203K Loan Parameters

Transcription

1

2 Full documentation only. 203K Loan Parameters AUS approval required, no manual underwriting permitted. Maximum DTI ratios of 31%/43% regardless of AUS findings. Both purchase or rate and term refinance are allowed; cash out transactions are NOT allowed. Minimum repair requirement of $5,000. $35,000 maximum escrow account permitted. This limit includes any financed 203K specific fees Special HUD programs $100 down is eligible GNND is not eligible in combination with a 203K

3 Program Requirements The subject property must be at least one year old. Temporary Buy downs not allowed. The cost of the rehabilitation must be at least $5,000, but the total value of the property must still fall within the FHA mortgage limit for the area. Contractor bids / cost estimates must be provided for all work to be performed: Two bids for each repair are required All bids must clearly state the nature and type of work to be performed as well as a cost to complete. Bids are required even if the borrower will perform the work. Once it is determined which bids will be used, copies of those bids must be provided to the appraiser to incorporate into the appraisal report. The appraisal report will list all repairs to be completed The appraiser will provide both an as is and as repaired value based on the bids provided. The appraisal report will be done subject to the completion of all listed repairs. The utilities must be turned on and the appraiser must note the utilities are fully operable at time of inspection. For reports completed without the utilities being tuned on the following documentation must be provided prior to close: Satisfactory inspection from a licensed contractor or qualified inspector certifying the mechanical systems have been turned on and are functioning properly. Only required if the information regarding utilities not part of or included in appraisal from approved appraiser.

4 Program Requirements For each contractor performing work the following documentation is required: Signed W-9 Individual Homeowner/Contractor Agreement must be fully complete and match the bids in the file. Resume or summary of credentials, work experience and client references. Contractor license and insurance must be effective through the construction completion date. If the borrower is qualified to the any work themselves (documentation of qualifications is required) or if they will purchase any items not invoiced by a contactor for which they will be reimbursed (i.e. appliances, paint, etc.) the following is required. Documentation of the borrower s credential to evidence qualified to perform any work they will complete. Self-help agreement completed by the borrower Signed W-9

5 Program Requirements 50% of the repair funds can be disbursed after loan is set up. Disbursement of funds will not be done at the time of closing. No more than two payments may be made to each contractor or to the borrower if the borrower is performing the work under a self-help arrangement. Work must be completed within 6 months. Once all repairs have been completed: A final inspection will be requested from the appraiser to document the completion of all repairs. The final disbursements to the contractors will be made. The final title update will be ordered. Any funds remaining after all contractors and other fees have been paid will be applied as a principal reduction to the loan balance. Refer to HUD Mortgagee Letter or 203k Handbook for additional information.

6 Eligible Improvements Repair/Replacement of roofs, gutters and downspouts Repair/Replacement/upgrade of existing HVAC systems, plumbing or electrical systems. Repair/Replacement of flooring. Repair/replace/add exterior decks, patios, porches. Septic system and/or well repair or replacement. Minor remodeling, such as kitchens or basement finishing, which does not involve structural repairs. Accessibility improvements for persons with disabilities. Painting, both exterior and interior. Lead-based paint stabilization or abatement of lead-based paint hazards. Window and door replacements and exterior wall re-siding. Weatherization, including storm windows and doors, insulation, weather stripping, etc. Basement waterproofing. Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwave ovens.

7 Ineligible Improvements Ineligible improvements include but are not limited to the following: Major rehabilitation or major remodeling, such as the relocation of a load-bearing wall. Luxury items such as hot tubs, swimming pools, BBQ or outdoor fireplaces. New construction (including room additions). Repair of structural damage. Repairs requiring detailed drawings or architectural exhibits. Landscaping or similar site amenity improvements. Any repair or improvement requiring a work schedule longer than six (6) months. Rehabilitation activities that require more than two (2) payments per specialized contractor. The Streamlined 203k Program may not be used to finance any required repairs arising from the appraisal that do not appear on the list of Allowable Streamlined 203k Improvements or that would: Necessitate a consultant to develop a Specification of Repairs/Work Write-Up. Require plans or architectural exhibits; Require a plan reviewer; Require more than six months to complete; Result in work not starting within 30 days after loan closing; or Cause the mortgagor to be displaced from the property for more than 30 days during the time the rehabilitation work is being conducted. (It is anticipated that, in a typical case, the mortgagor would be able to occupy the property after mortgage loan closing).

