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new home sales
FHA 203k Streamline Renovation Home LoanExplained In Detail
I came up with a great Q and A list for the FHA 203k Renovation Loan. I think this will help many people such as yourself become more educated with the program and more comfortable to borrowers, lenders, realtors and contractors alike.
FREQUENTLY ASKED QUESTIONS (FAQ’s)
What is the maximum amount allowed for repairs?
For the standard 203(k) program, there is no maximum. Keep in mind that FHA loan limits apply and the total maximum loan amount, including repairs, cannot exceed the maximum allowed by county within the state. For example in Maricopa County, the FHA 2009 Temporary Loan Limit is $346,250. Contact me if you are looking to sell in other counties within our state.
For Streamlined FHA 203(k), the maximum amount allowed for repairs is $35,000.
The minimum for standard and Streamlined is $5,000.
What if the borrower can not occupy the home during all or a portion of the repair process?
For standard FHA 203(k) loans, up to six months mortgage payments (PITI) can be included in the cost of rehabilitation and deposited in the rehabilitation escrow account when the property is not occupied during construction. This option is not permitted on the Streamlined FHA 203(k) as it does not allow the borrower to be displaced from the property for more than 30 days during construction.
What is the role of a cost consultant?
A good cost consultant will play a significant role in assisting to a smooth transaction. They know exactly what FHA requirements are to complete the rehab work. Since they work closely with the buyer, the contractor, the appraiser and me (your favorite banker), your job is to stay focused on finding more buyers.
Cost consultants can be found on HUD’s website.
Is an FHA 203(k) delivered like a regular FHA loan?
FHA 203(k) loans is delivered to the lender using the same process you use to deliver any other FHA loan. Since the loan is identified as a rehabilitation loan in CLOUT, once the loan has been purchased by the lender, it will route to the Disbursement Group who will work with the borrower and contractor to handle the rehabilitation process, including funds disbursement, inspections, title updates, all paperwork, etc.
How are loan funds disbursed?
The full loan amount should be disbursed at closing. The funds reserved for the rehabilitation will be set up in an interest-bearing repair escrow account and the balance will be used to purchase the property or refinance an existing loan. Here’s an example of how the process works:
$200,000 Total Loan Amount ($175,000 purchase or refinance plus $25,000 rehabilitation cost)*
Amount for purchase or refinance
$175,000
Rehabilitation amount
$25,000
Total loan amount
$200,000
Total amount to be sent by Seller to the closing agent
$200,000
Closing agent disburses funds ($175,000 for purchase or refinance and $25,000 to Seller to deposit into an interest-bearing escrow account
$200,000
Lender purchases loan and premium paid to Seller on
$200,000
Lender wires Seller
$175,000
Seller transfers rehabilitation from escrow account back to warehouse line
$25,000
*This simplified example is for illustrative purposes only and does not include any fees associated with the transaction.
Is the process for Streamlined FHA 203(k) faster than the standard FHA 203(k)?
From a credit and underwriting perspective, the two programs are no different. What makes the transaction “streamlined” is the type of eligible improvements, the rehabilitation amount is limited to a maximum of $35,000, and there are only two disbursements. In other words, it’s the rehabilitation process that is streamlined.
How long does the borrower have to complete the rehabilitation?
Work must begin within 30 days after loan closing and must be completed within six months.
How do I verify the type of rehabilitation work needed is eligible under the program?
The HUD website has a fairly comprehensive list of eligible improvements. However, no list can cover every possible repair or improvement, if you are unsure if a repair is permitted, contact me and I will find out for you. And since the repairs under the Streamlined program are limited, if the work in question is for the Streamlined program, make sure you specify this when contacting me.
How do the draws work?
One of the benefits of working with me is that we handle the entire rehabilitation process, including draws and inspections. As a result, our preference is to handle the distribution of all rehabilitation funds to the borrower and/or borrower and contractor.
The draw process is different for Streamlined FHA 203(k) versus the standard FHA 203(k) programs:
Streamlined FHA 203(k): After the loan is submitted and set up in our system (a process which takes approximately seven to 10 days), 50% of the rehabilitation funds are disbursed immediately. Included with the disbursement is the Mortgagor Letter of Completion and instructions that explain how the final disbursement works. For borrowers doing the work themselves, a self-help agreement must be in the file before the funds are disbursed, and the check is made out directly to the borrower. Self help is HIGHLY discouraged and not many if any lenders are allowing this practice. For buyers and/or homeowners working with a contractor, a W-9 must be provided to set up the contractor in the system, and a two-party check is made out to the borrower and the contractor and sent to the borrower. If multiple contractors are being used, 50% of the cost of the repairs for each contractor is disbursed up-front. A 50% up front draw is highly recommended as sometimes the lender can take some time to disburse the funds in a timely fashion.
