Revised 4/6/18. FHA 203K Renovation

Transcription

1 Revised 4/6/18 FHA 203K Renovation

2 Important Notice While every effort has been made to ensure the reliability of the training content, PRMG s product profiles and their updates, are the official statements of PRMG and in the event of discrepancies between the information in this webinar and the product profiles, the product profiles will always supersede the information provided here.

3 A Little About the FHA 203K Loan Product FHA s primary program for the rehabilitation and/or repair of properties. One time close mortgage that combines the purchase or refinance of a property with renovation. The renovation or repairs can be completed after the loan closes. Loan amount is based on the projected value of the property (taking into consideration the cost of the work) after the renovation/repairs are completed. Credit underwriting guidelines are the same as for any FHA loan Property does not have to be worst house on the block. Loan allows new or existing owner to remodel or repair home to their preference and needs. Dream home accomplished without having to acquire substantial credit card debt.

4 FHA 203K Limited vs. FHA 203K Standard

5 Standard 203K versus Limited 203K Limited 203K Limited 203K loans are designed for simpler, specific projects. Projects generally require specialized contractors, (though general contractors may be used for handyman-type work). Each contractor may receive 50% of his contract amount at an initial disbursement and 50% when all the contractor s work is completed. Up to 3 separate contractors can be used. The maximum amount that can be financed into the loan, including all renovation fees is $35,000.

6 Standard 203K versus Limited 203K Standard 203K Standard 203K loans are for larger more complex home improvement projects. Projects will generally require architectural plans and/or designs. Work can begin as soon as the loan is closed Contractor can receive payments as work is completed throughout the scope of the project. No maximum limit to the size of the project as long as the total loan amount is within the loan limits of the program for the area.

7 Standard 203K versus Limited 203K

8 FHA 203K Limited Program

9 FHA Limited 203K Loans The FHA Limited 203K Renovation loan permits homebuyers and homeowners to finance up to $35,000 into their mortgage to repair, improve, or upgrade their home. Limited 203K loans follow FHA guidelines unless otherwise indicated in the product profile or the Handbook.

10 FHA 203K Limited Loan Benefits Minor, non-structural, nonluxury items, such as modernization and appearance-enhancing improvements, are acceptable Simpler process than the full, Standard 203K 203K loans also allow borrowers to make necessary repairs to their house without depleting their savings by refinancing and paying for the repairs with the transaction.

11 Program Highlights Limited 203K Offered with Standard and High Balance Fixed, ARM, and Good Neighbor Next Door Standard Balance: 15 and 30 Year Fixed 5/1 ARM High Balance: 30 Year Fixed Purchase or Rate and Term Refinance allowed Property eligibility includes: SFRs, 1-4 Unit HUD REOs allowed, 1-4 Units, Condos, and PUDs

12 Loan Parameter Overview Limited 203K 30 Year and 15 Year Fixed 5/1 ARM LTV CLTV Purpose Units Occupanc Credit Score y Purchase 1-4 O/O 620 Standard Balance 640- High Balance Rate/Term 1-4 O/O 620 Standard Balance 640- High Balance There is no minimum loan amount; however, loan amounts under $30,000 will require special pricing by Secondary Marketing.

13 Renovation Basics 203K Limited Minimum rehabilitation amount = $0 Maximum rehabilitation amount = $35,000 Rehabilitation construction must begin within 30 days of closing and all work must be completed within 6 months of closing. Borrower paid repair overages are not allowed. Under no circumstances can the total rehabilitation expenses exceed $35,000 Upon completion of repairs, all applicable fields on the Escrow Closeout Certification screen in FHAC must be completed.

