Lending Guide Investor Rehab Loan Program

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1 Program Description The Rehab loan program is an asset-based financing option designed for borrowers who wish to acquire, rehabilitate, and sell residential real estate. This program is well suited for investors who are actively seeking bank owned real estate and/or who have experience buying and selling distressed properties. The program provides closing funds to acquire residential real estate and disbursement resources to fund rehabilitation costs. Products 12 Month fixed rate interest only loan, determined on the fully disbursed amount, payable in full upon completion and earlier of maturity or sale of property. Maturity Extensions ExpressLoan allows up to one 90 day extension. Loan Amounts Minimum Loan Amount: $30,000 Maximum Loan Amount: $500,000 Maximum Loan Amount The Maximum Loan is the lesser of: Up to 65% of purchase price or appraised value (refinance) plus 100% of the rehabilitation costs, or 75% of Hard Costs (purchase price plus improvement cost) as long as that does not exceed 65% of the after rehab appraised value. (In no event shall the loan amount exceed 65% of Future or After Repaired Value.) Appraisal Requirements Uniform Residential Appraisal Report (URAR-FNMA 1004 for SFR, FNMA 1025 with 1004MC for 2-4 units) required at time of submission. Appraiser must include: As-Is valuation After Rehab valuation Eligible Appraisers Contact ExpressLoan as we have specific appraisers that are authorized under this program. Eligible Borrowers Eligible Borrowers Include: US Citizens and Permanent Resident Aliens Corporations, LLCs and/or Partnerships Purpose Purchase, Rehabilitation and Resale of Residential Properties Occupancy Type Investment and Speculative properties, No owner occupant loans. Property Type SFRs PUDs 2-4 Units and more upon special approval. Note: Leaseholds are not permitted

2 Documentation Type Full Documentation and Limited Documentation (No Income or Employment, but Verified liquid assets and credit) Subordinate Financing Not Allowed Prepayment Penalty None Debt to Income Ratio Not required. Borrower s intent is to rehabilitate and sell property at completion. Program State Restrictions California Properties only Rehab Period 90 to 120 days Builder/Site Supervisor Not Required / Permits May Be Required on a case by case basis Loans to One Borrower No more than 4 loans to one borrower at any given time. The total aggregate outstanding balance financed cannot exceed $1,000,000 Reserve Requirements 6 months of interest payments from unencumbered liquid assets Interest Reserves Interest payments required monthly. May require 4-6 upfront payment if borrower is inexperienced. Insurance Requirements Hazard insurance coverage is required and must include replacement cost based on future or after repaired value. For permitted projects and/or projects that require structural improvements, the following coverage is required: Course of Construction Casualty Typically in the form of a hazard insurance policy this covers replacement cost. Workers Compensation This is provided by the GC. General Liability If provided by the borrower, a minimum of $300K per occurrence is required Flood Insurance Flood insurance is required if the subject property is located in a Special Flood Hazard Area (SFHA) Loss Payee Each insurance policy must name our lender(s) as loss payee(s) and in care of: ExpressLoan.com, Inc., ISAOA 1463 Paseo De Las Flores Encinitas, CA Disbursement Administration Disbursements are made on a reimbursement basis, subject to completion of work. Borrowers or contractors are required to advance funds to the project. Disbursements occur over a period of time based upon the percentage of work completed, as determined by us.

3 Disbursement of Funds The disbursements of funds for the completion of construction generally occur over a period of time as improvements are completed and include: Initial disbursement Made at closing to pay off all existing liens and related closing costs, and to fund the rehabilitation escrow account, less the borrower s required equity. Borrower equity is first in money. Rehabilitation funds are held in an escrow account ready for eligible disbursements. Builder overhead and management costs Disbursed based on percentage of completion. Hard Costs The costs for material and labor will be disbursed based on a percentage of completion of the approved line item budget. Deposits Payment of up to 50% of the line item may be advanced to pay for deposits on eligible materials when accompanied by an invoice. Disbursement Fund Control Brent Calver, ExpressLoan.com, Inc Paseo De Las Flores Encinitas, CA / Construction Phase/Extensions 1 90 day extension is available, subject to approval and minimum additional fee of 2.0 pts. Construction Related Documents Required The following documents are required for loan approval: Complete Line Item Cost Breakdown Complete set of plans and specs (if applicable) Contract with general contractor Copy of approved permits (if applicable) If home was purchased in past 12 months, copy of the HUD-1 settlement statement Copies of invoices and/or cancelled checks for any prepaid construction related costs Compliance We require verification of liquid assets to ensure at least 6 months of loan debt service. Truth-in-Lending Act and RESPA may also apply see below. Disclosure Requirements Truth-in-Lending Act disclosures are required if loans are made to individuals and their primary business is not to rehabilitate single family residential properties. A three-day right of rescission is not required on non-owner-occupied properties. RESPA disclosures (Good Faith Estimate, Final HUD-1) are required. Qualifying the Borrowers Underwriting the borrower s ability, capacity, and willingness to pay is the primary tool used to determine the borrowers credit qualifications. Factors used in qualifying the borrower include: Credit Assets Liabilities Employment and Income Experience in rehabilitation of existing homes

