Products. Loan Amount

Transcription

1 Freedom Mortgage FHA 203(k) FRM & ARM Product Guide Loan Program Overview This document is not all encompassing. It is a summary reference tool to be utilized in conjunction with Agency guidelines and applicable FMC credit and compliance policies. Where this document and the FMC Seller Guide are silent, refer to Agency guidelines. Products Loan Amount LTV/CLTV Mortgage Insurance Premium (MIP) All highlighted items are Freedom Mortgage overlays. Conforming 15/20/25/30 FRM High Balance 30 FRM Conforming 5/1 ARM High Balance 5/1 ARM The Maximum Mortgage Amount for 203(k) loan is the FHA statutory loan limits for the subject property location. Refer to current published county limits at High Balance - per HUD designated high cost areas maximum loan amount. Maximum LTV is to be calculated in accordance with HUD Handbook II.A.8.a and the 203(k) Calculator located in FHA Connection. LTV calculations are determined prior to adding financed UFMIP MIP is determined based on the LTV calculated by dividing the base loan amount by the after-improved value. If Secondary Financing is provided by an eligible entity in accordance with HUD Handbook II.A.8.a.xii, the CLTV may not exceed 125%. 125% if secondary financing provided by Governmental Entities, Homeownership and Opportunity for People Everywhere (HOPE) Grantees and HUD-Approved Nonprofits. 125% if secondary financing provided by Family Members. 110% if secondary financing provided by Private Individuals and Other Organizations. FHA collects a one-time Upfront Mortgage Insurance Premium (UFMIP) and an annual insurance premium, also referred to as the periodic or monthly MIP, which is collected in monthly installments. Refer to ML Appendix 1.0, until such time as the Annual MIP is reincorporated into HUD Handbook II.A.2.e. Down Payment Standard FHA requirements apply Terms 180, 240, 300 or 360 months for Conforming FRM 360 months only for High Balance & Adjustable Rate ARM Margin 2.25 or 2.00 Weekly Average Yield on U.S. Treasury Securities ARM Index Adjusted to a Constant Maturity of One Year November 27, 2017 Page 1

2 The initial index is based off an available index in effect 45 days prior to consummation. An interest rate adjustment resulting in a change to the borrower s monthly payment must be based on the most recent index value available 45 days before the date of the rate adjustment. ARM CAPS 1% initial, 1% annual, 5% lifetime Prepayment Penalty Not Applicable Occupancy Properties (Eligible) Primary Residence: Must be owner occupied 1-4 Unit Second Home: Not Permitted Investment Property: Not Permitted 1-4 Units Primary Residence Warrantable Condo*, PUD, Townhouse Mixed Use (non-residential portion may not exceed 49%) Must be an existing property that has been completed for a minimum of one year prior to the case number assignment date. If the Mortgagee is unsure whether the Property has been completed for at least one year, the Mortgagee must request a copy of the Certificate of Occupancy (CO) or equivalent. Properties that are not eligible for a 203(b) mortgage due to health and safety or security issues may be eligible if the rehabilitation or work performed will correct such issues. Properties (Ineligible) *Condos must be FHA approved and proposed renovation work must be permissible under the bylaws of the homeowners association. The rehabilitation/improvements are limited to the interior of the dwelling unit, except for the installation of firewalls in the attic. Written approval must be documented in the loan file. Manufactured Housing, permanently and non-permanently affixed Non-warrantable Condo, PUD, Townhouse Timeshare Cooperative Condo/PUD Hotel Commercial Property Working Farms Historical Properties Properties that have been assumed Life Estates November 27, 2017 Page 2

