1)    The Buyer works with a realtor to find the right property for them, or the owner is ready for a renovation on their existing property.

2)    Get pre-approved by lender for the price range and repair estimate.

3)    Go to contract on the house noting that it is FHA 203k financing (for a purchase).

4)    A meeting is scheduled with a HUD Consultant on site of the property to complete the work write up and the estimate of repairs.

5)   The lender orders the appraisal for the property. The appraisal must contain the before and after renovation value of the home.

6)    Closing of the property takes place and escrowing the funds for repairs and upgrades.

7)   The contractor starts work on the property and draws down funds for repairs and upgrades.

8)    Lastly, you move into your new home or settle into your new and improved home.

The FHA 203k inspection, work write-up and cost estimate are essential elements in processing the FHA 203k insured loan.  Therefore, when a consultant is used for the project it is the responsibility of the consultant to assure that the specification of repairs are properly prepared.

These steps will help guide you through the FHA 203k mortgage process and get you into the home of your dreams.

• The FHA 203(K) is a loan that allows the buyer to purchase a home without a CO at closing.
• Can be used with short sales, REO and foreclosures.
• It can also be used to refinance your current mortgage to upgrade your home.
• 30 Year fixed rate loan.
• Creates equity fast.
• Convert commercial 5-6 units to HUD limits of 1-4 family.
• Convert single family homes to 4 family homes.
• Mixed use properties with no more than 25% commercial space is eligible.
• Buyer can borrow up to 110% of the appraised completed value.
• Project must start within 30 days of closing and be completed within 6 months of closing.

There are solutions to your home improvement problems.  The answer is the FHA 203k Refinance.

These are prime times for the FHA 203k program more than ever. There is a large inventory of homes on the market that fit the requirements for participation in the FHA 203k and it can be a simple process with the right professionals on board.

Contractors can offer their clients a new way to finance their remodeling projects with the FHA 203K Loan.

The extent of the rehabilitation under the FHA 203k may range from relatively minor (minimum of $5,000 in cost) to virtual reconstruction: a home that has been demolished or will be razed as part of rehabilitation is eligible, for example, provided that the existing foundation system remains in place. The types of improvements that borrowers may make using FHA 203k financing include:

• Structural alterations and reconstruction
• Repair or replacing well and/or septic system
• Roofing, siding and gutters
• Landscape work and site improvements
• Enhancing accessibility for a disabled person
• Additions
• Kitchen and Bathroom renovations
• Replace/Upgrade existing HVAC systems
• Replacement windows and doors
• Finish Basements and Waterproofing
• Plumbing and Electrical upgrade
• Appliances, Floor and Wall covering

Items that are not eligible for improvements include; swimming pools, tennis courts, basketball courts, hot tubs; simply, no luxury items

A full FHA 203k allows for complete renovations and rehabs of properties.  Everything allowed in a streamline FHA 203k is eligible for a full FHA 203k.  A full FHA 203k is used for all repairs and renovations over 35,000.

• does the house need painting?,
• do I need new carpeting?,
• how’s the landscaping?

These things are typically thought of once the first time home buyers get into the property.

Many times they just want to get in and are not thinking about what happens after.  The FHA 203k mortgages can really help with those additional costs that happen.  It can be used for appliances, counter tops, vanities and carpets in addition to many other items.  Why shouldn’t a buyer be able to roll the improvement costs into their loan at a very low interest rate? It makes total sense for the customer.  This will enable them to keep some money in their pockets, and not be house poor once they move in.  It is very easy for items to add up when you move into a new house.  Typically, most people don’t have that kind of money as a first time home buyer.  If they do, then it should be used for a rainy day fund for those unexpected expenses.

The FHA 203k mortgage program allows customers to keep money in their pockets.  The customer should be able to enjoy their home and not be burdened with trying to figure out how they are going to pay for those needed items in their new house.  Many first timers don’t have a lot of disposable cash lying around which makes the FHA 203k the perfect option.  It’s a great time to buy a home and this program allows first time home buyers to be able to have a reserve in their bank account.  The FHA 203k can play a big part in building one’s financial future.  It allows one to save out of pocket money in addition to building instant equity.