4 Income Documentation For Full Documentation Loans, a 2 year income history is required and may be verified by one of the following: Written VOE and/or a current paystub Two years federal tax returns Two years copies of W-2s Income may include the following sources: Base employment income Overtime income (so long as the employer states that overtime is typical for the borrowers type of job) Commission and/or bonus income (must be regular component of borrowers employment income and averaged over the past 2 years) Dividend/Interest income Trust or rental incomes Pension, SS, VA benefits, or public assistance Asset Documentation Asset documentation is required to verify the source of the borrower s down payment and reserves. Assets may be verified by the last months account statements. The following types of assets will be considered in determining availability and source of necessary funds: Checking, savings, money market, and CD accounts Stocks, bonds, and mutual funds 401k, IRA, or other retirement accounts, discounted by withdrawal and tax penalties Cash value of life insurance Business assets (up to the amount of verified borrower ownership) Debt to Income Ratio Calculations Debt to income ratios will not be calculated for the Investor Rehab program Reserves All Rehab loans require 6 months reserves after closing. Reserves must be liquid and verifiable. Compensating Factors Compensating Factors may be considered as part of the overall credit evaluation process. Minimum Credit Score For all Rehab loans, Standard Credit and a minimum FICO Score of 500 is required. Additionally: No bankruptcies in last 2 years No foreclosures, last 2 years Judgments or liens affecting title are required to be paid off in total at closing Collections and charge-offs may be required to be paid at our discretion Public Records No judgments or liens filed within the past 12 months, as determined by filing date through funding date. Qualifying the Project All projects must undergo a review of the construction budget (noted above). The primary tool used to determine project acceptability is the as-is and after rehab appraised values. Additionally, we will review (when necessary) a full working set of plans and specs as part of the Collateral Assessment Review.

5 Plans & Specs Documentation requirements depend upon whether the home improvement project involves structural or non-structural improvements. Structural Improvements The following are considered structural improvements: In-ground pools & Spas Patios & Decks Room Additions Roofing Siding Sunrooms French Drains Windows Garages Any major structural remodeling For projects that include structural improvements, the following documents are required: 1. Approved set of working plans 2. Contractor s line item cost breakdown 3. Statement of work 4. Builder s Statement 5. Copy of contractor s pocket license Non-Structural Improvements- The following are considered non-structural improvements: Solar Water conditioning and waterproofing General interior or exterior remodeling Landscaping For projects that include only non-structural improvements, the following documents are required: 1. Contract 2. Line item cost breakdown 3. Statement of work Appraisal Requirements All appraisals: Will be prepared with an as-is and subject to completion per plans and specifications values. Should include comments regarding the reasonableness of project costs, as compared to the appraisers estimates Should document a scope that is consistent with the plans & specs, when provided. Permitting & Licensing Permits will be required for all structural rehab and remodel projects and for non-structural projects where it is determined that permits are required All contractors hired for permitted projects must have a general contractor s license in the subject property s jurisdiction. Qualifying the Builder For all Rehab loans the borrower is responsible for selecting and approving the builder and for monitoring the builder s performance over time, independent of us. At no time will we provide a borrower with a recommendation regarding a builder.

6 A credit report and/or builder business profile report and licensing verification provide us with reasonable assurance that the builder is able to manage the project. References The builder must provide at least 3 trade references and 3 former client references Builder Experience The builder must be properly licensed and have at least 3 years residential construction experience Public Records Builders cannot have any liens or judgments filed in the last 12 months Due Diligence We are responsible for underwriting all builders before the loan is approved to close. Title & Escrow Closing Protection Letter (CPL) A closing protection letter is required for every transaction ExpressLoan will require an ALTA title policy that will include 122 endorsements at each disbursement and a final mechanic s lien endorsement. Notice of Completion If applicable and where permit have been required, A Notice of Completion will be filed and recorded after which the final 10% withholding will be released to the borrower/contractor.

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