8 Ineligible Properties The following properties are NOT eligible for 203K financing: Manufactured homes Second homes Non-owner occupied properties Properties in less than average condition Identity of interest transactions Condos with more than 4 units in one building Dwellings that are less than 1 year old

9 Case Assignment Requirements 203KS must be entered in the 203K Consultant ID field in the Case Number Assignment Screen (and the Insurance Application Screen) to identify the Streamlined (k) product and enter the amount of the repairs in the Repair Escrow Amount field in the Insurance Application Screen. If the Streamlined (k) mortgage is for a refinance transaction, please enter substantial rehabilitation in the drop down screen labeled Construction Code and Not Streamlined (the refinance type) in the drop down screen labeled All Refinances in the Case Number Assignment Screen in FHA Connection. FHA/HUD Real Estate Owned (REO) loan transactions require additional information as follows: Processing type must indicate: Real Estate Owned with Appraisal since a new appraisal is required If Purchase: Was this case previously sold as Real Estate Owned (previously sold by HUD)? Always check YES. Complete the "Previous Case Number" field with the 10 digit FHA Case Number For Condominiums, If the if the condominium project has an assigned project id, this information must be entered when the FHA case number is ordered

10 Contingency Reserves The cost estimate must include a contingency reserve of a minimum of ten (10) percent of the cost of rehabilitation If utilities were not turned on for inspection, a minimum fifteen (15) percent is required The borrower may request an additional amount above the minimum standard requirement as stated above, however, the contingency reserve may not exceed twenty (20) percent where major remodeling is contemplated. The contingency reserve account can be used by the borrower to make additional improvements to the dwelling. A Request for Change Letter must be submitted with the applicable cost estimates. However, the change can only be accepted when MSF determines: It is unlikely that any deficiency that may affect the health and safety of the property will be discovered; and The mortgage will not exceed the appraised value of the property less the statutory investment requirement. If the mortgage exceeds the appraised value less the statutory investment, then the contingency reserve must be paid down on the mortgage principal. If a borrower feels that the contingency reserve will not be used and he wishes to avoid having the reserve applied to reduce the mortgage balance after issuance of the Final Release Notice, the borrower may place his own funds into the contingency reserve account. In this case, if monies are remaining in the account after the Final Release Notice is issued, the monies may be released back to the borrower

11 Maximum Mortgage Calculation - Purchase PURCHASE: The maximum mortgage amount is based on the lesser of the below multiplied by the appropriate LTV factor: The as-is value or the purchase price of the property before rehabilitation, whichever is less, plus the estimated cost of rehabilitation or 110 percent of the after-improved value of the property.

12 Maximum Mortgage Calculation - Refinance REFINANCE: The maximum mortgage amount is based on the lesser of the below multiplied by the appropriate LTV factor: The existing debt on the property before rehabilitation, plus the cost of rehabilitation, allowable closing costs & prepaids, minus the FHA MIP refund (if applicable) or The lesser of the As-Is value plus rehabilitation costs or 110 percent of the After-Improved value multiplied by the appropriate LTV factor. NOTE: If the property was owned less than one year, the acquisition cost plus the documented rehabilitation costs must be used. If the property is a condominium, the after-improved value is limited to 100% for refinance and purchase transactions.

13 203K Settlement / Closing Costs 203K specific closing costs can be financed into repair escrow account Supplemental origination fee of the greater of $350 or 1.50% of repair cost Inspection fee for appraiser re-inspect Title update fee for final policy Any required permits for repairs CA loans: post closing termite inspection fee

14 203K Forms HUD Maximum Mortgage Calculation worksheet must be fully completed and signed by the borrower at closing (fillable PDF is available at hud.gov) HUD Assurance of Completion W-9 Homeowner/Contractor Agreement Self Help Agreement Identity of Interest Certification HUD A 203K Borrowers Acknowledgement Radon Gas and Mold Notice and Release Agreement (Required for HUD REO Properties) NOTE: There are active links for all forms listed above in MSF FHA Guidelines.

15 203K REO **See also 203k Case Assignment requirements in this section REO properties are owned by HUD, a bank or another entity that foreclosed on the property The property must be advertised that it is eligible for financing with a 203K loan program Amendatory Clause and Real Estate Certification are not required for HUD-owned properties but are required for all other REO properties The addendum to the HUD-I Settlement statement must be signed by the foreclosing lender. The addendum to the HUD-I settlement statement is not required for HUD-owned properties If the utilities are not on at time of appraisal inspection, provide verification utilities are fully functional and no further repairs are needed (appraisal re-inspection, property condition report, property inspection) HUD REO Properties - Only HUD REO properties that have been designated by FHA s Management and Marketing contractor (M&M) as insurable with repair escrow ($5,000 or less in required repairs) or uninsurable (with more than $5,000 but no more than $35,000 in required repairs) are eligible for the Streamlined 203k program provided that the repairs qualify as eligible work items as outlined in allowable streamlined 203k improvements HUD REO properties a copy of the HUD REO appraisal will be required in addition to the 203K appraisal, the lessor of the two as is values will be utilized when calculating the loan amount