This program should definitely be considered as an option for all first time home buyers.  If it’s not being offered to you, ask why?   Many times it’s because the mortgage lender doesn’t offer the program, which may be the reason you’re not hearing about it.  Feel free to give us a call and we will help you accomplish your goals and get into your new home

4-Steps to moving 3 million REO properties with a 203k and other tools

Here is a simple (even oversimplified) action plan to move 3 million REO properties:

1. Reduce overall market inventory by an aggressive Short Sale/Refinance program This will stop the flow of new inventory onto the market, keep people in their homes and reduce new foreclosures. To accomplish this, lenders should be pressured to reduce principal amounts on 1st mortgages to a level of affordable payments. Then place a “soft 2nd” for the remaining balance that balloons in 5 years when the market and economy are likely to be doing much better.

2. Bring back the Investor 203k with terms that encourage local individual investors to risk their own capital and take action to buy, fix and sell or rent as local markets dictate. This will invigorate local markets and stimulate local economies much more than any institutional bulk sale can ever do.

Buying Foreclosures with FHA 203k Financing

3. Offer the same discounts to individual buyers that are being considered for the bulk institutional buyers. After all, why should the individual homeowner have to pay the institutional buyers a higher price (to account for their profit). The discounted prices could be and should be offered to individuals who after all, are the taxpayers paying for the government bailouts anyway. Get a 1,000 points of light who are motivated to do something with these properties and ignite energy throughout the country.

4. Allow institutional bulk buyers, but only after a certain “bid period” that allows individuals to buy at the same, or close to the same discounted prices as those being considered for institutional buyers.

This is THE BEST buying opportunity and the BIGGEST market correction in history with the LOWEST interest rates ever! Individuals should be given every tool and every opportunity to invest right now BEFORE the market turns upward. The FHA 203k loan program is a safe and efficient financing option.

True many cannot afford to, but those who can should and they will help stimulate the economy and change the attitude which will help those who do not yet qualify.

There’s more to do of course, but I hope that does provide some clear steps for housing professionals, government policy makers and individuals to make decisions about investing in our future.

My website www.203kServices.com  and my Blog “Today’s Real Estate Matters” at www.203kExperts.com  has information about how to use the FHA 203k as a tool in today’s market. You can reach me by email at vsimone@203kServices.com

It is imperative for the customer, Realtor and general contractor to understand the importance of the Specification of Repairs.  Unlike the bid itself from the contractor, this document is attached to the appraisal report and presented to the appraiser to assist in determining the value and future value of the property, based on the work to be completed.

Staying On The Same Page

The contractor and the consultant must also be on the same page, otherwise a situation may arise where the contractor may be willing to perform work for a price that differs from what the consultant determines- the numbers can very slightly but overall we want it to be in line.

Market Value = Less Problems

A perfect example of this would be having a contractor come in with a low bid—say $20,000 instead of $30,000-which would be the “market value” of repairs.  If he were to be unable to perform the work , then the work would have to go to another qualified contractor.  This new contractor should be able to complete the job within the budget allotted by the consultant, not within a budget that was originally provided by a contractor with a more attractive price.  So, please be aware of any contractors like this who may be offering you a deal, when, in fact, it could be a major problem in disguise.

So keep in mind that the FHA 203k Work Writeup, (SOR- Specification of Repairs) on the FHA 203k mortgage, based on the market value of the work to be completed, so that in the unlikely event that a particular contractor is unable to complete his work, we would be able to have a new contractor in place right away.  This is done for the protection of all parties involved in the transaction.

How come more Realtors and customers don’t use FHA 203k loans?  It’s a great question!

