Revised 04/30/18. FHA Standard 203K

Transcription

1 Revised 04/30/18 FHA Standard 203K

2 FHA Standard 203K Disclaimer While every effort has been made to ensure the reliability of the webinar 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 FHA Standard 203K 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.

4 FHA Standard 203K FHA Standard 203K Loans Launch Date Wednesday January 18, 2017 Available for Retail Channel Only

5 FHA Standard 203K 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.

6 FHA Standard 203K 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.

7 FHA Standard 203K FHA Standard 203K 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.

8 FHA Standard 203K Program Highlights Offered with Standard and High Balance Fixed, ARM, and Good Neighbor Next Door Standard Balance: 15, 20, and 30 Year Fixed 5/1 ARM High Balance: 20 and 30 Year Fixed Purchase and Rate and Term Refinance allowed Property eligibility includes: SFRs, 1-4 Unit HUD REOs allowed, 1-4 Units, Condos, and PUDs

9 FHA Standard 203K Loan Parameter Overview 30 Year, 20 Year, and 15 Year Fixed 5/1 ARM LTV CLTV Purpose Units Occupancy Credit Score Purchase 1-4 O/O Standard Balance High Balance Rate/Term 1-4 O/O Standard Balance 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.

10 FHA Standard 203K Good Neighbor Next Door Sales Program Borrowers in selected professions are eligible to purchase designated HUD owned properties, in revitalization/exception-criteria areas, at up to 50% off the sales price, as specified by HUD. The following borrowers are eligible for the Good Neighbor Next Door Sales Program: Law Enforcement Officers Firefighters Emergency Medical Technicians (EMTs) Private and Public School Teachers 15 and 30-year fixed rate terms only. Owner Occupied SFRs, PUDs, Modular Homes and Condos are eligible for this program.

11 FHA Standard 203K Renovation Basics 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.

12 Eligible Improvements FHA Standard 203K 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.)

13 Ineligible Improvements FHA Standard 203K 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

14 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

15 FHA Standard 203K FHA Initial Disbursement May Only Include: 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. 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

16 FHA Standard 203K Renovation Workflow 1. Loan officer meets with the borrowers to explain program and qualify them 2. PRMG will select an FHA 203K Consultant and have them meet with the borrowers to discuss their project and inspect the home 3. The Consultant will provide a Specification of Repairs and work write up that includes all necessary work required 4. Borrower interviews contractors and receives estimates for work to be completed

17 Renovation Workflow FHA Standard 203K Contractor 1. Produces detailed estimate of work 2. Delivers documentation required for contractor acceptance 3. Once all work is agreed upon, the appraisal is ordered and completed subject to the work provided in the Consultant s Specification of Repairs for a Standard 203K.

18 Renovation Workflow FHA Standard 203K 1. Loan is processed as any other FHA loan while appraisal and renovation information is gathered 2. Loan is underwritten to standard FHA guidelines 3. Loan closes and the Renovation Escrow is held by PRMG until sale to investor 4. Once loan is sold, the renovation escrow is netted from the purchase and the renovation escrow account is established.

19 FHA Standard 203K Renovation Workflow Draw Disbursements 1. Draws are processed as work is completed and inspected at regular intervals 2. Project must be completed within 6 months Note: Copies of all permits are needed before any disbursements can be made

20 FHA Standard 203K 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.

21 Role of the 203K Consultant FHA Standard 203K 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

22 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. FHA Standard 203K

23 FHA Standard 203K 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

24 Contractor Requirements FHA Standard 203K 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.

25 Contractor Requirements FHA Standard 203K All rehab work must be performed by a qualified and experienced contractor chosen by the borrower. Work must show estimates for the work to be done and be completed in a workmanlike manner. Estimates will be reviewed by PRMG/Investor to ensure that the planned work meets all program and repair recommendations as noted on the appraisal report.

26 Contractor Requirements FHA Standard 203K 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 contactors. The borrower may not act as the General Contractor. Self- Help loans are not permitted.

27 FHA Standard 203K What s Included in the Renovation Escrow Account? 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

28 FHA Standard 203K What are Contingency and Mortgage Payment Reserves? A Contingency Reserve is required to cover unexpected expenses. 10% minimum, 20% maximum required 15% minimum, 20% maximum required when utilities are not operable as referenced in Work Write-Up The Mortgage Payment Reserve refers to an amount set aside to make mortgage payments when the property cannot be occupied during rehabilitation and is not to exceed six months of mortgage payments.

29 FHA Standard 203K 203K Standard Fees THE FEES FOR THE STANDARD 203K ARE AS FOLLOWS: GFE Block 1 (HUD Line Series 801 Include in APR) Supplemental Origination Fee: 1.50% of the renovation amount GFE Block 4 (HUD Line Series 1100 Do Not Include in APR) Title Update Fees: Title Update Fees at $150 each (Only 1 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.)

30 FHA Standard 203K 203K Standard Fees GFE Block 3 (HUD Line Series 1300 Include in APR) Inspection Fees: Inspections up to $350 each, plus mileage (recommend disclosing five inspections, 4 intermediate and 1 final) GFE Block 6 (HUD Line Series 1300 Do Not Include in APR) Architectural and Engineering Fees (if applicable) Pest/Well/Septic/Water Purity Certifications (if applicable) Survey Fees (if applicable) DOES NOT GO ON GFE DO NOT INCLUDE IN APR Building Permit Fees Building permit fees from contractor s bid. (If work will require a permit, [e.g., roof], then permit fees must be disclosed)

31 203K Consultant Fees FHA Standard 203K 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.

32 203K Consultant Fees FHA Standard 203K 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 re-inspection 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.

33 Disbursement of Funds FHA Standard 203K 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.

34 Disbursement of Funds FHA Standard 203K 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.

35 Maximum Mortgage Calculation FHA Standard 203K The max mortgage worksheet has been eliminated. The DE Underwriter must log into FHA Connection during underwriting to fill in the calculations. Must use the 203K Calculator in FHAC prior to endorsement for all 203K transactions Loan officers/processors should use the 203K worksheet available from HUD, print the results and include it in the loan file submission that can be found at the following link: For a complete list of required origination, processing, and closing forms/documents for the Standard 203K program, please refer to the Standard 203K Product Profile.

36 FHA Standard 203K Mortgage Insurance Premium (MIP) For the purpose of calculating the LTV to determine the correct MIP factor, must divide the Base Loan Amount by the After Improved Value.

37 Closed-End Second Liens Construction Review Process PRMG Underwriter must submit construction documentation to investor for review/approval prior to final loan approval. Review time can vary based on investor workflow, but may be from 3-5 business days

38 Closed-End Second Liens Things to Consider These loans have additional documentation and review requirements Anticipate and plan for the time it is going to take to get these loans through the system due to the additional review requirement Set proper expectations with the borrowers and realtors You are highly encouraged to review the product profiles to become familiar with the loan product Link to Product Profiles:

39 FHA Standard 203K FT360 Information Additional information on the 203K product in regards to FT360 will be provided by the Automation team and will be posted to the Resource Center when available. Please reach out to with any questions.

40 Standard 203K Additional Information Launch Date: January 18, 2017 Pricing and LLPAs will be on rate sheet/ft360 pricing engine For specific questions on data input in FT360, you can access training material from the Resource Center or reach out to for assistance

41 Standard 203K Additional Resources For Standard 203K guidelines, refer to the product profile and additional resources listed below. FHA Standard 203K Product Profile: FHA Standard 203K and Limited 203K Comparison Matrix: Resource Center Links:

42 Questions?