to smartphone Move in ready with all upgrades Challenging with limited inventory at lower price points Watch home repair reality TV shows Eco options ( green homes ) High Tech homes Flex space 51 17

20 Why Renovation financing? Historically low levels of inventory 35% fewer homes on the market currently than 3 years ago (about 2.1 million available units) 3.7 million homes being held off market (almost twice the amount of available homes) will need renovation due to extended vacancies New home sales below non new home sales since late month supply of homes for sale in U.S. (some markets have less) 52 Over 70% of existing homes are 24+ years old!-homes need updating! Age US Housing Stock Built 2005 or later Built 2000 to 2004 Built 1990 to 1999 Built 1980 to 1989 Built 1970 to 1979 Built 1960 to 1969 Built 1950 to 1959 Built 1940 to 1949 Built 1939 or earlier 6.90% 8.80% 13.80% 13.50% 15.80% 11.10% 10.90% 5.50% 13.50% 0.00% 5.00% 10.00% 15.00% 20.00% 53 More reasons for Renovation financing Competition for move in ready homes Highest and best Multiple offers Over bidding Distressed sales large part of market FTHBs want perfect home Aging population 54 18

21 You sell Renovation Loans already and you don t even know it! Do you overcome objections? Isn t real estate all about LOCATION, LOCATION, LOCATION? How many times have your buyers looked at homes in the perfect location but they chose not to buy a particular home due to the home not meeting their needs? How many times have you asked the seller to repair something in the home prior closing because of the inspection and they said NO? You now have the answer to almost any objection a buyer would have regarding a home! What if? 55 The What if? close Ask your buyers What if I could get you a New kitchen New roof New appliances A finished basement An extra bathroom An extra bedroom The list is endless! 56 Create the vision 57 19

22 An idea to generate listings Contact past book of business Home equity increasing since late 2011 Offer refinancing with a Renovation Loan to update home Make home more marketable Have to live in home for 1 year after refinance closing 58 Have a listing that needs a little TLC? Don t list as cash buyer only or TLC needed or handy man special State: Renovation Financing Is Available Get a bid for necessary and/or cosmetic repairs Put sample before and after photos in home Put a financing flyer that compares a mortgage payment on the as is home versusa renovated home Put out a Renovation Financing Available yard sign Create YouTube channel to highlight listing with renovation financing (second largest search engine) 88% of all buyers start search on internet highlight renovation possibilities in on line advertisements Consider a Renovation Caravan Seek out listings that other real estate agents don t want 59 How about short sales? Scenario: Short Sale property has deferred maintenance related to health and/or safety issues. SOLUTION: Renovation loans allow a buyer to purchase the home as is and make the necessary repairs after closing. Traditional financing will not work with a home that has deferred maintenance. Scenario: Buyer likes the price and location of the Short Sale property but doesn t like some of the aesthetics of the home. SOLUTION: Renovation loans allow a buyer to purchase the home and then make any cosmetic repairs after closing such as remodeling the kitchen, adding a bathroom, etc. Scenario: Short Sale property has features that have been neglected and need repair such as the furnace, pool liner, roof, etc.. SOLUTION: Improvements for Renovation Loans can include anything from basic repairs or upgrades to more extensive renovations structural or cosmetic there are options for properties in basically any condition

23 Why HUD? What is a HUD Home? Where are HUD Homes? Who can buy a HUD Home? 61 Next wave of inventory will be HUD Homes 23% 38% of all loans in U.S. since 2008 are FHA loans (6% in 2007) 4 largest servicers have $57 BILLION in seriously delinquent FHA loans 10 largest servicers have 550, seriously delinquent FHA loans 2006 vintage: 19% seriously delinquent 2007 vintage: 25% seriously delinquent 2008 vintage: 26% seriously delinquent ALL DPA FHA loans: 23% seriously delinquent 62 Successful bidding 63 21

24 Things to look for How much time is remaining in bid process FHA insurability code If buyer is owner occupant Under addendums tab: Property Condition Report (PCR) Repair Escrow (if there is one) Notes on contract: If owner occupant, check correct financing box on line 4 of contract Add $100 down payment to line 4 of contract 64 Do you sell HUD Homes? Here are what the FHA financing codes mean Code Indicates Description IN Insurable Home meets standard FHA 203(b) property standards in current condition IE UI Insurable with Repair Escrow Uninsurable NOT A SCARY THING! Home does NOT meet standard FHA 203(b) property standards in current condition however the repairs are estimated to cost less than $5000 and the funds for repairs are added to the mortgage repairs done after closing Home does NOT meet standard FHA 203(b) property standards in current condition due to the estimated repairs exceeding $5000 however, owner occupant can purchase with FHA 203(k) financing 65 Info on insurability codes Review code PRIOR to submitting offer for non cash buyer Code determines what type of FHA loan needed Check appropriate box on line 4 of contract If Repair Escrow, include amount of Repair Escrow on line 4 of contract NOTE: Repair estimates for Repair Escrows are usually not in line with realistic costs. Discuss with buyer (cost overruns paid by buyer) Repair Escrow funds are borrowed not given by HUD Repair Escrows are NOT allowed for non functioning utilities (review PCR) Recommend 203K Program instead of 203B with Repair Escrow if Escrow is for more than minor cosmetic items Few lenders offer FHA financing with Repair Escrow and even fewer offer Repair Escrow with $100 down payment FHA 203K Program IS available on IN and IE codes Buyer wants to change cosmetic aesthetics (i.e. add bathroom, new roof, etc.) 66 22

25 Tip for winning a HUD Bid Find UI home that buyer is interested in Bid during first 5 days Make best offer (keep in mind that a bid equal to, or over, the as is value will prevent the buyer from being able to finance the FHA Upfront MIP cost of 1.75%) Check back up offer box 67 TRIVIA! What does the FHA financing code UI mean on a HUD Home? Does the buyer need a HUD Consultant for the FHA 203(k) Streamline program? What is the maximum amount of time the contractor has to complete the rehabilitation work? What is the maximum fee a HUD Consultant can charge? How much time should the agent ask for to close the FHA 203(k)? What is the FHA 203(k) maximum loan amount? How much can be added to the 203(k) loan to fix a pool? How many FHA 203(k) loans were closed last year? What is the name of the Conventional Renovation Mortgage? 68 More trivia! What is the maximum loan amount for the Fannie Mae HomeStyle renovation mortgage? What is the downpayment on a HUD Home when the buyer is using an FHA loan? What is the minimum amount of repairs for the Streamline 203(k)? What Renovation Program can be used to complete an unfinished new construction property? When was the FHA 203(k) program introduced? Can you refinance with a Renovation Loan? What is my phone number? 69 23

26 Thanks for attending my class today!