14 Eligible Improvements 203K Limited Modernization Elimination of health and safety hazards Changes to improve appearance and eliminate obsolescence Reconditioning or replacing plumbing Adding or replacing floors and/or floor treatments Enhancing accessibility for a disabled person Energy conservation improvements Installing well and/or septic system (repairs on that item must be completed prior to any other work beginning)

15 Ineligible Improvements 203K Limited Major rehabilitation or remodeling, room additions, structural repairs, etc. Modifications that change the layout of the house Outbuildings Replacing Chinese drywall Landscaping or site amenities Projects which alter the number of units Recreational or luxury items Homes that have never been completed with a certificate of occupancy

16 FHA Limited 203K Process Flow FHA Standard 203K 1. Loan Officer discusses concept of as completed value and renovation, estimates maximum mortgage amount and performs credit pre-qualification 2. Borrower decides on remodeling project, determines sales price, negotiates purchase contract and applies for mortgage 3. Process, underwrite & approve the loan with appropriate credit guidelines 4. Borrower selects the Contractors or General Contractor 5. Appraiser completes appraisal to determine as completed value 6. Close the Loan and up to 50% of the renovation cost may be disbursed if specific requirements are met 7. Renovation Escrow Account for Draw Management is set up with Investor 8. Inspections and Draw Requests are processed and funds disbursed as renovation is completed

17 203K Limited FHA Initial Disbursement May Only Include: FHA Standard 203K Permit fees (the permit must be obtained before work commences) Note: Only the true cost of the permit can be reimbursed if done as a fee reimbursement. For example, if a contractor states $800 for permits but the fee comes in at $600 at the municipality, then $200 too much has been released for that fee at closing. Origination Fees and Discount Points Up to 50% of the estimated materials and labor costs before beginning construction only when the contractor is not willing or able to defer receipt of payment until completion of the work, or the payment represents the cost of materials incurred prior to construction.

18 Renovation Workflow 203 Limited Loan officer meets with the borrowers to explain program and qualify them Borrower interviews contractors and receives estimates for work to be completed

19 Renovation Workflow 203 Limited Contractor Produces detailed estimate of work Delivers documentation required for contractor acceptance Once all work is agreed upon, Limited 203K the appraisal is ordered and completed subject to the work provided in the Contractor Bid(s).

20 Renovation Workflow 203K Limited Loan is processed as any other FHA loan while appraisal and renovation information is gathered Loan is underwritten to standard FHA guidelines Loan closes and the Renovation Escrow is held by PRMG until sale to investor Once loan is sold, the renovation escrow is netted from the purchase and the renovation escrow account is established.

21 Renovation Workflow 203K Limited Draw Disbursements First Disbursement: Up to 50% of the estimated materials and labor costs before beginning construction only. This amount may be disbursed at closing through Escrow. Second Disbursement: The remainder of the funds is disbursed upon completion of ALL work. If the cost of the renovation is over $15,000, an inspection by the original appraiser is required. Project must be completed within 6 months Note: Copies of all permits are needed before any disbursements can be made

22 What s Included in the Renovation Escrow Account on a 203K Limited? Cost of Repairs Contingency Reserve Inspections and Title Update Fees Permits and other fees Supplemental Origination Fee Discount points attributed to the renovation

23 Disbursement of Funds 203K Limited Project must be completed within 6 months A W-9 must be provided to set up the contractor in the system. A two-party check is made out to the borrower and the contractor, and is then sent to the borrower. If the Contingency Reserve is not used (or not completely used), the remainder can either be made available for additional health/safety repairs or the funds may be applied toward the principal balance.

24 FHA 203K Standard Loan

25 FHA 203K Standard Loans The FHA Standard 203K Renovation loan permits homebuyers and homeowners to finance unlimited repairs over $5,000 into their mortgage to repair, improve, or upgrade their home. Standard 203K loans follow FHA guidelines unless otherwise indicated in the product profile or the Handbook.

26 FHA 203K Standard Loan Benefits No maximum rehabilitation amount 203K loans are designed for fixer-upper properties and may allow borrowers to purchase a property that might not qualify on other loan programs. 203K loans also allow borrowers to make necessary repairs to their house without depleting their savings by refinancing and paying for the repairs with the transaction.