The balance is disbursed upon completion of all work. If the cost of the renovation is $15,000 or more, an inspection by the original appraiser is required. As with the rest of the rehabilitation process, TLC coordinates the inspection directly with the borrower.
Streamlined FHA 203(k) has two disbursements; one shortly after the lender purchases the loan and the second and final disbursement once all work has been completed.
FHA 203(k): After the loan is purchased by the lender and set up in their system (a process which takes approximately seven to 10 days), a welcome letter and draw request guide is sent to the borrower explaining the process. As with the Streamlined FHA 203(k), a W-9 is required for all contractors and the contractor must be set up in the system. Disbursements are made as each phase of the project is completed based on the draw paperwork provided by the cost consultant. The only exception is for the cost of flooring, roofing, cabinets, and windows where 50% of the cost of these items can be disbursed upfront as part of a normal draw. Inspections are required prior to each disbursement.
A maximum of five draws are allowed on the standard FHA 203(k) program that are disbursed according to the draw paperwork. Keep in mind that a 10% reserve is held back on each draw. The holdback funds are disbursed upon completion of all work along with the final disbursement.
For both programs, a title update is completed before each draw and after all the work has been completed. The title must be clear before the final funds are disbursed.
Is there a fee for handling the draws?
Yes, the lender deducts the Supplemental Origination Fee from wire proceeds for the management of the rehabilitation process. This fee is calculated as 1.5% of the portion of the mortgage allocated to rehabilitation, or $350, whichever is greater. For example, if the total rehab work is $25,000 then the SOF is $375.
Why is there a 10% holdback on the standard FHA 203(k) program?
The 10% holdback is used to protect the borrower by helping to ensure all of the work is completed. The holdback affects all parties and all draws. Upon successful completion of all work, the holdback is paid to the respective parties. There is no holdback on a Streamlined FHA 203(k) since only 50% of the funds are disbursed before the work is completed, and as a result the balance serves as the holdback.
How does the contractor get paid?
For standard FHA 203(k), the contractor is paid as work is completed based on the draw schedule, with the exception of the holdback amount. For Streamlined FHA 203(k), the contractor is paid 50% upfront and 50% once the entire project is completed. Keep in mind that all work must be complete before the final funds are disbursed. As a result, a contractor who completes his work in the early stages of the project will need to wait until the entire project has been completed to receive the full payment, or be paid directly by the borrower who can then be reimbursed when the final funds are disbursed.
Who orders work inspections and who completes them?
After closing, lender handles all inspections, disbursements, borrower and contractor questions, title updates, and anything else associated with the rehabilitation process, freeing My agents to selling more homes.
What happens if the borrower cannot or will not complete the repairs?
If the repairs are not completed, any remaining funds must be applied as a principal reduction. The Seller is not penalized for work not being completed as long as they aided in attempting to get the work done.
What if weather or other natural disasters delay the completion of the improvements?
We understand that issues can arise during construction, especially delays caused by natural disasters. At the lender’s discretion, they will work with the borrower to ensure the planned improvements are completed.
Who is the rehabilitation check made out to?
Checks are made payable to the borrower and the contractor for all draw disbursements that include a conditional lien waiver. An unconditional lien waiver is paid only to the borrower.
What is a contingency reserve?
A contingency reserve is a cushion of funds up to 20% of the labor and materials cost. The percentage depends on the cost of the project, but must be a minimum of 10% and no more than 20% of the total rehabilitation cost. If utilities are not turned on for inspection, a minimum 15% reserve is required.
This reserve can be used to cover the cost of health, safety, or unplanned issues that arise during construction. If not used, the amount is applied to the principal balance of the loan, or with standard FHA 203(k) can be used to make additional eligible improvements (approval required).
Where do I find the forms listed on the FHA 203(k) checklist?
Most forms should be available from your document provider. In addition, some of the rehabilitation forms are located in the Forms section of Countrywide’s Seller’s Guide located on Platinum.
Forms are also located on the HUD website. In the search screen on the home page, input: 4240.4, which is the FHA 203(k) program, and click on “search.” From the results page, click on the HUD Clips, Rehabilitation Home Mortgage Insurance (4240.4). You’ll be presented with a number of different options, including guidelines and forms.
What if a borrower needs additional funds?