3 Texas Section 50(a)(6) Not permitted Allowable Fees and Costs Disbursed at Closing Appraisal Requirements Homes that have never been completed or existing homes completed that are less than one year old. Underwriting Overview The following fees/costs may be disbursed at closing: Standard 203(k): With paid receipts or invoices: Prepaid architectural or engineering fees Prepaid Consultant fees Permit fees (permits must be obtained before work commences) Origination fees and/or discount points applied to renovation costs, fees, and reserves Limited 203(k): Permit fees (permits must be obtained before work commences) Up to 50% of the estimated costs of materials and labor before work commences 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. A statement from the contractor is required. Lender must document the amount and purpose of an initial draw at closing on the form HUD LT FMC s Allowable Costs Released at Closing form may be used to identify which costs and fees have been disbursed at closing (optional). After Improved Appraisal Report: An after improved appraised value that estimates the value of the property after completion of the renovation work is required. The appraisal must state that the property meets FHA requirements once the renovations are completed. The Consultant s Work Write-Up must be attached to the appraisal report for a Standard 203(k). A proposed plan from the borrower and/or the contractor bid(s) must be attached to the appraisal report for a Limited 203(k). Valid for 120 days from the effective date of the appraisal. When the after improved appraisal report identifies the need for health and safety or structural repairs that were not included in the Contractor s Bid and/or Consultant s Work Write-Up, the repairs must be added and the revised document(s) must replace the inadequate document(s) in the appraisal report. November 27, 2017 Page 3

4 As-Is Appraisal Report: An as-is appraisal may be required as follows: Purchase In the case of property flipping, if needed to comply with HUD s Property Flipping guidelines. Refinance Properties acquired greater than or equal to 12 months prior to the Case Assignment date when the existing debt on the property plus financeable repairs and improvement costs, mortgage fees, contingency reserves, and mortgage payment reserves exceed the after improved value. Properties acquired less than 12 months prior to the Case Assignment date. When borrower wishes to finance closing costs and pre-paids STANDARD FHA 203(K): Fully describe the work being performed and provide the itemized cost for labor and materials. Costs for all line items must equal the grand total. Must be in the borrower s name and reference the subject property address. Reference the Contractor s name, contact information, and license number when required. LIMITED 203(K): Bid Requirements Fully describe the work being performed and provide the itemized cost for labor and materials. Costs for all line items must equal the grand total. Must be in the borrower s name and reference the subject property address. Reference the Contractor s name, contact information, and license number when required. Proposal must indicate work items that require permits and state that repairs are non-structural Buydown Not permitted Non-occupant co-borrowers are allowed in accordance with HUD Co-Mortgagors Handbook II.A.2.b. November 27, 2017 Page 4

5 Contingency Reserves Credit Information Debt-to-Income and Qualifying Rate Documentation Requirements (FHA 203(k) Specific) Contingency reserves are used for unforeseen repairs or deficiencies discovered during the renovation. Must equal a minimum of 10% of the hard costs (labor/materials) of a renovation project and must be established and funded for all transactions. The reserve must be increased to 15% when utilities are not on and functioning. On a Standard 203(k), the HUD Consultant s recommendation must be used as a minimum. However, the DE Underwriter may always increase. The reserve may be increased to as much as 20% at the DE Underwriter s discretion. The DE Underwriter reserves the right to increase reserves. The reserve may be considered as part of the total renovation costs or the borrower may fund it separately. Unused contingency funds, unless they were received directly from the borrower, must be used to reduce the outstanding balance of the loan after all work has been completed and the certificate of completion has been obtained. May be used for discretionary purposes if money is available as the project nears on-time completion (Standard 203(k) only). All transactions require a tri-merged credit report for all borrowers All borrowers must have a FICO score. Minimum 620 representative credit score is required for all borrowers on Conforming loan transactions. Minimum 640 representative credit score is required for all borrowers on High Balance loan transactions. More restrictive of AUS or 55% FRM- qualify at Note rate 5/1 ARM qualify at the greater of the fully indexed rate (index rate plus the margin) or the Note rate Underwriting/Processing Documents: 203(k) Calculator from FHA Connection 203(k) Borrower s Identity-of-Interest Cert. 203(k) Borrower s Acknowledgement (Form HUD A) Consultant s Work Write-Up (Standard 203(k) only) Draw Request Template (Form HUD-9746-A; Standard 203(k) only) 203(k) Consultant s Identity-of-Interest Cert (Standard 203(k) only) Consultant/Borrower Agreement (Standard 203(k) only) Architectural exhibits, if required (Standard 203(K) only) FMC s* Contractor Profile Form (one per contractor) FMC s* Contractor Acceptance Checklist, including supporting documentation (one per contractor) Contractor s Bid(s) November 27, 2017 Page 5

