PRMI 203K Streamline Loan. FHA Renovation Loan

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1 PRMI 203K Streamline Loan FHA Renovation Loan

2 Put the finishing touches on your borrowers Dream home. Purchase or Refinances Help you to sell more homes, and represent more buyers. Work with contractors to generate more business.

3 Who s is your Target Market? Potential Clients Your FHA Home buyers Buyers can look at homes for the positives, knowing it can all be remodeled. (out of date properties) Borrower s who want to renovate their existing home. Refinance up to 97.75% of their equity with no cash out hit s to pricing or guideline restrictions. Borrower can update older homes. REO/Foreclosure Listings Useful in assisting buyers with renovations on REO properties Open up properties to more buyers

4 Client Qualification FHA General Guidelines FHA Guidelines apply AUS approve Eligible ONLY. Minimum 640 FICO Owner Occupied ONLY Min $75,000 Loan Amount (sales price plus Escrow) 1.75% UFMIP. Case Numbers assigned after 04/05/2010 will be 2.25% UFMIP Monthly MIP is the same as normal FHA loans Purchase 3.5% minimum down payment required. This is based off the total of the sales price and the total escrow amount. Gift from relative, fiancé/fiancée, or domestic partner acceptable No $100 down or grant programs or DPA s allowed Interest party contributions allowed up to 6% May not go towards down payment. Refinance 97.75% LTV allowed. No subordinate financing allowed. No cash in hand allowed. All items for repair are included in the escrow repair account. Escrow Repair Requirements Maximum $35,000 rehabilitation amount which includes fees on loan program. (includes a 10% contingency in the $35,000 or 15% if utilities are not on.)

5 Property Valuation and Repairs How is Value determined on a Purchase? The value is determined by what the property will be worth after repairs are done. Repair escrow plus purchase price cannot exceed 110% of the subject to appraised value. (Condo s are limited to the actual Subject To value) How is Value determined on a Refinance? LTV is determined by using the lessor of as is value plus the total escrow amount or 110% of the subject to appraised value. (Condo s are limited to the actual Subject To value) Having equity in the property is vital being able to wrap the escrow into the new loan amount. LTV can be based on the Subject To value which provides equity for repair escrow account to be built into our loan amount. What improvements are allowed in the repair escrow account? Items to repair or update the home which are not structural repairs. Repair and Replace of an existing items Remove and Replacement of an existing items No structural changes to the home. Ex: wall removal/additions No luxury items to be installed Key property/appraisal Phrases. as is This is the condition and value of the property BEFORE any repairs or improvements are done. subject to This is the condition and value of the property AFTER the repairs and improvements are completed. as completed Similar to subject to this is the condition / value of the property once repairs are done.

6 Eligible Improvements Repair/Replacement of roofs, gutters, and downspouts Repair/Replacement/Upgrade of existing HVAC system Repair/Replacement/Upgrade of plumbing and electrical systems Repair/Replacement of flooring. (does not include sub-flooring, this is considered structural) Minor remodeling, such as kitchens and baths, which does not involve structural repairs. Painting, both exterior and interior Weatherization, including storm windows and doors, insulation, weather stripping, etc. Purchase and installations of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwave ovens Accessibility improvements for persons with disabilities Pest Work, Health and Safety issues Lead-based paint stabilization or abatement of lead-based paint hazards Repair/Replacement/Add exterior decks, patios, porches Basement finishing and remodeling, which does not involve structural repairs Basement waterproofing Window and door replacements and exterior wall re-siding Septic system and/or well repair or replacement. (There is a minimum of 1 acre property if you have both. One or the other must have a minimum lot acre of.50 to be eligible on the program) Pool repair not to exceed $1,500 (required to have a minimum of $5,000 in other repairs before $1,500 can be used)

7 Ineligible Improvements Ineligible Improvements Major rehabilitation or major remodeling, such as the relocation of a load-bearing wall; New Construction (including room additions) NOTE: If there was a permitted room addition that was not completed that may be finished and eligible. No new fencing (repairs of fencing may be eligible, but on the damaged portion) No Luxury items: New Pools, Hot tub s, gazebos, tennis courts, saunas etc. Foundation Repair Anything that could be considered structural. i.e. changing the pitch of a roof, replacement of sub-floor Landscaping such as sod installation. (Eligible improvements is grade leveling in order for proper water drainage ONLY) Items required to finish a new construction home. Homes where the Certificate of Occupancy has been issued in the most recent 12 months is not acceptable. (must have the COO issued for a minimum of 12 months).

8 Individual Responsibilities Homeowner Decide what work they want to be done to the property. FHA Minimum property requirements must be completed. Select contractor. Obtain DETAILED Bids for all necessary repairs or improvements. Bids need to clearly define what is being repaired or improved as it will affect property value. **this step is very important! The longer this takes the longer the loan will take to get approved.** Obtain necessary permits, if not being obtained by the contractor Sign Homeowner/Contractor Agreement, Rehabilitation Home Agreement, 203k Borrower Acknowledgment and Limited Repair Loan Program Disclosure

9 Individual Responsibilities Appraiser Must receive all Bids and list of work items to be repaired/updated Complete the Repair Addendum to match our cost estimates and provide the As Is value Report to be completed as Subject To our repairs being completed. Comment if utilities are on and in working order or not. Perform final inspection to assure work completed as submitted (inspection will be ordered when work is completed after loan close/funding)

10 Individual Responsibilities Loan Officer / PRMI Branch Disclose in accordance to requirements under RESPA and the FHA 203k Streamline program Educate Realtor on expectations. There is a longer turn time. You must have the bids from the borrower prior to ordering the appraisal. Remember, your borrower needs the time to shop for the best contractor for the repairs. Educate borrower on process and the importance of getting BIDS done promptly and complete. Examine bid(s) & work plan; review with Borrower and Contractor Ensure work meets program requirements and cost of repairs are reasonable/customary for area Assure all required permits obtained

