Steps to Success. Step 1: Be sure to review the purchase contract for the following items: Step 2: Complete Inspections

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1 Steps t Success Step 1: Be sure t review the purchase cntract fr the fllwing items: The sales cntract shuld be cntingent upn apprval and must indicate 203K financing The seller shuld allw inspectrs, cntractrs, r the FHA cnsultant access t the prperty t estimate the cst f the remdel/renvatin Within 7 t 10 days f the agreement, the buyer shuld btain an inspectin f the prperty by a prfessinal hme inspectr and termite cmpany t make sure there are nt unfreseen prblems If the brrwer is purchasing a HUD freclsed prperty, it shuld be stated in the sales cntract what the prtin f clsing csts HUD is ging t pay, and the incentive prgrams HUD is ffering at the time. Any incentives being ffered shuld be specifically stated in the cntract. Step 2: Cmplete Inspectins The FHA cnsultant cnducts an inspectin f the prperty and determines what repairs are needed t meet HUD minimum prperty requirements. The brrwer will indicate any wrk they wish t have dne at the time f inspectin. Finding a FHA Cnsultant G t HUD s website: Search: 203k Cnsultants Select: 203k Cnsultants Select: The apprpriate state It will list all Cnsultants in that state *Nrcm Lan Officer is respnsible t give the brrwer the HUD Cnsultant cntact ASLO make sure t check Nrcm Exclusinary List fr HUD Cnsultants. Lists are lcated n Fresh Desk under Slutins. We als have a list f HUD Cnsultants we have wrked with n the Fresh Desk. Cnsultant Fees The cnsultant shuld inspect the prperty and prvide the Wrk Write ups/specificatin f Repairs. Lenders shuld be sure t check the HUD website t ensure that the Cnsultant is apprved. Architectural and engineering fees are nt restricted as lng as they are custmary and reasnable fr the type f prject being dne. The allwable cnsultant fees shuld fit within the fllwing parameters: NOTE: An additinal $100 can be charged by the cnsultant if the brrwer wishes t have them cmplete a feasibility study prir t submitting a sales cntract t a seller.

2 Obtain a Wrk Write up/specificatin f Repairs Yu shuld receive a cpy f the Wrk Write up frm the FHA Cnsultant, which includes the Cnsultant s cst estimates fr the cmpletin f the prject. Yu shuld als receive the cnsultant s agreement that is signed and dated by the brrwer and cnsultant. Step 3: Cmplete Applicatin in Encmpass and Disclse Order FHA Case Number The assignment f the FHA Case Number shuld be btained at this time Prper cding fr FHA Cnnectin Standard 203K 203K / Full 203K is required unless an exceptin has been requested Limited 203K 203KS / nly with and exceptin r when the amunt f renvatin is belw $10,000 and nn structural we may require the use f a HUD Cnsultant 203K Cnsultants ID number Disclsing Allwable Csts frm 203K MMWS t the Lan Estimate All allwable renvatin related csts must be disclsed. The fllwing csts are disclsed n the LE, frm the 203K MMWS: Inspectin fee FHA allws a max f 5 inspectins / $350 per draw max Title fees Architectural and Engineering fees Cnsultant fee Permit fees Other fees Supplemental riginatin fee Feasibility Study if ne was prvided by the HUD Cnsultant Step 4: Order an Appraisal Send a cpy f the HUD Cnsultants Wrk Write up/specificatin f Repairs t the appraiser Appraisal t be rdered thrugh the fllwing: Value Quest *Nte: The FHA Cnsultant s Wrk Write up will be the surce f repair estimates used t calculate the allwable maximum mrtgage. Step 5: Submit t Underwriting By the time the brrwer selects their cntractr and signs the necessary cntract, the appraisal shuld be dne