6 Borrower Contractor Agreement (i.e., Homeowner/Contractor Agreement, or HOCA; one per contractor required) FMC s Rehabilitation Loan Permit Certification form FMC s Pre-Review Submission Checklist (if applicable) * Or, Correspondent Lender s equivalent. Draw Disbursements Closing Documents: Rehabilitation Loan Agreement Rehabilitation Loan Rider Standard 203(k): Contractor may elect to have a maximum of five (5) draws. Funds are only disbursed for work that has been completed and inspected. No upfront deposits are allowed. A ten percent (10%) holdback will apply to all progress, or interim, draws. Final draw will be paid-in-full, and will include all previously withheld ten percent (10%) holdbacks, along with any outstanding contingency requests or change orders. HUD Consultant inspects property to identify the percentage of work complete to date for each draw request. Limited 203(k): Up to 50% of the bid amount may be disbursed at closing (Refer to conditions under Allowable Fees and Costs Disbursed at Closing ). If no initial disbursement is made at closing, 50% of bid amount may be disbursed after loan purchase. The remaining 50% of the bid amount will be paid upon completion of all work. Consultant or appraiser conducts final inspection. No holdbacks. No more than two (2) draws per contractor allowed. All checks are made payable to the borrower(s) and contractor. November 27, 2017 Page 6

7 Self-help is not allowed, and the borrower may not act as the General Contractor. Borrower must choose their own contractor. Contractors must meet all state and jurisdictional requirements. Maximum of 3 contractors for Limited 203(k). General Contractor preferred for Standard 203(k). General Contractor Requirements Good Neighbor Next Door Hard Costs HUD Properties Identity-of-Interest and/or Non-Arm s Length Transactions General Contractor Documentation Requirements: Profile/resume References Proof of licensing, if required by municipality or state Liability insurance coverage with a preferred minimum of $1 million in coverage Worker s Compensation insurance, when required Lead-based paint certification, if applicable Eligible second lien program for HUD REO properties Must be in accordance with HUD Handbook II.A.8.o and III.A.3.g. Hard costs of the renovations escrowed will be based on: Standard 203(k) HUD Consultant s estimate of hard costs as documented in the Work Write-Up Limited 203(k) Contractor s Bid All HUD REOs are eligible for 203(k) financing. Purchase contract or addendum must identify the property as eligible for 203(k) financing. A lead-based paint inspection report is required if the home was built prior to The lead-based paint stabilization costs (above and beyond what is paid by HUD when it sells REO properties) is an eligible improvement for repair on homes built prior to A title policy is required. Sales between family members are permitted. There may not be any other instances of identity-of-interest or conflict-of-interest between parties. Identity-of-Interest refers to a transaction between Family Members, business partners or other business affiliates. Conflict-of-interest refers to any party to the transaction who has a direct or indirect personal, business, or financial relationship sufficient to appear that may cause partiality and influence the transaction. For example, using a contractor who is a family member represents a conflict-of-interest. November 27, 2017 Page 7