27 Program Highlights Standard 203K Offered with Standard and High Balance Fixed, ARM, and Good Neighbor Next Door Standard Balance: 15 and 30 Year Fixed 5/1 ARM High Balance: 30 Year Fixed Purchase or Rate and Term Refinance allowed Property eligibility includes: SFRs, 1-4 Unit HUD REOs allowed, 1-4 Units, Condos, and PUDs

28 Loan Parameter Overview Standard 203K 30 Year, 20 Year, and 15 Year Fixed 5/1 ARM LTV CLTV Purpose Units Occupancy Credit Score Purchase 1-4 O/O 620 Standard Balance 640- High Balance Rate/Term 1-4 O/O 620 Standard Balance 640- High Balance Note: 15 year fixed and 5/1 ARM are not available with the High Balance option There is no minimum loan amount; however, loan amounts under $30,000 will require special pricing by Secondary Marketing.

29 FHA Standard 203K Loans The FHA Standard 203K Renovation loan enables borrowers to finance either the purchase or refinance of a home AND the cost of its renovation through a single mortgage. STANDARD 203K LOANS FOLLOW FHA GUIDELINES UNLESS OTHERWISE INDICATED IN THE PRODUCT PROFILE OR THE HANDBOOK.

30 Renovation Basics 203K Standard Minimum rehabilitation amount = $5,000 No maximum rehabilitation amount Upon completion of repairs, all applicable fields on the Escrow Closeout Certification screen in FHAC must be completed.

31 Eligible Improvements - 203K Standard Modernization Elimination of health and safety hazards Changes to improve appearance and eliminate obsolescence Foundation Repair/Construction Site improvements Plumbing, heating, AC, and electrical systems repair Energy conservation improvements And more! (Refer to Standard 203K Product Profile.)

32 Ineligible Improvements- 203K Standard Swimming pools (unless existing, in need of repair), hot tubs, saunas Barbecue pits, outdoor fireplaces Bath houses, tennis courts Satellite dishes Tree surgery, (except when eliminating an endangerment to existing improvements) Gazebos Additions to a property or equipping/refurbishing property for commercial use No recreational or luxury items

33 FHA Standard 203K Process Flow FHA Standard 203K 1. Loan Officer discusses concept of as completed value and renovation, estimates maximum mortgage amount and performs credit pre-qualification 2. Borrower decides on remodeling project, determines sales price, negotiates purchase contract and applies for mortgage 3. Borrower selects the General Contractor and both execute the Homeowner/Contractor Agreement 4. Consultant completes Work Write-Up based on the scope of work on the Contractor s Bid/Estimate 5. Appraiser completes appraisal to determine as completed value 6. Process, underwrite & approve the loan with appropriate credit guidelines 7. Close the Loan 8. Renovation Escrow Account for Draw Management is set up with Investor 9. Inspections and Draw Requests are processed and funds disbursed as renovation is completed

34 Permit fees (the permit must be obtained before work commences) FHA Standard 203K 203 Standard FHA Initial Disbursement May Only Include: Note: Only the true cost of the permit can be reimbursed if done as a fee reimbursement. For example, if a contractor states $800 for permits but the fee comes in at $600 at the municipality, then $200 too much has been released for that fee at closing. Prepaid architectural or engineering fees Prepaid Consultant fees Origination fees and Discount points Material costs for items, prepaid by the Borrower in cash or by the contractor, where a contract is established with the supplier and an order is placed with the manufacturer for delivery at a later date

35 Renovation Workflow 203K Standard Loan officer meets with the borrowers to explain program and qualify them Borrower interviews contractors and receives estimates for work to be completed PRMG will select an FHA 203K Consultant and have them meet with the borrowers to discuss their project and inspect the home The Consultant will provide a Specification of Repairs and work write up that includes all necessary work required

36 Renovation Workflow 203K Standard Contractor Produces detailed estimate of work Delivers documentation required for contractor acceptance Once all work is agreed upon, the Consultant s Specification of Repairs for a Standard 203K. appraisal is ordered and completed subject to the work provided in Scope of Work

37 Renovation Workflow 203K Standard Loan is processed as any other FHA loan while appraisal and renovation information is gathered Loan is underwritten to standard FHA guidelines Loan closes and the Renovation Escrow is held by PRMG until sale to investor Once loan is sold, the renovation escrow is netted from the purchase and the renovation escrow account is established.