3 Upn receipt f the after imprved appraisal, yu shuld have all the figures yu need t cmplete the Maximum Mrtgage Wrksheet (MMWS). Yu are nw ready t submit yur file t underwriting. We will underwrite files subject t receipt f appraisal The fllwing dcumentatin is required fr a cmplete 203K package t be submitted t yur underwriter fr apprval: 203K Maximum Mrtgage Wrksheet Used fr mrtgage calculatin purpses t determine the maximum insurable mrtgage amunt and is made a part f the cmmitment The underwriter can make mdificatins until final sign ff. It is imprtant that the brrwers understand the meaning f each line item Each line item will be an entry in the Ttal Rehabilitatin Escrw Accunt Wrk Write up/specificatins f Repairs r Cst Estimate 203K Cnsultant Write up The Wrk Write up f repairs is t be cmpleted by the FHA cnsultant. Dcument the detail f the renvatins with attached architectural exhibits, drawings, etc. as described in the handbk and subsequent Mrtgagee Letters. Make sure cst f permits are included in the Cntractr and HUD Cnsultants wrk write up if nt the brrwer will be respnsible fr csts. Permits can be very cstly. All required permits must be in place prir t the first release. Draw Request Frm The cnsultant cmpletes clumn #1 with the dllar amunts crrespnding t the cnstructin line items. The cnsultant must sign and date the certificatin and include the ID number and the Suggested Cntingency Reserve. 203K Brrwers Acknwledgment (HUD A) This dcument is t be reviewed, discussed and signed by the brrwers at the time f the cunseling/applicatin Be sure t give a cpy t the brrwers A bx must be checked by the brrwer t state the interest is t be returned t the brrwers r applied t the principal balance f their mrtgage Hmewner/Cntractr Agreement A Hmewner/Cntractr Agreement is executed between the brrwers and the cntractr t ensure that the cntractr is in place t cmplete the wrk fr the underwritten amunt In cnjunctin with the Hmewner/Cntractr Agreement, the cntractr must prvide a detailed estimate f the renvatins t be cmpleted.

4 Identity f Interest Certificatins Identity f Interest refers t a transactin between Family Members, business partners r ther business affiliates. Cnflict f interest refers t any party t the transactin wh has direct r indirect persnal, business, r financial relatinship sufficient t appear that may cause partiality and influence the transactin Sales transactins between Family Members are permitted The certificatins state that neither the brrwer nr the cnsultant can have an identity f interest with any ther parties invlved in the transactin and must be signed by the brrwer and HUD Cnsultant 203K Cnsultant Agreement A Hmewner/HUD Cnsultant Agreement is executed between the brrwers and the HUD Cnsultant 203K Cntractrs Resume T be cmpleted and signed by the general cntractr 203K Rehab Lan Permit Cert T be cmpleted by HUD Cnsultant and signed by bth cnsultant and brrwer Make sure cst f permits are included in the Cntractr and HUD Cnsultants wrk write up if nt the brrwer will be respnsible fr csts. Permits can be very cstly. All required permits must be in place prir t the first release. 203K Cntractr Dcuments Prvided by the cntractr E & O Insurance listing brrwer as insured License Signed wrk estimate Be sure wrk write up des nt request advance f funds at clsing / prgram des nt disburse at clsing nly when wrk is cmplete and inspected by the HUD Cnsultant

5 203K Eligible Imprvements: 1 7: ELIGIBLE IMPROVEMENTS Mrtgage prceeds must be used in part fr rehabilitatin and/r imprvements t a prperty. There is a minimum $5, requirement fr the eligible imprvements n the existing structure n the prperty. Minr r csmetic repairs by themselves are impracticable and unacceptable; hwever, they may be added t the minimum requirement (in additin t $5,000.00). The mrtgage must include ne r mre f the items listed belw, with a cumulative minimum f $5, Types f Imprvements Types f eligible imprvements include, but are nt limited t: cnverting a ne-family Structure t a tw-, three- r fur-family Structure; decreasing an existing multi-unit Structure t a ne- t fur-family Structure; recnstructing a Structure that has been r will be demlished, prvided the cmplete existing fundatin system is nt affected and will still be used; repairing, recnstructing r elevating an existing fundatin where the Structure will nt be demlished; purchasing an existing Structure n anther site, mving it nt a new fundatin and repairing/renvating it; making structural alteratins such as the repair r replacement f structural damage, additins t the Structure, and finished attics and/r basements; rehabilitating, imprving r cnstructing a garage; eliminating health and safety hazards that wuld vilate HUD s Minimum Prperty Requirements (MPR); installing r repairing wells and/r septic systems; cnnecting t public water and sewage systems; repairing/replacing plumbing, heating, AC and electrical systems; making changes fr imprved functins and mdernizatin; making changes fr aesthetic appeal; repairing r adding rfing, gutters and dwnsputs; making energy cnservatin imprvements; creating accessibility fr persns with disabilities; installing r repairing fences, walkways, and driveways; installing a new refrigeratr, cktp, ven, dishwasher, built-in micrwave ven, and washer/dryer; repairing r remving an in-grund swimming pl; installing smke detectrs; making site imprvements; landscaping; installing r repairing exterir decks, patis, and prches;

