1. FHA 203 (k) Rehab
Qualified buyers can purchase and make improvements—all with a single loan
2. Through the Federal Housing Administration
(FHA) 203(k) mortgage insurance program, buyers can
purchase their home and include the costs to
rehabilitate and repair it in the same loan. This
program can help you expand homeownership
opportunities while at the same time revitalizing the
communities you serve.
• FHA 203(k) can help you:
• Move distressed properties that cannot secure
traditional financing
• Expand your market reach
• Help borrowers find affordable financing and realize
the dream of homeownership
• Turn a house into a home
3. There are buyers who:
• Are interested in purchasing a property
that needs repairs
• Are existing homeowners who need
funds to rehabilitate their property
• Want to save time and money by
financing the purchase with the cost of
the repairs
• May not qualify for a conventional loan
• Have low-to-moderate incomes or need
co-signers to help qualify
• Are first-time homebuyers
• Want improvements to be tax deductible
• Want to improve their home and
neighborhood
• Like the target neighborhood but cannot
find the perfect property
• Can’t get into escrow on a “turn-key”
property
4. An affordable, stable financing
solution that combines the purchase
or refinance of the home along with
the costs of the improvements into a
single loan.
• Standard FHA guidelines apply
• Opportunity to borrow against the value of the
home after improvements – Up to 110% of
Future Value!!
• Low down payment requirements - 3.5%
• Gift Funds “OK”
• Flexible credit qualifying
• 3% Concessions allowed on FHA
• Owner-occupied 1-4 unit properties, PUDs,
condos and REO properties
5. Your target market would be:
Buyers purchasing a home in
need of rehabilitation:
* May be REOs, short sales and
foreclosures * Incomplete
renovations **
* Cure un-permitted additions
* Out-dated kitchens, bathrooms,
etc.
* Cracked slabs and foundation
issues OK
6. • Escrow closed in property’s current
condition
• Realtor paid at close of escrow
• Work can be completed by contractor
or
* Buyer buyer must be qualified and
approved
to do the work
* Work must be completed within the agreed
upon timeframe (no more than six months
after closing)
• Up to six months PITI can be
included in the mortgage if the
property is not occupied during
construction (Full 203k
Only)
7. Virtually any kind of improvement is
eligible provided it becomes a
permanent part of the real property
and adds value, for instance:
• Additions to the structure
• Kitchen or bath remodels
• Patios, decks or terraces
• Roofing and landscaping
• Safety, energy efficiency and electrical
upgrades
• Handicapped accessibility
improvements
• Foundation issues
• Termite/Pest issues
• Completion of un-permitted structures
• Luxury items are not eligible:
• Swimming pools, hot tubs, tennis
courts, gazebos, barbecue pits, saunas or
alterations to support commercial use
8. • FHA guidelines apply:Credit
* Minimum Score 620
* Occupant Co-Borrower with no
FICO OK with DU Approval and 1
scoring borrower with 620 FICO
• Debt to Income Ratios
* Determined by DU.