38 Renovation Workflow 203K Standard Draw Disbursements Draws are processed as work is completed and inspected at regular intervals Project must be completed within 6 months Note: Copies of all permits are needed before any disbursements can be made

39 What is a 203K Consultant? The Consultant is an independent third party selected by PRMG and is required for obtaining a Standard 203K mortgage. The Consultant provides valuable services throughout the process of planning and completing the improvements that will be made to the home. While specific duties may vary, all Consultants are required to provide the following services that are shown in the next slides.

40 Role of the 203K Consultant Provide cost estimates for any required or desired repairs and improvements to the home Prepare these cost estimates in the form of an original Work Write-Up which will be given to the appraiser to assist in determining the as completed value of the home Ensure that the home meets minimum property standards and addresses health and safety standards as established by HUD

41 Role of the 203K Consultant Advise on building code and permit requirements to ensure that the project meets local ordinances. Inspect completed work and submit inspection reports to PRMG with any supporting documentation Make any changes to the original work write up (if applicable) and submit those changes to PRMG for approval. Perform the final inspection upon completion of the project. Submit all the necessary documentation required by PRMG to close out the renovation escrow account.

42 Other Services Consultants May Provide Conduct a Feasibility Study to determine if required or desired improvements can be supported by the market (at the request of PRMG or the borrower) Provide a Work Write Up without dollar amounts but with complete work descriptions for use in obtaining estimates and proposals from contractors

43 203K Consultant Fees The maximum fees that may be charged by the Consultant are as follows: Feasibility Study: $100 Work Write-Up: $400 for repairs less than $7,500 $500 for repairs between $7,501 and $15,000 $600 for repairs between $15,001 and $30,000 $700 for repairs between $30,001 and $50,000 $800 for repairs between $50,001 and $75,000 $900 for repairs between $75,001 and $100,000 $1,000 for repairs over $100,000 The Consultant may charge an additional $25 per additional Dwelling Unit.

44 203K Consultant Fees Draw Inspection Fee: for each draw request, the Consultant may charge an inspection fee that is reasonable and customary for work performed in the area where the property is located, provided the fee does not exceed a maximum of $350. Change Order Fee: $100 per change order request Re-Inspection Fee: $50 when reinspection of a work item is requested by borrower or by PRMG Mileage Fee: the Consultant may charge a mileage fee at the current IRS mileage rate when the Consultant s place of business is more than 15 miles from the property.

45 What s Included in the Renovation Escrow Account on a 203K Standard? Cost of Repairs Contingency Reserve Inspections and Title Update Fees Mortgage Payments financed (when circumstances permit and borrower chooses this option) Architectural and Engineering Fees Consultant Fees Permits and other fees Supplemental Origination Fee Discount points attributed to the renovation

46 Disbursement of Funds 203K Standard Any disbursements paid to the contractor, must have 10% of the draw request held back in the renovation escrow account. Before final release of rehabilitation escrow funds, the final inspection and draw request signed by the Consultant, contractor, and Borrower must be approved. Contractor is paid as work is completed, up to 5 draw requests (4 intermediate and 1 final), after work is inspected.

47 Disbursement of Funds 203K Standard Project must be completed within 6 months A W-9 must be provided to set up the contractor in the system. A two-party check is made out to the borrower and the contractor, and is then sent to the borrower. If the Contingency Reserve is not used (or not completely used), the remainder can either be made available for additional improvements or the funds may be applied toward the principal balance.

48 Contractor Requirements

49 Contractor Requirements 203K Standard On Standard 203K loans, there is generally one General Contractor overseeing the project. Borrowers cannot hire multiple contractors and oversee the project themselves. Must hire one General Contractor to oversee the work. One General Contractor and 1-2 large specialty contractors, (such as a well and septic or paving contractor)are also allowed for large cost items that the General Contractor may not want to put on his/her contract to be reimbursed later.