1. The answer really lies in the fact that most lenders (in house mortgage companies for the Realtors) don’t do the FHA 203k loan, or just don’t do it well.
2. Secondly, Realtors have fear about the FHA 203k loan because of past experiences with using the loan with inexperienced teams of people around them trying to secure the financing.

This is a great loan for today’s market.

The product really should be offered out to more people and recommended to pretty much all first-time homebuyers and really any other type of buyers, specifically because the inventory out there today, unless it’s new construction, really needs some sort of rehab or cosmetic repair work.

There are no homes out there, unless it’s new construction, that are move-in ready.  There’s no home that people move into and look at everything and say, “Wow!  That’s exactly what I want.”  That’s why the FHA 203k loan should be considered in almost every purchase transaction.  The reason it is not is because a lot of the in-house lenders that realtors use don’t offer the product.  Or the lenders or Realtors believe that the loan is hard or time consuming and truth be told it can be if the people working on the loan do not have experience.  Successful FHA 203k transactions happen when there are experienced lenders, FHA 203k consultants and contractors involved.

Feedback is always appreciated!

Make sure that your lender is offering this to you as an option, and if they’re not offering it to you as an option, ask them why.  Ask them and say specifically what is it about the FHA 203k loan that is the reason that you’re not offering that to me as an option for me to buy this house?  Then do me a favor, reach back to us and send us an e-mail telling us the responses that you’re getting from the in-house mortgage guy or from the guy you’re working with, as to why they’re not using the loan.  I would love to personally hear those answers so that I can help to create educational programs for clients like you, your Realtors and contractors alike.

Renovating and Rebuilding America – One Home at a Time

From A Customer’s Standpoint:

1. For customers, the interest rate is typically a little bit higher– somewhere usually about a quarter to a half percent higher than you would get on the typical FHA loan.
2. The second one is that it can be a little more expensive.  From an expense standpoint- there is a HUD certified FHA consultant who is involved.  The FHA 203k Consultant fees can range anywhere from $400 dollars to $1,100 dollars depending on the cost of the rehab. In addition, there are re-inspection fees included for that must be paid when a draw is requested (fees fees are financed into the loan).

The cost of this loan is slightly higher than using a typical FHA 203b mortgage or conventional financing however these other financing types do not give you the flexibility to roll in renovation and rehab into your mortgage so there is a tradeoff.  The pros far outweigh the cons for using a FHA 203k mortgage.

From A Realtor’s Standpoint:

From a realtor’s standpoint, there aren’t any downfalls.  There really is not much that has to be done differently except for giving additional access of the property so that we can get the FHA consultant and contractors into the property.  That’s really the only thing that’s going to change on the realtor standpoint.

From A Contractor’s Standpoint:

From a Contractor’s Standpoint, as we spoke about in other blogs, the contractor doesn’t get paid up front- they are paid on a draw schedule.  The truth is, some contractors are going to work with FHA 203k loans and some aren’t.  The one great thing about working with the FHA 203k loan is the contractor is going to get paid.  He doesn’t need to worry that the money isn’t going to be there.

So, as I said, there are some cons to a FHA 203k mortgage but the pros far outweigh the cons when it comes to renovation financing.  I hope that answers all of your questions.  Please feel free to e-mail me with any additional questions at jonofrio@annie-mac.com.

Weather Conditions

One of our most recent questions was from a client in New Hampshire.  The customer had a project where he was looking to put on an addition, which would require footers to be dug into the ground and, in order to do so, you obviously need to get into the ground.  In New Hampshire during this time of year- you know, November, December, January- there is snow.  Right now, they have already seen 21 inches of snow in New Hampshire.  Now that doesn’t mean that the ground is frozen, since all of the snow has melted, so there is that potential to get into the ground.  The biggest question that came in was…“Can we do a FHA 203k in the winter time when we’re starting the project in New Hampshire?”…because in a situation like this, the rule is that we need to finish the project within six months.