8 Minimum of $5,000 in repair costs. No maximum renovation cost; however, the total mortgage amount must be within FHA statutory limits for the subject property location. Use of a HUD approved, 203(k) Consultant is required. Consultants are selected by the originating lender from the FHA 203(k) Consultant Roster located on and FHA Connection. Acceptable consultants must inspect the property and prepare the cost estimates in the form of an original Work Write-Up which includes a detailed description of the costs for labor, materials, and a narrative format. A plan review of a contractors bid is not acceptable. Improvements (Standard 203(k)) Eligible types of Improvements*: Repair/replacement of structural damage, additions to the structure, and finished attics and/or basements Installing or repairing wells and/or septic systems; connecting to public water and sewage systems Repairing or removing an in-ground pool Eliminating health and safety hazards Lead-based stabilization costs, if structure was built before 1978 Ineligible Improvements/Repairs*: Purchase or repair of recreational or luxury items Improvements that do not become a permanent part of the subject property Improvements that solely benefit commercial functions within the property Do it yourself or self-help repairs Conversions. Exceptions allowed for downward conversions (e.g., 2 Unit converted into a 1 Unit), when ALL permits are in place prior to closing. Improvements (Limited 203(k)) All repairs must be completed within six (6) months of closing. *Refer to HUD Handbook II.A.8.a for a complete list of eligible and ineligible types of improvements and repairs. Used for minor remodeling and non-structural repairs. Total rehabilitation costs must not exceed $35,000. No minimum repair amount. Does not require a 203(k) Consultant. November 27, 2017 Page 8

9 Eligible types of Improvements*: Repairing/replacing wells and/or septic systems Connecting to public water and sewage systems Repairing/replacing plumbing, heating, AC and electrical systems Eliminating health and safety hazards Making changes for improved functions and modernization Repairing/removing an in-ground pool Repairing/installing new roofing, provided the structural integrity will not be impacted Ineligible Improvements/Repairs*: Repairs or improvements requiring more than 6 months to complete Rehabilitation activities that require more than 2 payments per specialized contractor Rehabilitation that requires more than 2-3 specialized contractors Repairs that prevent the Borrower from occupying the subject property for more than 15 days during the rehabilitation period Purchase or repair of recreational or luxury items Improvements that do not become a permanent part of the subject property Improvements that solely benefit commercial functions within the property All repairs must be completed within six (6) months of closing. *Refer to HUD Handbook II.A.8.a for a complete list of eligible and ineligible types of improvements and repairs. Homeowners: Valid Homeowners Insurance policy to be provided. Insurance Requirements Builder s Risk: Not required if the Homeowners coverage remains intact during the construction period. HO-3 or HO-5 policies do not satisfy Builder s Risk Insurance requirements. May be required if the property will be vacant during the time of renovations to cover theft or vandalism. Must be disclosed to the agent that the renovation loan is fully disbursed. May be paid by the Borrower or the Contractor. If paid by the Borrower, it must be disclosed as a separate line item to be paid at closing. Insurance premium may not be included in escrows. November 27, 2017 Page 9

10 Mold and/or Lead- Based Paint Mortgage Payment Reserves Permits Purchase Mold: Specialized mold remediator must indicate if the scope of the project will or will not require a final, clearance test (i.e., air quality and/or surface testing). If air quality and/or surface testing is required, the cost of the testing must be included in the contractor s bid and Work Write-Up (if applicable) and must also be disclosed on the LE/CD. Lead-Based Paint: Lead-based paint ( LBP ) certification is required when a property was built prior to 1978 and repair of defective paint or lead-based paint stabilization is cited in the contractor s bid, identified in the Consultant s report, or documented in the appraisal report. Not applicable on Limited 203(k) transactions. An escrow for mortgage payments (PITI) that will become due during the renovation period generally may be included as part of the total renovation costs for a principal residence property if the property cannot be occupied during the renovation period. Maximum PITI to be held in escrow is six (6) months. Permit costs vary as determined by the local municipality and must be documented. Print-outs from the municipality s website, confirming permit costs, are acceptable. Building permits for all aspects of the renovation project must be in place prior to the acquisition/ delivery of materials and commencement of work and before the release of any escrow funds. Unpermitted work may result in fines and penalties to the borrower that may not be reimbursed from the renovation escrow account. If permits are not required by the local jurisdiction, a certification or other documentation stating no permits are required for the project must be obtained in lieu of the permit. Utilize FMC s Rehabilitation Loan Permit Certification form to validate permits required, or substantiate permits are not required. Sales contract must include a provision that the Borrower has applied for Section 203(k) financing, and that the contract is contingent upon mortgage approval and the Borrower s acceptance of additional required improvements as determined by the Mortgagee. The Adjusted As-Is Value is the lesser of the purchase price less any inducements to purchase or the property As-Is appraised value. With the exception of cases of property flipping, which must comply with HUD s Property Flipping guidelines. Refinance (Cash-Out) Not permitted November 27, 2017 Page 10

