THE BASICS: Andrew Allen Updated 3/24/2015 COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

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1 R THE BASICS: Andrew Allen Updated 3/24/2015

2 The Formula for Success = AFR s Wholesale division is the #1 203(k) lender in the country for sponsored originations.

3 HomeStyle Questions HomeStyle Explained What is the Fannie Mae HomeStyle Loan Program? What are the program guidelines? What types of improvements are allowed? What are the general contractor guidelines? What is the role of the HUD Consultant? How is a HomeStyle appraisal different from a regular appraisal? How to fill out the 1035 HomeStyle Maximum Mortgage Worksheet? What is the underwriting process? What happens after closing?

4 Fannie Mae HomeStyle Loan Program HomeStyle Explained The Fannie Mae HomeStyle program, enables borrowers to either purchase or refinance their home while including rehabilitation costs in the same loan. This program offers the borrower the ability to finance the cost of a rehab project ranging from a simple remodel through structural improvements and upgrades including luxury items. COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

5 Increased Market Opportunity Why HomeStyle? 1. Purchases: Homes in need of major rehabilitation or are outdated and not desirable 1. Perfect for HUD REOs, foreclosures, and short sales 2. Improvements to out-dated homes, kitchens, bathrooms, etc. 3. Structural deficiencies 4. Additions and expansions 5. Addition of decks, pools, and improved landscaping. 2. Refinances: Make improvements 1. Improve instead of move 2. Necessary or optional major/structural repairs 3. Both Purchases and Refinances: Save loans where the appraisal uncovers unexpected property damage.

6 Fannie Mae HomeStyle Loan Program AFR HomeStyle Basics At AFR, the same Fannie Mae credit and underwriting standards apply to the HomeStyle program as the ordinary Fannie Mae program. For both Purchases and Refinances the ratios are as determined by AUS (Must receive DU Approve/Eligible) 95% LTV on a one-unit principal residence as a Purchase or Limited Cash Out Refinance. 85% LTV on a two-unit principal residence as a Purchase or Limited Cash Out Refinance. 90% LTV on a one-unit second home as a Purchase or Limited Cash Out Refinance. 85% LTV on a one-unit investment property as a Purchase 75% LTV on a one-unit investment property as a Limited Cash Out Refinance. Only 15 or 30 year amortization allowed. Cash back to the borrower is NOT allowed.

7 Eligible Property Types HomeStyle Explained One year completed, primary residences, attached or detached 1-2 Unit Owner Occupied Properties 1 Unit Investment Properties Warrantable Condo s PUD s REO s, Short Sales, Foreclosures are OKAY!

8 Ineligible Property Types HomeStyle Explained Mixed-use properties Co-ops or non-warrantable condos Manufactured Homes Mobile homes 3-4 Unit Properties

9 Improvements Allowed HomeStyle Explained Structural alterations and additions Upgrade or modernization of central air/heat, plumbing, and electrical systems Minor repairs to existing septic systems Repair termite or moisture damage Remodeling of kitchen and baths Energy conservation improvements New permanently affixed appliances Addition or replacement of exterior decks, patios, and porches Major landscaping and permanent hardscape such as driveways, walkways, retaining walls and fences

10 Improvements NOT Allowed HomeStyle Explained Improvements that are not permanently attached to the property Improvements for business or commercial purposes Items that will not increase the value of the subject property. Energy Efficiency repairs which would require additional inspections per Fannie Mae.

11 HomeStyle HomeStyle Explained Eligible for the following types of clients: Third Party Originators (TPO) WD WS Table Funding (TF) Correspondent (C) CDE with caution. Please use the following program codes to identify HomeStyle Loans: CF15-REHAB CF30-REHAB

12 AFR, Inc. HomeStyle Overlays HomeStyle Explained 620 Minimum FICO score required. No razing of homes. No demolition of a home down to its foundation or a portion thereof. No physically relocating a home from one location to another. No Self-Help. The borrower/owner may not be involved whatsoever in any aspect of the construction his or herself. Adjustable Rate Mortgages are not allowed. All applicable AFR Standard Fannie Mae Program overlays apply Certified HUD Consultants will be required in Standard HomeStyle COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

13 Certified HUD Consultant Role in Standard HomeStyle All HomeStyle loans with construction budgets greater than $35,000, or the repairs are structural, a HUD Consultant is required. Provides the Specification of Repairs Report which determines the scope of work, number of draws required, total estimated costs. The Consultant assists in determining both the required and desired repairs and provides a comprehensive Consultant s Report. The Consultant is responsible for interim and final inspection reports in order to approve disbursements to the General Contractor. COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

14 Certified HUD Consultant Role in Standard HomeStyle Adds an extra layer of protection for both the lender and borrower by evaluating the merit of the offers submitted by GC s, assists through the construction process, and verifies all work is satisfactorily completed. Consultant fees range from $400-$1,000 depending on the dollar amount of the estimated work. A list of acceptable HUD Consultants can be found on our website or by visiting COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

15 Certified HUD Consultant Role in Standard HomeStyle Consultants Fee Schedule Consultant Fees are to be disclosed on the initial GFE and are to be included in APR calculations.