6 cnstructing a windstrm shelter; and cvering lead-based paint stabilizatin csts, if the Structure was built befre 1978, in accrdance with the Single Family mrtgage insurance lead-based paint rule (24 CFR and (c)) and the U.S. Envirnmental Prtectin Agency s (EPA) Renvatin, Repair, and Painting Rule (40 CFR 745, especially subparts E and Q). Luxury items and imprvements that d nt becme a permanent part f the real prperty are nt eligible as a cst rehabilitatin. The items listed belw (nt limited t this list) are nt acceptable under the 203K prgram, including the repair f any f the fllwing: recreatinal r luxury imprvements, such as: swimming pls (existing swimming pls can be repaired) an exterir ht tub, spa, whirlpl bath, r sauna barbecue pits, utdr fireplaces r hearths bath huses tennis curts satellite dishes tree surgery (except when eliminating an endangerment t existing imprvements) pht murals gazebs; r additins r alteratins t supprt cmmercial use r t equip r refurbish space fr cmmercial use. Limited 203K May nly be used fr minr remdeling and nn structural repairs. The ttal rehabilitatin cst may nt exceed $35,000. There is n minimum cst repair. **Limited 203K MUST have exceptin t prceed as a Limited 203K prir t submissin Nrcm requires HUD Cnsultant t be used n mst prjects. Cntractrs wrk write up must fully describe the wrk that will be perfrmed alng with the breakdwn f materials required and cst f materials and labr brken ut separately Max 3 Cntractrs allwed Self Help nt allwed Cntingency required brrwer can prvide wn funds fr cntingency Unused cntingency will g t reduce principal balance cntingency funds are used slely t pay fr the prpsed repairs r imprvements and any unfreseen items related t these repairs Limited t 2 draws 50% may be drawn at clsing nly when the cntractr is nt willing r able t defer receipt f payment until cmpletin f the wrk, r when a payment represents the cst f materials incurred prir t cnstructin. A statement frm the cntractr is sufficient t dcument. Fllwing fees MAY NOT be included in a Limited 203K Mrtgage payment reserves

7 Architectural fee 203K Cnsultant Fee Feasibility Study Rehabilitatin Requirements All rehab wrk must be perfrmed by a qualified, experience cntractr chsen by the brrwer and satisfying all Nrcm requirements. Standard 203K Initial Draw at Clsing the fllwing are allwable draws that can be made at clsing: Permits; Architect; Cnsultant; riginatin/discunt pints; 50% f materials csts fr items nt yet paid fr by the brrwer r cntractr, where a cntract is established with the supplier and an rder is placed with the manufacturer fr delivery at a later date. Cpy f the cntract must be prvided. All FEES MUST have been financed and cmmunicated t the underwriter that the funds will be disbursed at clsing. Fees must be listed n the MMWS Draw at Clsing sectin t be paid at clsing. Rehab perid starts when the mrtgage is funded Wrk must start within 30 Days f mrtgage funding A cnsultant is required t cmplete a Draw Request when funds are disbursed. HUD 9746 A frm must be cmpleted and signed by the cnsultant and the brrwer. Funds cannt be disbursed fr wrk that has nt been cmplete unless it is fr specialized rder f supplies. Self Help is nt allwed by Nrcm All wrk t be cmpleted within 6 mnths