home renovations and understanding the fha 203k financing process
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Successful home rennovations begin with a plan, budget and a team to make it happen. We are here to help you every step of the way. Get a PRE-Purchase Feasibility INspection and rehab cost estimate BEFORE you even make an offer. This will help you make better decisions, help you be prepared for more timely settlement and control your budget. Let our 203k Experts and our referrals help you build YOUR Team: Consultant-Contractor-Lender-Realtor A successful 203k project or any home renovation begins with you in mind. OUr renovation consulting services are available on any type of renovation financing and while we service Maryland, DC and Virginia directly, we offer referrals anywhere you need one! Check out our BLOG: http://TodaysHomeRenovations.com Email us today: [email protected] Call: 410-952-5595TRANSCRIPT
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FHA 203k FinancingPresented By Vito Simone
HUD Certified 203k Consultant
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How Does a Borrower Decide on a 203k Loan?
Looking to purchase a property that requires repair
Owns a home that requires repair and cannot afford the repairs
Wants to gain equity in a home purchase using the 3.5% down payment benefits of an FHA loan program
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Lender Considerations
Help Realtors understand how 203k loans can be used as a tool
The loan officer needs to do a Pre-Approval versus a Pre-Qualification (automated underwriting approval)
Get the documentation and always ask for tax returns (unreimbursed business expenses)
Once a property is selected the timing to get to settlement must be thoroughly understood and respected by all parties
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Loan Officer Considerations
Help Realtors pick REO Listings to do Open Houses
Develop a “203k Ready” strategy for Realtors
Sponsor Rehab Workshops: bring Contractor and Consultant
Do the drip marketing for the Realtor
Meet the buyer at the subject property at least once
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Processing – 203k Versus 203b Loan Program
Similar Processes:
Obtain Income and Asset documentation for loan submission Order Appraisal* Submit to Processing Request missing/additional documentation File to underwriting with results of appraisal Collect conditions and submit to processor Underwriting review for additional conditions or clear to close File to closing department
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Processing – 203k Versus 203b Loan Program
Different Processes:
Loan Officer should ask selling agent to check comps from the beginning to be certain that the value is there
The Appraisal Process and Timing Settlement is typically 45 days after the appraisal is ordered Set this expectation with the borrower/agent and reinforce The time between offer acceptance and the ordering of the appraisal is most important factor influencing your closing date Be clear on the documentation required by your operations center for loan submission
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Processing – 203k Versus 203b Loan Program
Different Processes (cont): The appraisal cannot be ordered until the HUD consultant has prepared SOR or Feasibility study
203k consultant prepares SOR (Specification Of Repairs) that eventually gets signed by all parties including the contractor SOR does not need to be signed by anyone except the HUD consultant to order appraisal for most lenders (signatures should not hold up the process) Target two weeks from contract acceptance
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Processing – 203k Versus 203b Loan Program
Different Processes (cont): The Escrow Account
Rehab funds are placed into an escrow account Can include up to 6 months of mortgage payments provided:• The home is uninhabitable• There is sufficient value
SOR must reflect the number of payments to be financed The funds are disbursed after closing through the Draw
Process
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Consultant 203k versus Streamline K
Consultant 203k (full 203k) Consultant prepared Specification of Repairs Periodic Draw Inspections to approve payment Contractor paid ONLY for completed repairs
Streamline K (no Consultant) Contractor gets deposit at time of settlement Balance paid after 100% completion Appraiser to re-inspect finished work ‘TIP’ – 203k Consultant to prepare Repair Scope
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Disbursement of Funds – Streamline 203k
Initial Disbursement 35-50% Deposit From The Escrow Account Requires Signed Request By Contractor Paid at Settlement
Final Disbursement After appraiser inspects completed work Remaining balance from the Escrow Account
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Streamline 203k Limitations
Total Rehab Escrow Under $35,000 10% Contingency Usually Required Deduct any mortgage payments requested Usually results in actual rehab cost of less than $30,000 No Draw Inspections or Inspectors Specifications are determined by a contractor No independent third party to review feasibility
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203k Documentation Considerations
Hazard Insurance
Be sure to give enough time for people to shop around May take 2 weeks or longer to obtain
Ask for the termite certification early in the process
Provide draw processing procedures to Consultant and Borrower
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203k Documentation Considerations
Contractor Selection and Approval Process
Determined by the lender Check license and insurance status• MHIC License Required• Will require worker’s compensation for employees
Contractor References• Be sure to check contractor references• Verify references are for projects similar to the subject property
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203k Documentation Considerations
203k Package Documents
FHA 203(k) Consultants Agreement Specification of Repairs Initial Draw Request Consultant's Invoice Owners/Contractors Agreement Identity Of Interests Floor Layout Diagram Permit Certification Form Separate Heating Certification Separate Plumbing Certification Separate Electrical Certification Woodboring-Termite Report
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Preparing for Closing
Post Closing Work Must Be Completed Within 6 Months The Contractor Can Begin The Work The Draw Process Begins No Upfront Cash
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Notify the HUD Consultant of Closing Date Must have first draw within 30 days of closing Maximum 5 Draws
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Step 1: Submit a Draw Request Package
Step 2: Request a Change Order Step 3: Submit a Final Draw Request Package
Step 4: Release of Holdback Funds
Step 5: Payment of Interest from the Repair Escrow Account
The 203k Draw Overview
Borrower & Consultant Responsibility
LenderResponsibility
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The Draw Request Package
Draw Request Form
Lien Waivers
Borrower Receipts (Self-Help Only)
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Change Orders - Contingency Repairs
Documented BEFORE repairs are started
Consultant can approve SOME changes
Contingency repairs may not be paid until Final Draw
Contractor Invoice required AND report by Consultant
(Contingency may be 10% to 20% of repair budget)
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The Draw Request Form
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Lien Waivers
Definition: Prevents contractors from placing liens against the property when they have already been paid. A signed lien waiver must be submitted for each contractor.
There are two types:1. Conditional Lien Waiver2. Unconditional Lien Waiver
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Borrower Receipts
If the borrower is doing some of the work themselves, then they must submit paid receipts for all materials and supplies in order to be reimbursed. Borrowers will not be reimbursed for their labor.
Self-help permitted if Lender approves borrower skill level, capacity, and available time
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The 203k Draw Process
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Consultant Scheduled for Inspection Consultant Documents Work Completed
Includes photos and report Report Sent to Borrower/Contractor for Signatures Consultant Receives Signed Draw Request
Processes with Lender Checks Sent Directly to the Borrower
usually within 5-7 days
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Things to Remember!
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Proper Signatures Change Order Invoices Lien Waivers Checks Delivered To Vacant House
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Borrower Out of Pockets in a 203k
Initial Site Visit/Feasibility $250 – 300
Work Write-up per Fee Schedule $400 - $1,000
Specialty Inspections: Termite, Well, Septic, Engineer
Drawings/Plans: $300 - $3,000
Appraisal $350 - 450
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What You Can Expect From Your Consultant
Feasibility Inspections Realistic Cost Estimates Understanding of FHA Requirements Timely Inspections Review Contractor Bids With Borrower Negotiate with Borrower’s Preferred Contractor Ensure Quality Scope of Work
Protects the Homeowner and the Lender
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Vito SimoneHUD Certified 203k Consultant
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