11 Individual Responsibilities PRMI Lending Center Underwriting and Program Liaision Each branch will originate and process the file. (the Lending Center is there to educate and teach, and answer branch questions) Lending Center Underwrites the file. Underwriter will underwrite to FHA guides. Examine bid(s) & work plan Ensure work meets program requirements and cost of repairs are reasonable/customary for area Complete HUD-92700, Maximum Mortgage Worksheet Determine amount of contingency reserve needed. Verify Appraisal meets FHA MPR items (minimum property requirements) Determine if borrower meets requirements for self-help

12 Contractor Requirements Must meet all jurisdictional licensing & bonding requirements required by state and evidence in the loan file. If state does not require a contractor to have the jurisdictional or bonding licensing then we will require a active business license or registered trade name. Others are: E&O Insurance, proof of workman s comp if more than one employee, Schedule C handyman would require a resume and 2 references. Provide written cost estimate, provide licensing, bonding, reference information to lender. Only fixed prices acceptable (flat labor cost) Bid must contain contact info for the contractor, and must be signed by the contractor. Execute Homeowner/Contractor Agreement & Contractor Draw Disclosure Execute W-9 unless Home Imp Store. Obtain permits, if homeowner has not. Sign the Contractor Draw disclosure. This insures the contractor understanding that maximum 2 draws paid out on the program.

13 203k Streamline Bids for repair Property bids must break out the following: Specific location and type of repair. Ex: listed on bid as: replace window. Where? Need to be specific. This protects your client. Bid must have all contractor contact information: Company name, address and phone number. Have a final dollar amount listed on bid. If there is a signature line it must be signed by the contractor and the borrower. If payment terms are listed on the bid they must be 50% up front and 50% after completion. Bids must address all FHA required repairs that appraiser may list or that show on a property inspection. Max repair bid amount not to exceed roughly $31,100 if utilities are on and working and $29,500 if utilities are off or not working. It is very important that the borrower researches the contractor in order to make sure that they are comfortable with the work being completed and with that contractor. LO s should NEVER order the bid s for the borrower. Never allow the borrower to accept a quote. The contractor price must be pinned down to protect your client.

14 What if the borrower wants to do his/her own work? Borrowers have to be licensed to do work if required by the state. (must document if state doesn t require license for type of work to be completed) If license is not required by state, borrower must show the ability/experience to complete work. Provide a bid from a third party contractor (for the cost of Labor only) on the repair borrower is to make. Provide cost breakdown of materials the borrower is going to need for the supplies the borrower will need. (must come from vendor) Program requires borrower to have 50% of material costs in verified assets, in addition to closing costs and down payment. Not Recommended.

15 Appliances The following appliances are allowable to be included in escrow account: Stove / range, Fridge, Microwave, Washer, Dryer, dishwasher If purchasing directly from store: Program requires borrower to have 50% of total appliance cost in verified assets, in addition to closing costs and down payment. *appliances that included in the contractors bid do not require additional verified assets.

16 Purchase Specific s If at all possible we recommend 60 days time frames on real Estate Purchase contracts. Normal FHA addendums apply on Purchase contracts. No specific addendums for the Realtor to complete on 203K S programs. If it was disclosed as a 203k Streamline on your purchase contract you must disclose the 203k Streamline fees UPFRONT within three days for your approved changed circumstance. Eligible properties are: SFR s, 1-2 units, FHA approved condo s and PUD s. Ineligible properties are: 3-4 units, Non-FHA approved condo s and PUD, Mixed use properties, modular and manufactured homes. When qualifying buyers Loan Officers can quickly calculate estimated new payment by adding $35,000 to sales price.

17 203k Streamline Purchase Financing Example Example: $100K Sales Price, with $30K in repairs to be done. 96.5% LTV/CLTV (as completed value) and 6% in seller contributions. $100,000 -Sales Price $30,000 - Labor/Material $ % Contingency -This covers any unexpected costs. $175 Inspection Fees $ Supplemental Origination Fee (Greater of 1.5% or $ of line B10 on 203K worksheet.) $133, Total for Purchase and Renovation $130,000 - Subject To value (determined by appraiser) $143, % of Subject To value. Total for purchase and renovation can not exceed this figure. $ 128, Maximum loan amount we would finance. ( x 96.5%) The borrower would bring in the 3.5% down and the seller could contribute up to 6% for closing costs. Final Loan amount to equal $128,994.00

18 203k Streamline Purchase Financing Example Example where your borrower would have to bring additional funds to the table Regardless of what the Subject To or After Improved value comes in at the loan amount will be based on the lesser of the purchase price or As Is value + repairs, similar to any FHA loan. Example: $100,000 Purchase price $90,000 As Is value $115,000 Subject To value Because our As Is value is less than the purchase price our loan amount will be $90,000 + our rehab amount. Borrower will need to bring the additional $10,000 to close or get an addendum to the purchase contract to reduce the sales price to our As Is value.

19 Closing: Closing and Funding of a 203k Streamline There is a specific 203k Closing Submission Form that needs to be filled out by the branch. The form includes the contractor draw portion. Currently the draw section will be completed for you. Please allow extra time for docs to be drawn as the HUDS will need to be approved by 203K desk and funder. The HUD s will include disbursements to the contractors/borrower for up to 50% of the Bid amount. See next slide for example 203k closing submission Funding: Loan will fund as normal FHA turn times. The 203k Streamline loan is not wet funded. 50% of bids will be wired to title at funding. Branch will receive a loan balance sheet and funds to their profit center the day after funding.