Introduction to Renovation Lending. Presented by: Jane King Freedom Mortgage

Transcription

1 Introduction to Renovation Lending Presented by: Jane King Freedom Mortgage

2 Agenda Renovation Lending Overview of renovation products Identifying the right borrower Identifying the right property Evaluating the project» Consultant» Streamline vs. Regular 203k Closing and forms Draw Management 2

3 Renovation Lending Products Renovation is an enhancement to basic fixed rate and ARM loans for purchase and refinance transactions. FHA 203(k)» Regular/Standard» Streamlined (k) Fannie Mae HomeStyle Freddie Mac Portfolio 3

4 Parameters Maximum loan amount Can include repair and renovation costs in calculating the maximum allowable loan amount. LTV s up to standard 203(b) or conventional loan requirements. HomeStyle did not get the increased loan limit over $417,000. Transaction types Purchase and no cash out refinances Minimum amount of repairs $5,000 for FHA Standard; no minimum on others except Portfolio 4

5 Parameters Maximum repairs $35,000 for FHA Streamlined (k) including soft costs 50% of the after improved value can be in repairs for conventional loans Type of repairs allowed Very few limitations. Almost all home improvements can be financed. Renovation consultant or equivalent Required for FHA Standard Typical in most others Contingency reserve 10% -20% 5

6 Identifying The Right Borrower The borrower needs money up front!» Consultant fee» Architectural/Engineering fees Additional risks to consider:» Will the borrower incur expense because they can not occupy the property during renovation?» Will your PMI company insure the loan during the renovation phase? 6

7 Identifying The Right Property/Project Is there a clearly defined project? Have the costs have been calculated correctly? Does the scope of the project have the potential for cost overruns or delays? Is the contractor capable of completing the project in budget and on time? 7

8 Work Write Up Package Consultant provides to the lender and borrower :» Detailed project specifications» Construction estimate/cost analysis» Contractor bid package 8

9 How To Evaluate A Project Consultant visits the property with borrower The role of the consultant» Preliminary review» Feasibility study» Work write up Appraiser MUST have the work write-up to do his job and experience with renovations! Streamlined (k)» Consult experts don t assume! The lender is ultimately responsible! 9

10 Important Concepts Renovation lending programs use an acquisition cost and as completed value to determine the maximum loan amount. The cost of the remodeling as well as other costs can be included in the acquisition cost. This is a fully disbursed loan at closing and there is only one closing. Mortgage insurance is obtained in the same manner as on all other loans. 10

11 Closing Ensure that there is someone under contract to the remodeling work at the amount specified or less prior to closing Some fees can be released or paid at closing Rehabilitation Loan Agreement and Rehabilitation Rider are the unique forms at closing 11

12 Forms Key Forms:» 203k Maximum Mortgage Worksheet or HomeStyle Renovation Mortgage Worksheet» 203k Borrower s Acknowledgment/Consumer Tips» 203k Draw Request» Rehabilitation/Renovation Loan Agreement» Rehab/Renovation Loan Rider 12

13 Draw Management Releases are for completed/inspected work Maintain a draw management file Work MUST begin within 30 days of closing! Draw requests:» All permits attached?» Draw request from the Consultant» Lien waivers or title updates» Photos?» Instructions for checks to whom? 13

14 Draw Management Holdback of 10% of the money approved for release Change orders must be reviewed by underwriting to determine if there is an impact to AUS findings and/or value of collateral Handling the Contractor and Borrower 14

15 Draw Management Final Draw Sample Checklist:» Draw Check Instruction Form» Draw Request Form with sworn statement and waivers» Title update» Invoice for title update fees if they have been escrowed and payment is due» Final Release Approval signed and dated by manager and borrower» Inspection (photo required for Fannie Mae)» Occupancy permit» Hazard insurance verification up to full as completed value or loan amount» Final survey, if applicable 15

16 Summary Renovation lending is a great niche that opens doors for new clients! Correct appraisal problems Maintain quality by monitoring consultants and appraisers Have well defined procedures before starting! It is all about execution 16

17 Thank You! Jane C. King Vice President - Renovation Lending Freedom Mortgage Corporation jane.king@freedommortgage.com 17