• Limited Tradelines OK with DU
Approval
* No Alternative Credit Needed
• Court Ordered judgments and tax
liens must be paid
* Collections may also be required to
be
paid
9. • Minimum $5,000 rehabilitation amount
minimum 100k loan amount
• 3.5% minimum down payment
required
* Checking, savings or other
depository accounts
* Proceeds from 401(k)
* Gift from relative, fiancé/fiancée
or domestic partner
• Interest party contributions allowed up
to 3% toward closing costs
• Cash reserves are not required on 1-2 unit
properties may be required for DU
Approval
10. • Standard/Full203k
• Structural changes
• No limit to the amount of rehab
• Loan amounts up to County
Limit
• Streamline 203k
• Up to 35k in total rehab
• No structural changes or
repairs
• Can be 100% cosmetic
improvements
11. FHA 203 (k) Streamline
Allows borrowers to easily finance an additional $35,000 into their mortgage to
make
improvements
Cover improvements identified by home inspector or FHA appraiser
Allowed on limited improvement types, including:
* Roofs, gutters, downspouts
* Upgrade/repair plumbing, septic, well & electrical systems
* Heating and air conditioning
* Replacement of flooring, windows, doors, siding
* Purchase and installation of appliances minor that don’t involve structural repairs
* Handicapped accessibility improvements
* Weatherization, painting, basement waterproofing
Streamlined 203(k) is subject to the same guidelines as FHA 203(k)
It is the disbursements that are “streamlined”
12. FHA 203 (k) Standard
Allows buyers to make larger and structural improvements to their home,
including room additions
•No limit on repair amount
•Minimum $5000 rehabilitation
amount
Foundation repairs Repair or add a retaining wall
Add a second story Increase square footage
Get an un-permitted addition up to code Repair chimney damage
Add attached units Remedy a property after natural disaster
•HUD Consultant required
13. The loan- to -value is based on
the lesser of:
· The sales price or “as is” appraised value
plus cost of rehabilitation
· or
· 110% of “as completed” appraised value -
Max LTV is 96.5%
14. Determining the Maximum Loan Amount
EXAMPLE: purchase of a 1 unit property with 96.5/96.5% LTV – owner occupied only
-
Purchase and Renovation Costs
Sales Price (“as is” appraised value) $ 120,000
Labor/Material $ 24,500
Soft Costs (HUD Consultant, Inspection Fees, Title Updates) $ 2,200
Contingency (utilities functioning – 10% required) $ 2,670
Monthly PITI (Full 203k only) $ 0
Total for Purchase and Renovation $ 149,370
“As is completed” value (determined by appraiser) $ 160,000
Value to use for determination of LTV must be the lesser of the sales price or “as is” appraised value plus cost of
rehabilitation minus sales concessions, or 110% of the “as completed” appraised value. In this example, $149,370
is less than 110% of the “as completed” appraised value of $176,000, therefore the value you must use when
determining the maximum loan amount is $149,370.
Maximum Loan Amount at 96.5% LTV $ 144,142
15. Used to cover health, safety and unplanned
issues that arise during construction
• Required on Standard and Streamline 203k
* A minimum of 10% of the cost of rehab and
maximum of 20% a 15% contingency will be
used if utilities are not on at time of inspection
If not used (after all construction is complete)
the remaining amount can be applied to principal
OR Used to make other improvements (additional
approval is required)
• Upgrade flooring, tile, paint, etc
16. • After the loan is purchased
• Welcome package is sent to the
borrower Disbursements are made
as each phase of the project is
completed based on the draw
paperwork provided by the cost
consultantInspections are required
prior to each disbursement
• A maximum of five draws
allowed
• Draw amounts may vary and are
based on the work performedA
10% reserve is withheld on each
draw – a “holdback”“Holdback”
funds are disbursed upon
completion of all work
17. • After the loan is purchased
• 50% of the rehabilitation funds are
disbursed 4-6 weeks after close
• For borrowers doing the work
themselves, a self-help agreement is
required before any funds are
disbursed – the check is made payable
to the borrower
• For borrowers working with a
contractor, a two-party check is made
payable to both the borrower and the
contractor, the check will be sent to the
borrower Included with the initial
disbursement is an instruction letter
detailing the receipt of the final
disbursement The balance is disbursed
upon completion of all work
• Two disbursements are made
• One shortly after loan purchase
• Second and final disbursement once
all work has been completed
18. Make sure all parties
understand the draw
process
When the first and all subsequent draws are
made? How many draws are allowed ?
