March 22nd 2008

FHA 203 (k)

FHA Rehabilitation Loan 203(k)

March 22nd 2008

FHA 203 (k)

With FHA 203(k) mortgage insurance program, borrowers can purchase or refinance their home and include the costs to rehabilitate and repair it in the same loan.

FHA 203(k) can help you: Increase sales Expand your market reach Help borrowers find affordable

financing and realize the dream of homeownership

FHA Rehabilitation Loan 203(k)

March 22nd 2008

FHA 203 (k)

Allows borrowers to easily finance an additional $35,000 into their mortgage to make improvements. Cover improvements identified by home inspector or FHA appraiser. Available for purchase and refinance transactions. Allowed on limited improvement types, including:-

Roofs, gutters, downspouts heating and air conditioning

Upgrade/repair plumbing, septic, well, and electrical systems

Replacement of flooring, windows, doors, siding,Weatherization, painting, basement waterproofingMinor remodels that don’t involve structuralHandicapped accessibility improvements Same guidelines as 203(k)

203(k) Streamline

March 22nd 2008

FHA 203 (k)

There are borrowers who:Are interested in purchasing a property that

needs repairsAre existing homeowners who need funds to

rehabilitate their propertyWant to save time and money by financing

the purchase or refinance with the cost of the repairs

May not qualify for a conventional loanHave low-to-moderate incomesAre first-time homebuyers Have credit blemishes or low credit scoresHave limited cash for down payment or

closing costs

Opportunity

March 22nd 2008

FHA 203 (k)

Program Highlights

L&G handles draws Up to five releases allowed (two releases allowed for Streamline) Work can be completed by contractor or borrower Borrower must be qualified and approved to do the workWork must be completed within agreed upon timeframe (no more than six months after closing)

Contingency reserve required Up to six months PITI can be included in the mortgage if the property is not occupied during construction Loan is fully assumable to qualified borrowers with no money down

March 22nd 2008

FHA 203 (k)

Program Eligibility

Types of mortgages30-year fixed-rate mortgage 1-year adjustable-rate mortgage Optional temporary 2/1 buydown

Purchase and refinance of owner-occupied, primary residenceAttached and detached single family residences, condos, and PUDs

2-4 unit propertiesREO properties

Eligible borrowersU.S. citizensPermanent and non-permanent resident aliensInter vivos revocable trustsNon-occupant co-borrowers

March 22nd 2008

FHA 203 (k)

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 structureKitchen or bath remodelsFinished basement or atticPatios, decks, or terracesRoofing and landscapingSafety, energy efficiency, and electrical upgrades

Handicapped accessibility improvements

Luxury items are not eligible: Swimming pools, hot tubs, tennis courts, gazebos, barbecue pits, saunas, or alterations to support commercial use

Eligible Improvements

March 22nd 2008

FHA 203 (k)

CreditBorrower eligibility determined by HUD - no minimum credit score required

Bankruptcy (BK) and foreclosureChapter 7 allowed after 24 months since the discharge date and good credit has been reestablished

Less than 24 months (but not less than 12 months) may be allowed provided the reason for the BK was due to extenuating circumstancesChapter 13 allowed after 12 months of the pay-out period provided performance has been satisfactory and borrower receives court approval to enter into the mortgage transactionForeclosure or deed-in-lieu allowed after three yearsCourt ordered judgments and tax liens must be paidTax liens may be included in the refinance

March 22nd 2008

FHA 203 (k)

Income

Full documentation only

Miscellaneous income is acceptable, including child support, alimony or maintenance payments, and Note income

Must show a 12-month history and evidence that the income will continue for three years

Self-employed income must be stable Two-year history required

Rental income acceptable with two-year history

Ratios exceeding benchmarks (31%/43%) may be acceptable with strong compensating factors (not acceptable on manual underwrites)

March 22nd 2008

FHA 203 (k)

Flexible Down Payment and Source of Funds

Minimum $5,000 rehabilitation amount

3% minimum down payment required Checking, savings, or other depository accountsProceeds from 401(k)Gift from relative, fiancé/fiancée, or domestic partnerCash-on-hand

Interest party contributions allowed up to 6%

Cash reserves are not required on 1-2 unit properties

March 22nd 2008

FHA 203 (k)

Homebuyer locates property and signs a sales contract (purchase subject to home inspection)Homebuyer schedules an inspection with a 203(k) cost consultant to budget the improvements (Cost consultants can be found on HUD’s website: https://entp.hud.gov/idapp/html/f17cnsltdata.cfm)Once budget is approved by borrower, cost consultant completes the work write-up and prepares contractor bid packages to obtain cost estimatesAppraiser uses work write-up to determine “as-is” and “improved value” Loan closesConstruction begins within 30 days of loan closingMust be completed in six months or less

Application Process

March 22nd 2008

FHA 203 (k)

Marketing OpportunitiesMarketing Opportunities

Buyers

Renters

Sellers

List - zero cash down

Existing Homeowners

Refinance existing 1st 2nd Combos with no equity

Expired listings

Recent Purchases

Older Homes

Newer Homes

March 22nd 2008

FHA 203 (k)

Good Neighbor Next Door

Additional benefits for borrowers who serve their communities Such as police officers, firefighters, emergency medical technicians, and school teachers 1-unit, PUDs, and condosMinimum $100 down paymentClosing and financing costs can be included in mortgage amountBorrowers must agree to occupy the property as a primary residence for three consecutive yearsDesignated HUD-owned properties in revitalization/exception areas are eligible at 50% off the sales price

March 22nd 2008

FHA 203 (k)

Resources

Cost consultants can be found on HUD’s website: https://entp.hud.gov/idapp/html/f17cnsltdata.cfm

For information on FHA mortgage insurance programs, visit: http://www.fha.gov/

For information on U.S. Department of Housing and Urban Development, visit: https://www.hud.gov/