16 HUD Consultant Preliminary Feasibility Analysis A feasibility analysis serves to help borrowers make a quick decision regarding the cost involved in renovating a residential property to meet the HUD minimum property standards. This info can also give clarity to a buyer about the offer price. A HUD Consultant can conduct a thorough feasibility analysis upon visiting the property for a fee of about $250-$350. A feasibility analysis report can be used as the basis to know the exact amount needed for necessary repairs to be performed prior to submitting a purchase offer to the seller. A seller may also be more willing to negotiate and adjust their sales price according to the findings from a 203k consultant feasibility report. COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

17 HomeStyle Contractors HomeStyle Explained AFR permits for one General Contractor only. Although obtaining more than one bid is recommended, it is not required In situations where more than one contractor is needed, one must be named as the general contractor. The others will become subcontractors under the GC s supervision. The general contractor will carry over all of the subcontractors bids onto his/ her bid. The general contractor will be responsible for overseeing all repairs are done in a workmanlike and timely manner. The general contractor will also be responsible for disbursing all funds to the subcontractors when funds are released from escrow. COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

18 HomeStyle Contractor (cont.) HomeStyle Explained The general contractor must carry sufficient insurance equal to the amount of the total amount escrowed for repairs through a valid and current general liability insurance policy. The contractor must provide a detailed estimate/bid itemizing all the repairs that are to be completed with cost and note if permits are going to be required. Licensing requirements vary in each state/municipality for contractors. If a repair calls for a specialized contractor, such as electrical or plumbing repairs, the contractor must be licensed to do the work. COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

19 Contractor s Estimate (Sample)

20 HomeStyle Appraisal What makes it different? The GC Estimate is forwarded to the appraisal company upon the order (for both purchases/refinances). Appraiser does the appraisal subject to the completion repairs/improvements and will give an after improved value based upon the list of repairs. The scope of the appraisal is the future value! The appraiser will review the contractor bid to determine that it falls within the usual and customary range for similar work. On purchases the after-improved value is the only value necessary. Since the free markets determined the purchase price, this is considered the current or as-is value COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

21 HomeStyle Appraisal The required AMC to be used for all Renovation Loans is Land Gorilla Land Gorilla 1241 Johnson Avenue Suite 154 San Luis Obispo, CA For Broker Registration, set up and support please refer to: (855) COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

22 Total Rehab Cost Escrowed How is it determined? Total rehabilitation cost escrowed may include all of the following: Estimated cost of Repairs/Improvements Contingency Reserve Consultant s recommendation) Draw Inspection Fees (Consultant s recommendation number & cost per) Up to 6 months mortgage payments (if home uninhabitable during rehab) Title update for each draw ($150 held per draw) Consultant, Architectural, and Engineering fees (if applicable) Permits (if applicable) Maximum cost of repairs is limited to 50% of the subject property s afterimprovements value.

23 Maximum Mortgage Worksheet 1035 HomeStyle The HomeStyle Maximum Mortgage worksheet must be completed in calculating the max loan amount. The worksheet will determine your highest allowable loan amount and LTV, based upon your scenario. The maximum loan amount for a purchase will be based on the following: Purchase: Lesser of (Purchase Price + Renovation Cost) or After Improvements Value of Appraisal Refinance: The After Improvement Value of the Appraisal

24 Completing the Worksheet 1035 Maximum Mortgage Worksheet On all HomeStyle purchases, there are calculations that must be completed in order to determine the maximum loan amount: Begin in Section C, fill in the improvements costs on lines 1a 1i, and the total cost of improvements in C2. Next complete section B. Now complete section A. To complete A2 divide C2 by B3. To complete A1 divide the Loan Amount by the As Completed value. Next complete section E.

25 Completing the Worksheet 1035 MMW Example: Estimate/Bid

26 Completing the Worksheet 1035 MMW Example: HUD Consultant s Summary

27 Maximum Mortgage Worksheet 1035

28 Worksheet for Purchases 1035 MMW Example: 1003/Details of Transaction

29 Potential Pitfalls HomeStyle Explained Unsupported after-improved or to be completed value: There are times when the after improved value is not supported with all of the repairs that are completed. Deferred maintenance, such as peeling paint, or over improvements for the area, may not add value!