It’s crucial that the work estimates be accurate to ensure there are enough funds to complete the work specified. The contingency reserve provides an “emergency supply” of funds for unforeseen expenses that may arise during a project, but it is not meant as a cushion for poor estimating. Any funds remaining after the project has been completed can be used for additional improvements or upgrades or applied to the principal. Any costs that exceed the total amount of repairs and contingency must be paid by the borrower.
Which items can the borrower get an up-front deposit for?
Borrowers can obtain 50% of the cost of flooring, roofing, cabinets, and windows upfront to use towards a deposit on these items. The deposits for these items should be included as part of one of the normally scheduled draws.
What happens when the work has been completed on a Streamlined FHA 203(k)?
According to the instructions provided to the borrower, once all work has been completed the Mortgagor Letter of Completion should be signed, dated and faxed to Countrywide:
* If the total rehabilitation cost on line B.14 of the 203(k) and Streamlined (k) Maximum Mortgage Worksheet is $15,000 or higher, the borrower will contact the lender to order an inspection.
* If the total rehabilitation cost on line B.14 of the 203(k) and Streamlined (k) Maximum Mortgage Worksheet is under $15,000, the borrower will submit receipts and invoices totaling repair budget, as well as any needed W-9s from the contractors. No inspection is necessary.
When the executed Letter of Completion and the inspection report (if required) is received, lender will order a title update. If the title is clear, the second half of rehabilitation funds will be disbursed.
How many title updates and inspections are required?
A single title update is completed at the end of the rehabilitation, for both the standard and Streamlined FHA 203(k) programs, regardless of the loan amount.
The total number of inspections required varies by program. For Streamlined, as indicated previously, only one inspection is required and only if the total rehabilitation cost of the 203(k) and Streamlined (k) Maximum Mortgage Worksheet is $15,000 or higher.
For the standard FHA 203(k) program, an inspection is required prior to every draw. A maximum number of five draws are permitted, if five draws are scheduled, five inspections are required.
The title update fee is $50. The inspection fee varies by HUD office, contact your local HUD office for details.
On the 203(k) and Streamlined (k) Maximum Mortgage Worksheet has fields for both the title update and inspection fees. These fees can be included in the total rehabilitation costs.
Where can I get additional information on these programs including allowable improvements, fees, etc?
The U.S. Department of Housing and Urban Development is a great resource for information of FHA 203(k) and all other FHA loans.
You can find additional information regarding this loan product and ask questions located at http://www.fhamadesimple.com
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Latest Statistics And Trend Of New Home Purchase
Only a few homes have been sold within the last year or so, due to home buyers finding foreclosed homes cheaper in light of the recent recession. Analysis in the property market has but established that consumers currently like ‘green’ homes to luxury homes with non-green additions.
49% of these looking to purchase homes, prefers homes containing devices that aid energy saving like solar panels over luxury features. Solely 31% of these interviewed choose luxury features.
The neighborhood, were the new home is located, is also an important consideration. Folks like their new homes to be in areas with low crime rates and in close proximity to their place of work. Solely six percent of respondents would be ready to sacrifice their proximity to shopping malls, while three percent of folks would sacrifice their proximity to public transportation, like bus routes.
Significantly, more respondents, compared to previous surveys are prepared to sacrifice personal comfort so as to be able to afford a new home.
Despite the money issue a new home purchase would bring, eighty-one percent of folks interviewed still wish to purchase new homes. After the elections in the United States, researchers predict a hike in the property industry.
Several folks are looking to buy a brand new house within the years leading up to 2014 and since the recession is over; now is the time to do that.
It’s a tremendous feeling when you purchase your initial home. Buying ‘off the plans’ is best still as you get to pick from several choices, from styles, to colors, tiles and fixtures.
Developers specializing in developing new homes prefer hiring in-house real estate agents that they pay a commission for the agent to represent them. But, with the high volume of latest home developments all over the world, real estate agents that sell new developments earn a lower commission on new home sales than on typical home sales. Due to this, a number of them pressure their clients into signing. It’s continually a smart plan to fastidiously choose your own real estate agent who can disclose drawbacks regarding your new home before you sign anything.
A developer’s agent may be less possible to disclose some of the negative aspects to you.
Developers often prefer their own lender, as they will keep the developer fully informed of your personal progress. Be certain to seek out a reputable lender whom you’re feeling comfortable with.
Should you also prefer a ‘green’ home, choose a real estate agent who knows much regarding green and other environmental problems to assist you in securing the perfect green home that will suit you best.
Most green homes are a lot more compact than ‘traditional’ homes, thus continue searching and make sure that you discover a green house in the right size for your family.
Green homes use solar power to generate energy and low flow bathrooms which save on water. Double paned windows and other building materials are manufactured from materials that are environmentally friendly and do not have negative effects on our environment.