50 Contractor Requirements 203K Limited The borrower must provide a written cost estimate(s) and references from a qualified and experienced contractor(s) for each specialized repair or improvement. Borrower must sign and date each estimate. Borrowers may not use relatives/employers as their contractors. Limited 203K max total of 3 trade contractors or a General Contractor will be required. The borrower may not act as the General Contractor. Self-Help loans are not permitted. Contractor s bids/estimates must be broken down into Labor/Material Note: PRMG will review the contractor s credentials, work experience and client references and may require the borrower to provide additional cost estimates if necessary. Refer to the Product Profile for full contractor requirements

51 Contractor Bid/Estimate Example Broken out into Labor and Material Contractor Letterhead Name Phone number License Number address Property Address Borrower s Name Date of Bid/Estimate Signed by Borrower and Contractor

52 203K Forms, Disclosures and Data Input

53 203K Maximum Mortgage Worksheet

54 PRMG Renovation Product Process Flow

55 PRMG Renovation Product Process Flow

56 PRMG Renovation Product Process Flow

57 PRMG Renovation Product Process Flow

58 PRMG Renovation Product Process Flow

59 203K Disclosure Information LE Section A (Series 801 Include in APR) Supplemental Origination Fee 1.50% of the renovation amount, or $350, whichever is more LE Section B (Line Series 1100 Do Not Include in APR) Title Update Fees Title Update Feed at $150 each (Only one update is allowed on the Standard 203K unless the loan is located in the states of VA or OH. These states will require title updates with each draw and should match the inspections, as inspections will be completed with each draw.) NOTE, even if the narrower shops for a title company, the title update fee will be Freedom s choice. LE Section B (Include in APR) Inspection Fees Inspections at: Without Consultant : $165 With Consultant : A quoted by consultant, not to exceed $350 plus mileage per inspection LE Section B (Provider on SSPL) or C (Provider not on SSPL) (Line Series Do Not include in APR) Architectural and Engineering Fees (if applicable) Pest/Well/Septic/Water Purity Certification (if applicable) Survey Fees (if applicable) LE Section H Do Not include in APR (Line Series 1310+) Building Permit Building permit fees from contractor s bid ; if work will require a permit (e.g., roof), then permit fees must be disclosed

60 Documentation Requirements 203K Documentation Requirements Outside of qualification income and asset documentation the following documents are need when originating a 203K loan Documentation to be uploaded to the unassigned portion of the efolder 1. Feasibility Study (Standard 203K Only) 2. Consultant Inspection (Standard 203K Only) 3. Architectural Exhibits (Standard 203K Only) 4. Scope of Work and Cost Estimate 5. Contractor s W9 6. Contractor Disclosure Form 7. Proof of Insurance/Bond 8. Resume 9. Three (3) contacts to verify quality of work 10. Referral calls (to be completed by processor)

61 FHA Management Screen FHA 203K Tab Completing the FHA Management (FHA 203K) Locate and select the FHA 203K Tab 1. Within the FHA Management form locate the FHA 203K tab and determine if the loan is a 203(K) Limited Program if so mark the checkbox 2. Scroll down and complete the remaining sections of the screen

62 FHA Management Screen FHA 203K Tab Completing the FHA Management (FHA 203K) Locate the FHA 203K Tab 1. In Step 1 Establishing Financeable Repair and Improvement Costs, Fees and Reserves enter the corresponding costs similar to the following example 2. Section 2 item G enter the After Improved Value

63 203K Reference Material See PRMG s Resource Center for additional support material, including: 203K FT360 Materials PRMG s Process Flow and More! ProfilesandResourceCenterLinks.pdf

64 Who Are We Marketing To? Realtors Homebuyers Homeowners Contractors

65 Realtors More homes available to show (doesn t have to be perfect) Realtor does not have to find the perfect property Borrowers can renovate home as they desire

66 Homebuyers 203K brings new and near endless opportunities for Homebuyers It allows the Homebuyer to not have to find The Perfect Home when searching Gives them the ability to customize any potential property to their dream home Opens up a wider range of inventory to choose from

67 Homebuyers Many Homeowners are very happy with where they are at. Kids in schools Good neighborhood Close to work Next to extended family Expand and Renovate! Keep the home they love and make it better.

68 Contractors Benefits Contractors Allows the contractor to offer renovation financing Reduces reliance on builder s lines of credit Borrower cannot cancel, job MUST be finished Funds are held in escrow by lender More referral business through professional real estate networks

69 Results from PRMG s Renovation Team

70 Renovation Example! Before. After

71 Renovation Example! Before. After

72 Renovation Example! Before. After

73 Questions?