16 203K - $100 Down Purchase-money loan offered in limited geographic areas to purchaser(s) of a home owned by HUD. Minimum down payment = $100 Additional incentives may apply, depending on location of property. The eligibility for this program must be stated in the purchase contract. Only HUD REO properties that have been designated by FHA s Management and Marketing contractor (M&M) as insurable with repair escrow ($5,000 or less in required repairs) or uninsurable (with more than $5,000 but no more than $35,000 in required repairs) are eligible for the Streamlined 203k program provided that the repairs qualify as eligible work items as outlined in allowable streamlined 203k improvements The original appraisal ordered by the Management and Marketing Company (M&M) that is marketing the property is used at no cost to the borrower. If purchase price is higher than the appraised value and the borrower wishes to continue with the transaction, the borrower must pay the difference with acceptable verified assets. A second appraisal may not be obtained Maximum financing is calculated using the lower of the purchase price or as is appraised value The total loan amount (prior to repairs) including the UFMIP can not exceed 100 percent of the as is appraised value and prepaid expenses and financing/closing costs can not be financed into the FHAinsured mortgage The maximum loan amount, including financed repairs may not exceed 110 percent of the lesser of the purchase price or as is appraised value

17 203K - Condominium Condominium Units are subject to the following additional conditions: Allowed on HUD REO Properties only Project approval is not required for FHA/HUD Real Estate Owned (REO) loan transactions that will be FHA-insured. However, if the condominium project has an assigned project id, this information must be entered when the FHA case number is ordered Rehabilitation is limited only to the interior of the unit. Mortgage proceeds are not to be used for the rehabilitation of exteriors or other areas which are the responsibility of the condominium association, except for the installation of firewalls in the attic for the unit; Only the lesser of five units per condominium association, or 25 percent of the total number of units, can be undergoing rehabilitation at any one time; The maximum mortgage amount cannot exceed 100 percent of the after-improved value. After rehabilitation is complete, the individual buildings within the condominium must not contain more than four units. By law, 203K can only be used to rehabilitate units in one-to-four unit structures. However, this does not mean that the condominium project, as a whole, can only have four units or that all individual structures must be detached. Example: A project might consist of 6 buildings each containing 4 units, for a total of 24 units in the project and, thus, be eligible for Section 203K. Likewise, a project could contain a row of more than four attached townhouses and be eligible for Section 203K because HUD considers each townhouse as one structure, provided each unit is separated by a 1 1/2 hour firewall (from foundation up to the roof).

18 The Life of a 203K Streamline

19 Life of a 203K Streamline Borrower locates property. Buyer and real estate agent perform analysis to determine cost of repairs and estimate the market value after completion Borrower writes sales contract, including provision for FHA 203K financing. Contract should be contingent to loan approval, borrowers acceptance of improvements required by HUD / lender. Borrower selects lender, completes application and provides all required documentation to establish ability to repay loan. Borrower provides cost estimates/contractor bids for all work to be performed. Bids are required even if borrower will be performing the work themselves. Lender orders appraisal, providing the written bids and purchase contract to the appraiser.

20 Loan is submitted to underwriting (or resubmitted if initially approved subject to appraisal) Underwriter issues final approval, establishing conditions under which lender will release funds from rehabilitation account. Underwriter completes Mortgagee Assurance of Completion, FHA 203K Worksheet, LT, Conditional Commitment. AUS will show the purchase price as sales price plus cost of rehab. (AUS on 203K Streamlines will be Approve/Ineligible due to loan amount calculation. Loan is closed, proceeds payoff seller and establish Rehabilitation Escrow account with lender. Once loan is closed, borrower is required to make monthly payments on the full balance of the mortgage, including any undisbursed funds.

21 Construction begins, any required building permits are obtained, 50% of the funds held in rehabilitation escrow account may be disbursed at this time. All work must be completed within six months When all work and any inspections required by local building authority are completed, borrower provides lender with letter requesting final inspection by appraiser to verify all repairs are complete. Lender receives final inspection and signed Final Release Notice, requests any required title updates and disburses final draw less any required contingency funds. Unused funds from rehabilitation escrow account are applied as principal reduction payment to the mortgage or used to complete additional items as per the borrower and lender agreement

22 Questions