fha203k financing

DO NOT DUPLICATE WITHOUT PERMISSION

Bank of America Home LoansPresentsRenovation Lending


PRESENTED BY

MICHAEL RISLEY

203k RENOVATION SPECIALIST

BANK OF AMERICA HOME LOANS

99 FOUNDERS PLAZA

EAST HARTFORD CT 06108

860-244-4432 OFFICE

860-306-8149 CELL

866-923-8728 FAX

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DO NOT DUPLICATE WITHOUT PERMISSION3

Why FHA 203(k)

• Through the Federal Housing Administration (FHA) 203(k) program, borrowers can purchase or refinance their home and include rehabilitation and repair costs in the same loan. This program can help you expand homeownership opportunities by offering a renovation program to people who want to revitalize the communities they serve.

– FHA 203(k) can help you:

• Expand your market reach

• Help borrowers find affordable financing


Solution

• Provide borrowers 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

– FHA guidelines apply

– Opportunity to borrow against the value of the home after improvements

– Flexible credit qualifying

– Owner-occupied 1- to 4-unit properties, PUDs, condos and REO properties

– Work must be completed by contractor-self help limited to painting– Up to six months PITI can be included in the mortgage if the property is not

occupied during construction • Not permitted on Streamlined


Program Eligibility

• Types of mortgages– 30-year fixed rate mortgages

• Interested party contributions allowed up to 6%

• Standard FHA investment required – max 96.50% LTV

• Purchase and refinance of owner-occupied, primary residence– Attached and detached single family residences, condos and PUDs– 2- to 4-unit properties– REO properties– Mixed Use properties


Credit and Income

• FHA guidelines apply

• Full documentation only

• 31%/43% qualifying ratios – may be exceeded with compensating factors

• Cash reserves are not required on 1- to 2-unit properties – 3- to 4-unit purchase transactions require 3-month reserves


Eligible Improvements

• Virtually any kind of improvement is eligible provided it becomes a permanent part of the real property and adds value. Eligibility may differ between FHA 203(k) Standard and Streamlined loans*

– Additions to the structure– Kitchen or bath remodels– Finished basement or attic– Patios, decks or terraces– Roofing and landscaping– Safety, 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


FHA 203(k) Streamlined

• Allows borrowers to finance an additional $35,000 into their mortgage to make improvements

• Available for purchase and refinance transactions

• Allowed on limited improvement types– Can be 100% cosmetic improvements– Can not be used for structural improvements or repairs

• Streamlined 203(k) is subject to the same guidelines as FHA 203(k) — it’s the improvements that are “streamlined”


Streamline 203k List of Eligible Repairs

• Repair/Replacement roofs, gutters, and downspouts• Repair/Replacement/Upgrade of existing HVAC Systems• Repair/Replacement/Upgrade of plumbing and electrical systems• Repair/Replacement of Flooring• Minor Remodeling, such as kitchens, which does not involve structural repairs• Exterior and interior painting• Weatherization, including storm windows and doors, insulation weather stripping etc..• Purchase and Installation of appliances including free-standing ranges, refrigerators, • Washers/ dryers, dishwashers and microwaves.• Improvements for persons with disabilities• Lead based paint stabilization or abatement of lead paint hazards.• Repair/replace/add exterior decks, porches, patios• Basement finishing and remodeling, which does not involve structural repairs• Basement waterproofing• Window and door replacements and exterior wall re-siding• Septic system and/or well repair or replacement

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FHA 203(k) Standard

• Allows borrowers to make larger and structural improvements to their home, including room additions

• No limit on repair amount

• Minimum $5,000 rehabilitation amount

• Minimum $5,000 must be used towards eligible improvements on the existing structure

– Refer to HUD guidelines for details

• Available for purchase and refinance transactions


Determining the Value

• The loan-to-value is based on the lesser of– The sales price or as is appraised value plus repair costs minus sales

concessions, or

– 100% of as completed appraised value


Contingency Reserve

• Used to cover health, safety and unplanned issues that arise during construction

• A minimum of 10% of the cost of rehabilitation and maximum of 20% is required on a Standard 203k transaction. A contingency reserve of 20% is required on a Streamline 203K transaction.

• If not used (after all construction is complete) the remaining amount will be– Applied to principal – Used to make other improvements. Not on Streamline


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The Secret FormulaRenovation Mathematics

1.) Sales Price2.) + Repairs (+15%)

3.) = Total Investment

4.) < After Improved Value

5.) = Good Opportunity

X LTV 96.5%6.) = Loan Amount times X =Payment (P&I) + Taxes + HO Insurance + MIP

7.) = Total Monthly Payment

8.) = Affordability


Example: Determining the Maximum Loan Amount

EXAMPLE: purchase of a 1-unit property with 96.50% LTV/CLTV

Purchase and Renovation Costs

Sales Price $ 120,000.00

Labor/Material $ 24,500.00

Contingency (10%) $ 2,450.00

Soft Costs (permits, consultant fees, inspection fees, PITI, etc.) $ 2,420.00

Supplemental Origination Fee (greater of $350 or 1.5% of the renovation costs) $ 440.55

Total for Purchase and Renovation $ 149,810.55

“As-completed” value (determined by appraiser) $ 160,000.00

Value to use for determination of LTV must be the lesser of the total cost of renovation or the “as-completed” value. In this example, $149,810.55 is less than $160,000, therefore the value you must use when determining the maximum loan amount is $149,810.55.

