1 Introduction to the Fannie Mae HomeStyle Renovation Mortgage Presented by Damon Richardson, Program Specialist - American Financial Resources, Inc.
2 About the Presenter With 12 years of mortgage industry experience spanning several underwriting roles, Damon Richardson has consistently brought a high level of professionalism to his work while never sacrificing a personal touch. Working as both a frontline and QC underwriter, Damon operates under the belief that communication and customer service are the tent poles of success in today s business landscape. As AFR s Fannie Mae HomeStyle Renovation Mortgage specialist, he hopes to share with you his expertise in order to facilitate stronger business relationships in today s ever-changing mortgage landscape.
3 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 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.
5 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 Purchases: Homes in need of major rehabilitation or are outdated and not desirable 1.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 Improvements to outdated homes, kitchens, bathrooms, etc. 3.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 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, 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 One year completed, primary residences, attached or detached 1-4 Unit Owner Occupied Properties 1 Unit Investment Properties Warrantable Condo s PUD s REO s, Short Sales, Foreclosures are OKAY!
8 Improvements Allowed Structural alterations and additions Upgrade or modernization of central air/heat, plumbing, and electrical systems Install, repair or replace well and 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
9 Improvements NOT Allowed 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.
10 Certified HUD Consultant Role in Standard HomeStyle 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. A twist added to help the Homeowner have an expert in their corner through the entire construction process.
11 Certified HUD Consultant Role in 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 https://entp.hud.gov/idapp/html/f17cnsltdata.cfm.
12 Certified HUD Consultant Role in HomeStyle Consultants Fee Schedule Consultant Fees are to be disclosed on the initial GFE and are to be included in APR calculations.
13 HomeStyle Contractors 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. Having one general contractor have control over the project streamlines the proceedings, this is another twist added to help the Homeowner have an expert in their corner through the entire construction process.
14 HomeStyle Contractors (cont.) 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.
15 Contractor s Estimate (Sample)
16 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
17 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) 1 Title Update $150 Consultant, Architectural, and Engineering fees (if applicable) Permits (if applicable) Maximum cost of repairs is limited to 50% of the subject property s after-improvements value.
18 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
19 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.
20 Completing the Worksheet 1035 MMW Example: Estimate/Bid
21 Completing the Worksheet 1035 MMW Example: HUD Consultant s Summary
22 Maximum Mortgage Worksheet 1035
23 Worksheet for Purchases 1035 MMW Example: 1003/ Details of Transaction
24 Potential Pitfalls 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!
25 After Closing/ Renovation Period 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
26 Draw Requests & Completion All correspondence and questions should be directed to AFR s Renovation Department as they are the administrators of the borrower s rehabilitation escrow account 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
27 American Financial Resources, Inc. About Us AFR Wholesale, a division of American Financial Resources, Inc. is a nationwide wholesale residential mortgage lender headquartered in Parsippany, NJ. We are a Ginnie Mae issuer, Fannie Mae and Freddie Mac Seller/Servicer, FHA Mortgagee, USDA National Lender and VA Automatic Lender. We currently serve thousands of mortgage brokers and lenders throughout this great country with their residential financing needs. In business since 1997.
28 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. Online Assistance Call us Toll Free: You can contact us by using Live chat We also offer live chat in our company website
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