• maximum five for 203(k)
• two for Streamline 203(k)
Cost consultants can help
make the process easier
– they are listed by location
• Build relationships with contractors in your
area
• Create opportunity with Asset Managers
21. Bids - What are we looking for???
Complete and specific LINE ITEM
FORMAT that breaks down LABOR &
MATERIALS
·On contractor’s letterhead with license #
·License must be active
·Signed by all borrowers and contractor
·Contractor should comment if permits are
required. If so, contractor to add cost of
permits to bid or comment that permit fees are
included in bid
·Contractor should be in line with current
market labor and material costs
·If termite report included, contractor should
reference Section 1 items specifically
24. • HUD Consultant
Report:
HUD consultant and contractor
descriptions and figures should
matchMust list accurate
contingency reserve and number
of inspections + cost of
inspectionMust include a draw
sheetAllocate cost for permits if
applicableIf consultant
references engineer’s report or
architectural exhibits, these must
be provided at time of
submissionIf termite report, HUD
consultant should reference Section
1 items specifically
25. • Borrower Self-Help:
Borrower must be qualified and
approved to do the work.
Work must be completed within 6 months.
Borrower cannot be reimbursed for
labor. must have a third party
contractor’sbid for labor and materials
if using a home improvement store such as
Home Depot or Lowe’s, Self Help
guidelines would apply and a W-9 is not
necessary as the check is made directly to
the borrower who is technically acting as
the General Contractor Borrower must
show adequate reserves to start rehab
26. Appraisal:
Original Color Appraisal
• Completed “subject to” work
being done with comps
supporting “subject to” value.
• Must provide “as is” value in
addendum.
• Report needs to include either
complete contractor’s bid or
HUD consultant report.
• Must comment whether all
utilities were on at time of
inspection.
• Should comment on any health
and safety issues
28. Realtors
IMPROVE YOUR LISTING POWER!!
• Get the listing by assuring the seller
• a quick sale by advertising their home as the
• “Create your own Dream Home!!!”
• Turn and old listing into a SOLD LISTING
• Paint the picture for the buyer!!
• Use a contractor to draw up plans or drawings for the
potential renovation
• Inquire with other realtors as to why there listing is not
moving
• LOCATION LOCATION LOCATION!!!!
• Close property in current condition
30. • 203k Pitfalls: What will slow
the loan process?
• INCOME, CREDIT, COLLATERAL,
CASH
• Loan does not meet 203(b)
guidelines.
• Make sure your borrower qualifies!!
• Contractor Bid does not break down
labor and materials.
• Contractor not licensed to do work.
• License or insurance expired prior to
funding date.
• Appraisal Not done as a 203k. or
not done “subject to”
Comps do not support “subject to”
• No comments in regards to utilities
• Not properly addressing non
permitted additions
31. • 203k Pitfalls: What will slow the
loan process?
• Utilities off but 203k
• Worksheet has 10%
contingency15% could push over
35k
• Termite reportNot included but
referenced in contractor’s bid,
HUD report, or appraisalTermite
report comments about further
inspection requirements or
inaccessible areas.Who is paying
for termite? Seller? Or do repairs
need to be included in bid?Section
1 items not all being addressed in
bidAppraisal, HUD report or
contractor’s bid refers to home
inspection, engineers report, etc.
and reports are not provided.Can
open up a can of worms
32. 203k Pitfalls: What will slow the
loan process?
Trying to squeeze a deal as at
Streamline K
Bids under market value
Health and safety items not addressed
Streamline K submitted as a Full K Not
acceptable by investor If a
Streamline, no HUD Consultant
HUD consultant report, contractor’s bid
and appraisal not matching
All parties need to be on the same page
Self Help
We highly discourage Self Help on203k
Borrower’s not qualified to do work
Need third party contractor bid
33. Important Links
***HUD Website for 203k***
http://www.hud.gov/offices/hsg/sfh/20
3k/203kmenu.cfm
HUD Mortgage Limits
https://entp.hud.gov/idapp/html/hic
ostlook.cfm
HUD Inspectors and
Consultants
http://www.hud.gov/offices/hsg/sfh
/insp/inspectr.cfm
34. Becky Roach - NMLS #179855
Mortgage Specialist
Evergreen Home Loans #9042
11160 Hwy 62, Suite B
Eagle Point, OR 97524
541-826-0622
541-326-2514 cell
broach@evergreenhomeloans.com
*Evergreen Home Loans is a registered trade name of Evergreen Moneysource Mortgage Company
