Limited FHA 203K Before After Village Mortgage NMLS 6331 Intended for Mortgage Professionals Only 1
Program Highlights Up to $35,000 in repairs with no minimum No consultant required Up to 3 Contractors Allowed Up to 50% of the total bid can be disbursed at closing; with required disclosure Two draws per contractor; one at closing and one when project is complete No 10% holdback Up to 6 months to complete project from closing date 2
Eligible Properties 1-4 units, primary residence Warrantable condo, townhouse (FHA approved) work permissible by bylaws of the association Mixed use - non residential portion cannot exceed 49% of the property All properties must be completed for a minimum of one year prior to the case number assignment date. 3
Eligible Improvements Repair/ Replacement/ Upgrade of: Roofs, Gutters and Downspouts Existing HVAC Systems Plumbing and Electrical Systems Flooring Minor remodeling that does not involve structural repairs Painting, both exterior and interior Weatherization, including storm windows and doors, insulation, weather stripping, etc. 4
Eligible Improvements Cont d. Septic system and/or well repair or replacement Repair/replace/add exterior decks, patios, porches *Must add value, if the current deck is not a safety hazard Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/ dryers and dishwashers Accessibility improvements for persons with disabilities Lead-based paint stabilization or abatement of lead-based paint hazards *Contractor must be lead certified Basement finishing, remodeling, or waterproofing; not to include structural repair Window and door replacements and exterior wall re-siding 5
Ineligible Improvements Major rehabilitation or major remodeling such as the relocation of a load-bearing wall New construction (including room additions) Repair of structural damage Repairs requiring detailed drawings or architectural exhibits Landscaping or similar site amenity improvements Any repair or improvement requiring a work schedule longer than 6 months Rehabilitation activities that require more than 2 payments per specialized contractor Tree removal is not allowed; unless deemed a safety hazard 6
Who Can Do the Work? Borrower can select their own contractor Must be licensed and insured; if required by municipality Must not have an identity of interest Must be able to document qualifications Must be approved by Village Mortgage 7
Contractor Approval Required Documentation: Resume Proof of active liability coverage; *eligible throughout project Copy of current license At least 3 credit references W-9 Signed by Contractor 8
Required 203K Forms Maximum Mortgage Calculation Worksheet FHA 203k Calculator Borrowers Identity of Interest Certification 203K Borrowers Acknowledgement FHA 203K Addendum to Purchase Contract Contractor(s) Detailed Bid/Proposal (separated labor and materials; not to include permit fees) Limited 203K Renovation Work Plan Contractor(s) Resume Contractor(s) License Licenses for any Subcontractors used by the Contractor Contractor(s) liability Insurance Binder/Certification Homeowners Contract Agreement(s) Rehabilitation Loan Permit Certification Contractor Request for 50% Release at Closing (I/A) 9
Purchase Borrower Required Down Payment Borrower minimum investment is 3.5% of acquisition cost (purchase price and improvements) Refinance Borrower required to have 2.25% into the transaction (use HUD form 92700 to calculate the loan amount) 10
Common Mistakes Incorrect loan amount & fees; not including contingency reserve in total financed fees Expecting to close in 30 days Bid(s) are not broken out with labor and material costs Bid(s) do not state which items need permits and include permit fee costs Having the borrower complete and handle all the paperwork (the loan officer needs to manage this process) 11
Loan to Value (LTV) is Based On Lesser of Sales Price + Repairs OR 110% of as completed value 12
What Happens After Closing? Work begins Up to 50% can be paid to each contractor up front Final inspection will be done to ensure completion of work Title update will be needed before final disbursement Property must be habitable and occupied within 60 days of closing 13
Selling the 203(k) Streamline Much faster process to get to closing Includes appliances and cosmetics Less expensive (no consultant fee, fewer inspections, etc.) Up to 110% of after-improved value Overcomes borrower concerns about property 14
Get the message out to those who can build your business with you! Realtors General Contractors Dealers Community Groups 15
Informational Resources on Section 203(k) www.hud.gov 16
Q & A What is the minimum repair amount? None What is the maximum repair amount? $35,000 (including contingency reserve) Is a contingency reserve fund required? Yes - 10% or 15% if property is vacant How many draws are allowed per contractor? 2 draws 50% at closing and 50% upon completion of project 17
Q & A Can funds be released to the contractor prior to work starting? Yes, up to 50% of material cost, upon request during loan process What are Ineligible Improvements? Major Rehab/Remodel New Construction Structural Damage Anything involving architectural drawings/exhibits What is the 203k streamline best used for? Minor Repairs Cosmetics Appliances Painting 18
Q & A What is the time frame for completion of the rehab? Rehab must be completed within max. 6 months; however property must be habitable within 60 days from closing date Are both Purchase and Refi transaction eligible? Yes, both Is an FHA Consultant required? No, the borrower can elect to use one, cannot be financed What happens when there are cost over runs? In the event of additional costs, they can be absorbed by the contingency reserve, with the approval from end investor. 19
Q & A What happens to the contingency reserve funds after final inspection? Any unused contingency reserve funds are applied directly to the outstanding principal balance of the mortgage, never by cash or check. If the borrower is a licensed contractor can they complete the work themselves? No, VMC does not allow self help work to be completed How do you run a 203k through AUS? The Section of the Act must be entered as a 203k loan to be recognized as a renovation loan. 20