Renovate your home your way. The FHA 203(k) Renovation Loan

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1 Renovate your home your way The FHA 203(k) Renovation Loan

2 Agenda What is an FHA 203(k) Renovation Loan? Advantages of an FHA 203(k) Renovation Loan FHA 203(k) Renovation Loan: Standard vs. Streamline How FHA 203(k) Renovation Loans work Key Steps for Buyers Many homes on the market today require updating, renovation or repairs. That s why an FHA 203(k) Renovation Loan may be the right option for you. This specialized program combines the purchase price of a home, with the cost for renovations, all with the convenience of a single loan and closing. 1 2

3 What is an FHA 203(k) Renovation Loan? The FHA 203(k) Renovation Loan allows you to combine the cost of renovation and/or repairs with the price of the home into one loan. To be eligible, your home must be an owner-occupied: Single-family home One- to four-unit residence Condominium (restrictions may apply) The loan includes: The cost to purchase a home The cost to improve and/or make repairs Miscellaneous costs such as: Consultant fees Permits Contingencies and mortgage payments during the construction period (certain restrictions may apply) 3

4 Why an FHA 203(k) Renovation Loan may be right for you Advantages include: Qualify with a down payment as low as 3.5% Expand your home search to include properties that need renovation Do a simple face lift or a complete makeover Add to the value of your property Make repairs after the loan closes Not every home is move-in ready. The FHA 203(k) Renovation Loan allows you to broaden your home shopping horizons and design the home you want from the start. Our Renovation Lending specialists will help walk you through all the steps to create a home that s right for you. 4

5 Features and options Standard vs. Streamline There are two different types of FHA 203(k) Renovation Loans: the Standard FHA 203(k), ideal for larger projects, and the Streamline FHA 203(k), best for smaller projects and repairs. Here s a side-by-side comparison: Program description Standard FHA 203(k) Major or minor renovation projects allowed including broad scope renovation, both structural and cosmetic. HUD Consultant required. Streamline FHA 203(k) Occupancy Owner-occupied Owner-occupied Terms / Programs 30-year fixed 30-year fixed Minimum amount of repairs $5,000 $0 Maximum amount of repairs Limited only by FHA loan limits for county. See HUD loan limit website. Geared for minor repairs / improvements where consultants, engineers & architects are not required. Smaller projects. Cosmetic in nature. $35,000 (includes all costs contingency reserves, title, inspection fees) Repairs performed by Licensed contractor Licensed contractor Type of repairs Structural or cosmetic Cosmetic Number of draws Maximum of 5 draws 2 draws (50% upfront & 50% after final inspection) 5

6 Eligible improvements Standard FHA 203(k) Renovation Loan The Standard FHA 203(k) Loan works best for larger projects that require consultants, engineers and architects. These types of improvements include: Elimination of health and safety hazards Structural alterations and reconstruction Changes for improved functions and modernization Changes for aesthetic appeal Reconditioning or replacement of plumbing, heating, air conditioning and electrical systems Installation of well and/or septic system Roofing, gutters and downspouts Flooring, tiling and carpeting Energy conservation improvements Major landscape work and site improvement Improvements for handicap-accessibility 6

7 Eligible improvements Streamline FHA 203(k) Renovation Loan The Streamline FHA 203(k) Loan is geared toward minor repairs and improvements that do not require consultants, engineers and architects. These type of improvements include: Purchasing new appliances Replacing flooring Updating bathrooms and kitchens Other repairs and improvements that do not involve structural changes 7

8 FHA 203(k) Renovation Loan Getting started Loan prequalification Determine value of property Find contractor Complete contractor package Get prequalified: Minimum down payment is 3.5% of home purchase price plus the cost of repairs A renovation specialist will review your credit, income, assets, and debt-to-income ratio Assess property value With your real estate agent, investigate the condition of the property and After Improved Value Find a licensed and insured contractor Consider renovation services offered by local home improvement stores Prepare for the contractor package Must contain: the contractor license, liability insurance and Workman s Comp., and W-9 form You must also have the Home Owner Contractor Agreement (HOCA) and detailed renovation bid ready 8

9 How the FHA 203(k) Renovation Loan Works What s involved Prequalify 2 with Bank of America Home Loans Find a house Estimate repair plan with contractor Sign contract Loan approved and closed Loan underwriting Appraisal Loan application submitted with docs Renovation escrow account established Finalize repair plan with contractor and consultant Work begins within 30 days Inspections and draw administration Renovation complete Final inspection and disbursement 9

10 FHA 203(k) Renovation Loan Example Purchase price and renovation costs Purchase price of property $125,000 Renovation costs +$25,000 Total purchase and renovation costs $150,000* * Note: Home should appraise in its after-improved condition for $150,000 or more, as $150,000 is the total cost to purchase and renovate. Borrower cash required Down payment ($150,000 x 3.50%) $5,250 Total closing costs and prepaids +$6,733 Less FHA upfront mortgage insurance finance -$2,533 Total cash required $9,450** ** Note: Seller and lender can help pay the closing costs and prepaids. If seller/lender credit is negotiated, total cash required could be as low as $5,

11 FHA 203(k) Renovation Loan Resources: To learn more about FHA 203(k) Renovation Loans visit bankofamerica.com/203k To connect with a Bank of America Renovation Lending specialist, call or us at 203khelp@bankofamerica.com Find a Nonprofit Housing Counseling Agency at HUD.gov; on the site select Resources, then select HUD Approved Housing Counseling Agencies For additional online financial education: Visit Better Money Habits at bettermoneyhabits.com Have more questions about what you learned today? us at webinars@bankofamerica.com 11

12 Thank you Thank you for joining us today. Please take a moment to complete our survey. 1 Available on a 30-year fixed-rate product only. $5,000 min. loan amount (does not apply to FHA Streamline 203(k)). The maximum loan-to-value for single family residences is 96.5% of (1) the sum of the purchase price and cost of improvements, or (2) the as-improved appraised value, whichever is less. FHA Up Front Mortgage Insurance Premium (UFMIP) and Monthly Insurance Premiums (MIP) apply. Ask for details. Note: UFMIP can be 100% financed into the mortgage or paid entirely in cash at closing. All renovation construction and/or additions financed with Section 203(k) mortgage proceeds must comply with HUD; ask for details. Where required, work must be performed by a licensed contractor. Timing of resale of property subject to restrictions. Renovation construction must begin within 30 days of closing and all work must be completed within 6 months of closing. Subject to satisfactory appraisal report(s). Not available for investment properties. Restrictions on secondary financing may apply. State restrictions may apply. Minimum credit scores apply. Not all applicants will qualify. FHA 203(k) refinances available on fixed-rate product only; qualified borrowers must be current holders of Bank of America Home Loans mortgages. (Please note: Bank of America offers FHA refinance loans to existing Bank of America home loan customers only.) 2 Prequalification is neither preapproval nor a commitment to lend; borrower must submit additional information for review and approval. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice. Bank of America, N.A., Member FDIC. Equal Housing Lender Bank of America Corporation. AR4496F4 PRES