Invest in your family’s future by buying your own residence.
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Posted by freetraff Date: Friday, February 12, 2010
Categories: new home sales
Tags: real estate agent
What Is The Home Buyer Tax Credit Doing For The Country?
Now that we have so many stimulus packages in the Senate and House and all the costs that we as tax payers must pay what we as potential home buyers want to know is what is going to happen with the Home Buyer Tax Credit and how is it going to affect my decision to buy a home.
Currently the credit is set to $8,000 for a first time home buyer and $6,500 for buyers who are buying a new home and have been in their previous home for at least 5 years. So now one of the things we have to look at it is how much is this going to cost the average tax payer? To be honest it is really hard to say because one variable is needing to know how many people will decide to use this credit. One of the things we will have to do is look at some other statistics which may help us figuhre this out.
One of the first things to consider is how many homes will be sold in 2009? In 2008 we sold about 4 ½ million homes. We are about at that same number this year.
In most of 2009 the Home Buyers Tax Credit was only for first time home buyers and was only up to $8,000 which is 10% of the home value assuming that the home was at least $80,000. Now all of these homes were not $80,000 but let’s just say that they were.
Given that number and assuming that at least ½ of all the homes being purchased were new home buyers that qualified given that they did not exceed the income limits, which many did but for the sake of easy math for me we will say they all qualified.
A little bit of math gives us about $18 billion in 2009 for the tax credit that does not have to be paid back. Is that a lot of money? Yes it is but given all that money being passed around out there to stimulate the economy this is one of the best way to stimulate the economy.
At this moment I am sure that many fellow conservatives are screaming at me but please let me explain what happens to the economy when a home buyer purchases a new home as opposed to something that does not appreciate over time like a car.
We all know that foreclosures and short sales have been the vast majority of the market for at least 2 years and they are not in the best condition and therefore will need quite a bit of work like carpeting, appliances etc etc etc.
If you are not into this market and seen these homes your-self you could not possibility understand what we are talking about here. I am not just saying a small touch up here but full rehabilitation to make these homes truly habitable again.
Many normal home buyers cannot even qualify for these loans for the homes simply because of the condition they are in. What is so funny is how upset these people get when they see the short seller come in and “make all that money” off of short selling. However if it were not for these people many of these homes would never be sold, lenders will not sell a home without certain things like complete bathrooms and when the short seller comes in and fixes up this home without a loan either by means of personal cash or some other off beat source these homes provide jobs and a home that can be sold at a fair price. Too me there is nothing more American then that.
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GDP, Economy, Housing Market News
So has anyone bothered looking at the latest Case Shiller Indexnumbers for homes? It just so happens that it shows prices are up in almost all of the twenty markets it surveys. Also in that same index we see gains for the fourth straight month in a row. Nearly every major housing index has shown that after markets bottomed out earlier this year they are starting to climb and climb steadily.
Sound good? It’s better than it sounds actually. The NAR had a big leap in re-sales of existing homes in the previous month; it was up almost 9.5%. Housing sales in the same area came in almost 9.2% higher compared to just one year ago. Mainly helped out by the first time home buyers making sure they have contracts that qualify for the 8’000 tax credit that could end in about four weeks.
Wait it gets better….. Recently released reports show that unsold home inventories dropped everywhere from a 9 month market to a 8 month market and a 6 to 7 month market is considered to be stable and viable.
Consider that a 30 year fixed mortgage is averaging 5% as well as a 15 year loan is averaging 4.5% and it is easy to understand why new home loan applications were up nearly 5% last week according to the MBA survey.
To top it all off the GDP grew by 3.5% in the third quarter and many consider the gross domestic product to be the biggest indicator of total economic viability and also pointing to a possibility of this recession being over. This is outstanding news for anyone who has even played vaguely with the best time to buy a home.
Unfortunately not all the news we have to report is good, but this news is honest and therefore must be reported. It seems new housing sales dropped without warning 3.5% in the month of September. Also reported by the Conference Board consumer confidence is down as it was last month. I think this will be attributed to concerns over job loss but in my opinion it could be largely related to approaching holidays and costs that always bring anxiety during this time of year.
So there it is, very much a mixed bag of good and bad where the economy is and particularly the housing market in both specific areas and as a whole. We can not assume that this, housing crisis, economic recession, or job market loss will simply be over with one poll or one bill or one week all of these things must be considered and given time, personally I am optimistic.
If we as consumers continue to have confidence in our markets and demand more consistent treatment of us as consumers I think we will be just fine.