Maximum Loan Amount at 96.50%

$ 144,567.13


Key Steps for the Listing Broker

1) Know the property and acknowledge the repairs.a) Cost to Cure, BPO, Appraisal

b) Contractor estimate to get to a CO

2) Make sure buyer’s prequalification is for a product that will close as is and is structured on the necessary loan amount not just the sales price.

a) Verify they have considered a reasonable cost of repairs.

b) Confirm that the buyer is dealing with a Renovation Lending Specialist. (sales price + repairs x 96.5% = Loan Amount)

3) Estimate the After improved value to be sure the values work.a) Sales Price + Repairs < After Improved Value

4) Prepare for Contractor Package required by lender.a) License, Liability Insurance, Workman’s Comp

b) Home Owner Contractor Agreement (HOCA) and detailed bid

c) Home Depot or Lowe’s15


Key Steps for the Selling Broker

1) Make sure buyer’s prequalification is for a product that will close as is and is structured on a loan amount not just a sales price. Make sure you are dealing with a Renovation Lending Specialist. Qualifying for just a loan amount if your buyer is considering properties listed AS IS will not work. Make sure the buyer understands that the Loan Amount must include the Sales Price PLUS the necessary Repairs.(sales price + repairs x 96.5% = Loan Amount).

2) Investigate the property condition with the Listing Broker and acknowledge the repairs that are necessary.

a) Cost to Cure, BPO, Appraisal

b) Contractor estimate to get to a CO

3) Estimate the After improved value to be sure the values work.a) Sales Price + Repairs < After Improved Value

4) Prepare for Contractor Package required by lender.a) License, Liability Insurance, Workman’s Comp

b) Home Owner Contractor Agreement (HOCA), and detailed bid.

c) Home Depot or Lowe’s

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Application Process

Borrower locates property in need of repairs or determines that his/her current home needs improvements

Borrower determines improvements needed and schedules an inspection with a cost consultant (or creates a list of improvements)

Note: A cost consultant is not required on Streamline transactions

Cost consultant or borrower completes the work write-up and prepares contractor bid packages to obtain cost estimates

Appraiser uses work write-up to determine “as-is” and “improved value”

Construction begins within 30 days of loan closing — must be completed in six months or less


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The Process

Fulfillment4.) Mortgage Application

Documentation, Credit, Income, Assets$$$ App Fee, Inspection, Appraisal

5.) Processing – UnderwritingDocumentation, Verification Contractors Package

6.) Closing - $$$$$$

Development7.) Repair Project

Schedules, Draws, Responsibilities

8.) Enjoy A Home Of Your Own

Homework1.) Prequalification

Documentation, Credit, Income, Assets(SP + R) X LTV = Loan Amt

2.) Property Analysis(SP + R) < AIV, Loan, Paymt, Affordability, Contractor Choice

3.) Contract of Sale - $$$ Deposit


Holdback Funds

• Used as an incentive to ensure all work is completed

• Not required on FHA 203(k) Streamlined

• 10% of the cost is withheld from each draw – All payments are impacted by this requirement– For deposits on flooring, roofing, cabinets and windows there is no holdback on

the deposit, but the final payment is subject to the holdback – Disbursed after all work has been completed and inspected

• Make sure all parties involved in the rehabilitation understand the holdback requirement


Streamlined Draw Process

• After the loan is closed and sent to the disbursement area(Note: setup can take anywhere from 7-10 days)

– 50% of the rehabilitation funds are disbursed after draw setup– Included with the disbursement is an instruction letter that explains how the final

disbursement works– The balance is disbursed upon completion of all work– An inspection by the original appraiser is required.

• Two disbursements are made– Second and final disbursement once all work has been completed


Bank of America, N.A. Member FDIC. Equal Housing Lender. © 2009 Bank of America Corporation. Trademarks are the property of Bank of America Corporation. Some products may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice. All rights reserved. THIS INFORMATION IS INTENDED FOR MORTGAGE AND REAL ESTATE PROFESSIONAL USE ONLY AND SHOULD NOT BE DISTRIBUTED OR SHOWN TO CONSUMERS OR THIRD PARTIES. Fannie Mae®, Community Seconds®, Desktop Underwriter®, DU® and HomeStyle® are registered trademarks of Fannie Mae. Loan Prospector® is a registered trademark of Freddie Mac. Home Depot® is a registered trademark of Homer TLC, Inc. Lowe’s® is a registered trademark of LF, LLC. 09-24-2009 PRGM-01-09-0034_PPT AR91015

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