30 Underwriting/Approval HomeStyle Explained Files registered and uploaded to WebTrac or Encompass Loans approved by AFR underwriter as typical conventional file After approval, the file is reviewed by the Renovation Department to ensure a cohesive renovation plan is in place.

31 Underwriting/Approval Renovation Department The department is dedicated to AFR s Renovation loans The Renovation Department is comprised of individuals with specific mortgage industry and construction experience. The Renovation Department will review: The HomeStyle Forms The General Contractor s credentials The estimate for repairs/improvements The HUD Consultant Report The appraisal The Renovation Department assists the Underwriting Department to more efficiently facilitate the construction process.

32 After Closing/Renovation Period HomeStyle Prior to closing the Renovation Department reviews the HUD and renovation plan. Once the loan funds, the mortgage proceeds will either payoff the existing liens or the seller, and the Escrow Account will be established for construction funds COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

33 Standard HomeStyle At closing/funding only the Consultant Fee, Permits, Engineering, or Architectural Fees may be disbursed to the appropriate party with an invoice. The borrower can only be reimbursed any costs if proof fees were POC by the borrower. No funds are ever given in advance to the General Contractor Draws to the contractor are made as work progresses and phases are completed based upon the Consultant s write-up and verified through draw inspections by the Consultant A maximum of 5 disbursements/draws are allowed Construction can commence immediately and should within 30 days of the closing and the homeowner has up to 6 months to complete the work Borrowers will make their regular mortgage payments throughout the course of construction unless they are escrowing them due to the home being uninhabitable

34 Streamlined HomeStyle Contractor may receive first draw (up to 50% of repair costs) at closing/funding in order to buy materials and start the renovations. The renovations should begin within 30 days of closing Borrowers will make their regular mortgage payments throughout the course of construction

35 Draw Requests & Completion- HomeStyle Explained All correspondence and questions should be directed to AFR s Renovation Department as they are the administrators of the borrower s rehabilitation escrow account Consultants are to forward their draw requests directly to Renovation@afrwholesale.com for processing All draws checks will be mailed, payable directly to the contractor The Consultant confirms all work completed with final inspection Upon the receipt of the acceptable final inspection, a final disbursement will be made to the contractor All remaining unused funds in escrow will be made as a principal reduction to the mortgage COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

36 AFR s Fannie Mae HomeStyle Forms (found on Fannie Mae HomeStyle Loan Draw Request Disclosure Important Notice Regarding Contingency Funds Owner/Contractor Agreement Renovation Loan Borrowers Disclosure Renovation Loan Indemnity Agreement Request Changes in Approved Drawing and Specs Disclosure Statement - Texas IRS W9 Form Identity of Interest Form Maximum Mortgage Worksheet When the work is 100% complete, please have the following forms completed and executed.. Conditional Waiver & Release Borrower s Letter of Completion

37 HomeStyle Recap Standard Streamlined Structural Changes YES NO Min/Max Repair Amount No Minimum & 50% of total after improvements value No Minimum & 35k Maximum Escrow Landscaping/ Hardscaping YES YES HUD Consultant YES NO Mortgage Payments Financed Up to 6 months NO Draws 5 maximum 2 (Initial & Final) Initial Disbursement NO Half of Estimate Max Completion Time 180 days (6 months) 90 days (3 months)

38 American Financial Resources About Us AFR Wholesale, a division of American Financial Resources, Inc. Nationwide wholesale residential mortgage lender Headquartered in Parsippany, NJ. GNMA approved seller/issuer, FHA Mortgagee and FNMA seller/servicer. Serve thousands of mortgage brokers and lenders throughout the country In business since 1997 Grown to one of the largest FHA lenders in the country.

39 American Financial Resources Become an Approved Lender: The HomeStyle program is available to the following: TPO Third Party Origination, TF Table Funded, C Correspondent, and/or CDE- with caution

40 How we can help you? We re here to help, whenever you need us. If you are a Mortgage Lender new to AFR Wholesale, we welcome the opportunity to discuss our programs with you. For our current Lending Partners, we want to hear from you. Feel free to contact us directly with your comments and questions. If you have more introduction to make just copy and paste this page in your Online Assistance Call us powerpoint document. Toll Free: You can contact us by using renovation@afrwholesale.com Live chat We also offer live chat in our company website

41 THANK YOU If you have more introduction to make just copy and paste this page in your powerpoint document. FOR YOUR BUSINESS