11 Refinance (Limited Cash-Out) Title Requirements Underwriting Requirements The Adjusted As-Is Value is the As-Is appraised value. No debt consolidation or cash back permitted. Interim Draws Title updates or lien waivers are appropriate based upon local lien draws. Final Draws An endorsement to the title policy extending the effective date through the completion of the renovation and assuring first lien position is required. A lien waiver is not a substitute for an endorsement to the title policy for a final draw. All loans must have an AUS approval from TOTAL Scorecard. Approve/Eligible, Approve/Ineligible (for specific programs) through DU or Accept through Loan Product Advisor. Refer recommendations not permitted. Appendix A Fee Chart Fee Description FHA 203(k) Standard FHA 203(k) Limited Architectural Fee Engineering Fee Varies per loan, according to architect s fee schedule. Varies per loan, according to engineer s fee schedule. Consultant Fee $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. N/A N/A N/A November 27, 2017 Page 11

12 Inspection Fees Title Update Fee(s) Varies, according to HUD Consultant s fee schedule, with a max of $350 each. The Consultant may charge a mileage fee at the current Internal Revenue Service (IRS) mileage rate when the Consultant s place of business is more than 15 miles from the Property. $95 flat for all states, except OH and VA. In OH and VA, $95 times no. of draws. $165 each $95 flat for all states, except OH and VA. In OH and VA, $95 times no. of draws. Permits Varies, according to municipality s fee schedule. Varies, according to municipality s fee schedule. Origination Fee (f.k.a. Supplemental Origination Fee) Discount Points Greater of $350 or 1.5% of total renovation fees, costs, and reserves. May not be waived. Varies per loan. When charged, applies to total renovation fees, costs, and reserves. Greater of $350 or 1.5% of total renovation fees, costs, and reserves. May not be waived. Varies per loan. When charged, applies to total renovation fees, costs, and reserves. November 27, 2017 Page 12

13 Appendix B TRID Guidance Loan Costs for Renovation Loans The grid below shows how to transfer renovation costs/fees from either the FHA 203(k) or Fannie Mae HomeStyle Renovation Maximum Mortgage Worksheet to the LE/CD. LE CD Renovation Escrow Item 203(k) MMW Step 1 HS MMW Line # APR Y/N H H Total Cost of Repairs A.1. C-1a No H H Contingency Reserve B. C-1b No B B Inspection Fees A.4. C-1e Yes B B Title Update Fees A.5. C-1f No H H Mortgage Payments Escrowed C C-1h No B or C 1 B or C 1 Architectural & Engineering Fees A.2. C-1c No B or C 1 B or C1 1 Consultant Fee A.3. C-1d No H H Permits A.6. C-1g No H H Other N/A C-1i No A A Origination Fee or Draw Management Fee D.1. C-1i Yes A A Discount Points Financed D.2. N/A Yes 1 Disclose in section C if borrower is given the option to shop and the vendor is listed on the Settlement Providers List ( SPL ). Otherwise, disclose section B. Freedom Mortgage Corporation is a mortgage lender licensed in all 50 states. NMLS # Corporate office located at 907 Pleasant Valley Avenue, Suite 3, Mt.Laurel, NJ 08054, (800) Please visit our website at for our complete list of state licenses. This communication is sent only by Freedom Mortgage Corporation and is not intended to imply that any of our loan products will be offered by or in conjunction with HUD, FHA, VA, the U.S. government or any federal, state or local governmental body. This information is intended for use by mortgage brokers and other industry professionals. This is a business-to-business communication and is not an advertisement to or solicitation of a consumer. For additional information about Freedom Mortgage Corporation, please visit the NMLS Consumer Access page at: nmlsconsumeraccess.org. Equal Housing Lender Freedom Mortgage Corporation. All rights reserved. November 27, 2017 Page 13