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A Simple Plan for Starting a Business of Real Estate Investing
Starting a business of real estate investing – whether you work out of an office or a ‘home based business’ you run out of a corner of your bedroom, you can drastically change your life, and your income in as little as 10 hours per week – all through a very simple plan of real estate investing.
It is possible to become successful in real estate investing in a short time and, even when starting a business of real estate investing, you can find the time without crimping your current lifestyle!
Starting a business of real estate investing with a simple plan.
1. Groundwork of your simple plan is crucial when starting a business of real estate investing.
I know, it is easy to say – and the truth is, it is easy to do! Most people get stopped when starting a business of real estate investing because they simply FAIL to plan. That’s right, it isn’t because their plan didn’t work, it was because they did not implement even a very simple plan!
To be successful in real estate investing, first find someone else that is successful in real estate investing, watch them, interview them, find out everything you can about what they did when starting a business – and write up a simple plan of what they have done to be successful in their real estate investing – something that you can follow each day.
In order to have what they have, you need to do what they do, so find out what percentage of their day is spent on the telephone, for instance.
Find out how much of that time is spent on making calls, receiving calls and the type of calls they are (Customer Service, making deals, etc.)
That gives you a good idea of what your total time should look like, when you are starting a business of real estate investing of your own.
2. The next step in developing your simple plan as you are starting a business of real estate investing is to divide your total time (10 hours per week is a great start) just like your successful mentor does.
Even if they put in a hundred hours per week, they still divide their time, just like you will, once you begin working your simple plan.
The ’secret to success’ isn’t in the hours – it is how you spend them!
Follow the simple plan outlined here to make the most of your hours and get the most out of everything as you are starting a business of real estate investing with a plan of success.
If your mentor spends 1/10th of their time making outgoing phone calls to find new business, then you need to spend 1/10th of the time you dedicate to your real estate investing business doing the same thing, a pretty simple plan, huh?
3. Set your Goals.
A clear destination is something you always do when starting out on vacation, isn’t it?
Then have the same thing in mind when you are starting a business of real estate investing.
Every successful person says to have a goal in mind so you know where you are going, and our simple plan gives you the steps to get there!
A goal is crucial in anything, and certainly when starting a business of real estate investing.
Without a destination (a specific income amount, a personal item like a car or boat, or simply an amount set aside in savings), how will you know if you ever arrived?
4. Track your progress.
You have your goal in mind, and a simple plan to begin. It is time to get into your 10 hours per week program and ‘backtrack’ to create a clear and simple plan to follow.
Take your goal (a clear date of completion and ‘destination’), divide it out and chart the required progress each day, week, month and/or year to quickly know what is required to reach your destination.
Follow your progress each day to know quickly if you are sticking to your original goal destination, or if you are ahead or behind schedule.
As you are starting a business of real estate investing, you will likely come across some detours, that’s OK (and where many people get lost… Do not!)
When driving, if you find a road that is blocked or a path that seems impassible, you simply find another way around, right?
The same is true when starting a business of real estate investing, just find another way.
Include in your simple plan a few hours here/there just for such ‘emergencies’.
If you have no emergencies, do something else that will get you closer to your destination, or just relax and enjoy where you are.
5. Spend time ON your business, not only IN your business.
In your simple plan for starting a business of real estate investing, you must set aside part of your working time to plan, set goals, promote and advertise your business, not simply work along in your business, doing the things you do.
In today’s world, when starting a business of real estate investing, you will most likely have a website. You need to spend a certain portion of your time (even 10 hours per week total) on getting more visitors to that website. The more people that see what you have to offer, the quicker your business will grow.
You could spend time driving from house to house, telling everyone about your website (not a very simple plan for your time!), or you can maximize your time by writing articles about your business and post them online where many people will see them (many online services promote articles).
This is often overlooked by people as they are starting a business of real estate investing, and one of the reasons they fail to make their simple plan.
As your business grows over time, you will do less of this (but never stop!) and begin to work your simple plan toward the ‘IN your business’ phase.
6. Give excellent Customer Service.
It never pays to make your customers angry. An upset customer will kill more business than you can imagine. Find a way to work with them, or simply give them their money back.
Losing customers is something you cannot afford when you are starting a business of real estate investing!
Many people simply don’t make the time to provide quality service to their customers. Do not let that happen to you!
A little up front planning and goal setting, then follow-through each week, then simply repeat the process.
You will change your business from flat to cash in a short amount of time!
Follow the steps above and it can be done in as much or as little time as you have.
When starting a business of real estate investing, if you follow the simple plan I have outlined here, you are already a success!
Steve Majors – The Lazy Investor
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