Staying within the FHA 203k guideline of completion within 6 months…

Yes, we do want every project to fit within the FHA 203k guideline of six months.  However, we’re not going to hold up a project either by trying to blame the weatherman, because, at the end of the day, neither myself nor my underwriter- nor our investors- know what the weather is going to hold.

Scenario:

We could end up having a really warm winter and the ground may never freeze, so we could really hold up a loan for that reason?  Again, six months really takes us to the point where even if we had to start in April with the ground starting to thaw, we would just start it then have to rush the job.  This is an extremely important reason why we talk to the contractors and make sure the expectations are set because, if we don’t set expectations correctly, obviously there’s going to be issues.

6 Months Exactly?

Another question that I always get asked by customers is whether the six month condition from the FHA is hard and fast?  The truth is I have had jobs that have extended past six months.  It’s important to realize that FHA does not find it favorable for a loan to extend past six months.  The FHA does frown upon it and they look to us, as the lender, as to why it is taking longer.

Expect For The Unexpected!

There are just certain things we can’t predict.  We cannot predict weather.  If there is a tornado in the area and it shuts down the job for two weeks because there’s no power, it is what it is.  There’s nothing we can do, so FHA understands this and they’re willing to make concessions.  If a contractor is not voluntarily doing the work, then that is a problem.  In this scenario, they would come back to us and ask why we haven’t taken the time to make sure we vetted that contractor correctly to know whether or not he could handle the job.  It really is a case-by-case scenario, but the rule is that we are supposed to get all of the FHA 203k ‘s done within the six-month period.

Buying and rehabbing a multi-family unit property can be done using the FHA 203k loan.  I’ve done a few of these loans and they are absolutely great!  I’m currently doing one right now — it’s a four-unit property and it’s a big job. The FHA 203k loan limits, which you can check out here, are much higher as the units go up.  So, the total rehab cost for this four-unit property is over $600,000.  It’s an enormous project and it’s one of the really cool things the FHA 203k allows you to do.  In this situation, this customer is going to live in one of the units and, ultimately, he is going to be collecting income from the other three units.  So, by doing this rehab, he is going to be able to bring in a good portion of income on a yearly basis.  It’s one of the great features of the FHA 203k loan.  The maximum amount of units you can do is a four-unit property.  You can obviously do two units; you can do three units- it all just depends on what is available in your area.  FHA 203k loans are greatly for these types of properties, but the important part to remember is with any FHA 203k loan, it is for primary residences only.  So you must, YOU MUST live in one of the units.  This is extremely important because, again, the FHA 203k loan is not for investors.  Investors may be coming down the road, but for now, this is not for investors, it is only for primary residences only.

Reserves With 3-4 Unit Properties

Another thing to keep in mind is that with three and four unit properties is you must have a certain amount of reserves.  The amount of reserves is three months, which, again, is liquid or retirement funds- anything which would be considered assets in some sort of bank account or IRA.  Basically, something that we can show that they would be able to tap into in case they would run into problems, but, again, this is only required for three and four-unit properties  The three and four units must self-support as well, which means the rental payments must be able to sustain the mortgage on its own, so that’s another important feature to keep in mind when you’re talking about a three or four unit property.

Two unit properties are just like a one unit.

But, again, there are little special nuances when we’re talking about multi-unit properties.  There’s a lot of areas in the City of Philadelphia, for one.  The large project that I’m doing right now, the $650,000 rehab, is in Jersey City.  It’s really close to the subway, which allows somebody to get back and forth from New York which is great because there’s a lot of people in New York that rather come to New Jersey for the cheaper rent and the ability to save a little bit money.  Those are other good reasons why those properties are so popular in such areas.

Supplement Your Income!

The FHA 203k mortgage allows for some great different types of properties and allows you to really make some money.  As a landlord who lives there, an occupying landlord, you’re able to make some additional money each month and that’s a great thing to supplement your income.  And in these times-  there are more people renting, so it’s great for anybody who’s interested in adding a little bit of extra money in their pocket and building equity you should consider doing an FHA 203k loan on any multi-unit family property.