203K Rehab Loan Q & A Summary

If you are thinking about purchasing a foreclosure in disrepair (needs rehabilitation), you should look into applying for an FHA 203k loan. The 203k program is HUD's primary program for the rehabilitation and repair of single family properties. As such, it is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities.

Listed below are some general questions & answers regarding 203k loans to help you better understand the 203k concept:

Is the Section 203(k) program restricted to single-family dwellings?

No. The program can be used for one-to-four unit dwellings. Maximum mortgage limitations are the same as for properties under Section 203(b).

Can Section 203(k) be used to improve a condominium unit?

Yes, however, condominium rehabilitation is subject to the following conditions:

A. Owner/occupant and qualified nonprofit borrowers only;
B. Rehabilitation is limited only to the interior of the unit. Mortgage proceeds are not to be used for the rehabilitation of exteriors or other areas which are the responsibility of the condominium association, except for the installation of firewalls in the attic for the unit;
C. Only the lesser of five units per condominium association, or 25 percent of the total number of units, can be undergoing rehabilitation at any one time;
D. The maximum mortgage amount cannot exceed 100 percent of the after-improved value. After rehabilitation is complete, the individual buildings within the condominium must not contain more than four units. By law, Section 203(k) can only be used to rehabilitate units in one-to-four unit structures. However, this does not mean that the condominium project, as a whole, can only have four units or that all individual structures must be detached.

Example: A project might consist of six buildings each containing four units, for a total of 24 units in the project and, thus, be eligible for Section 203(k). Likewise, a project could contain a row of more than four attached townhouses and be eligible for Section 203(k) because HUD considers each townhouse as one structure, provided each unit is separated by a 1 1/2 hour firewall (from foundation up to the roof). Similar to a project with a condominium unit with a mortgage insured under Section 234(c) of the National Housing Act, the condominium project must be approved by HUD prior to the closing of any individual mortgages on the condominium units.

Can a six (or more) unit building be done using the 203(k) program?

No. However, the building could be renovated and reduced to a four unit building.

Can nonresidential (storefront) property be eligible for a 203(k) insured loan?

Yes. Mixed-use residential property is acceptable provided the property has no greater than 25% (for a one story building); 33% (for a three story building); and 49% (for a two story building) of its floor area used for commercial (storefront) purposes. The rehab funds can only be used for the residential functions of the dwelling and areas used to access the residential part of the property.

Can HUD-owned properties be purchased using the 203(k) loan?

Yes. However, the property must be advertised that it is eligible for financing with a 203(k) loan. If the HUD-owned property is purchased with other funds, a 203(k) loan can be made after the property is in the buyers name. In this case, cash back will be allowed to the borrower for a period of six months from purchasing the HUD-owned property.

Can an investor use the 203(k) program?
No. In October, 1996, the Department placed a moratorium on investor participation in the 203(k) Rehabilitation Mortgage Program.

Can a local government agency or a nonprofit organization use the 203(k) program?
Yes. The same qualification requirements will be used as for an owner-occupant of the property.

What is the definition of a First-Time Homebuyer?
A single person or an individual and his or her spouse who have not owned a home (as a tenant in common or as a joint tenant by the entirety) during the three years immediately preceding the date of application for the 203(k) loan. Any individual who is legally separated or divorced cannot be excluded from consideration, because the three-year waiting period does not apply, provided the individual no longer has an interest in the home.

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Advanced Restoration Corporation is a full-service restoration contractor with the ability and 203(k) knowledge to provide complete Rehabilitation & Restoration services to your new home!

For more information about 203(k) loans and mortgage professionals authorized to generate FHA 203(k) loans, please contact Gary Matzelle at (516) 903-4107, or Click Here.

203K Loans Made Simple? Yes, for Your Clients

Source: Colleen Craig

Santa Clarita, CAMore about Colleen…

Southern California Mortgage Professional

Office Phone: (661) 310-8536 Cell Phone: (661) 310-8536

Email Colleen
http://www.colleencraig.com

203k MADE SIMPLE?

Okay, maybe not, but I will attempt to make it as simple as possible for the client to understand and want to read on. For many of us in the business who are " in the know" we forget that we need to go back to the basics and spell it out in simple terms for others to understand. So I've compiled some information based on my most recent commonly asked questions just this week.

In Southern California, FHA loans were just not utilized over the past 10 or so years because of the FHA Maximum Mortgage limits But now that the limits have been increased and the prices have decreased, FHA loans have become the most utilized loan in recent months. HOWEVER, because it was not a popular loan, you would be amazed at how many lenders/brokers do not know what they are doing. Especially when it comes to the 203k loan.

I spoke to a client today that was given such mis-information it made me cringe. Apparently they told the client that 203k loans were no longer being done (Gee, you think it was after realizing that they had no idea what they were doing?) and they tried to flip them into another loan. This was after telling my client that their loan amount would be for the contract price and the extra money would just be separate and sit in an impound account to be disbursed over the next 6 months. Okay partially true, the extra amount would be in escrow to be disbursed as the remodel progressed, but for free? Who pays for the extra 50,000 dollars you just borrowed for repairs? Your loan amount is for the entire amount you are borrowing. Makes sense, right?

So what is a 203k loan and why use one?

When a buyer wants to buy a home that needs repairs utilizing FHA financing, normally the repairs would have to be completed prior to the close of escrow. The repairs would normally fall on the responsibility of the seller. With so many foreclosures in today's market, the bank is the seller. And many times the home in need of repair is listed "as is". Which in the past would require a cash buyer or conventional financing. This is another reason that people in the business decided to shy away from FHA loans. I believe it was pure ignorance of the programs that were available by the brokers and the realtors couldn't properly prepare their seller for what to expect that gave FHA loans a bitter taste. My associate Jeff Belonger said it best in his post about ignoring what your listing agent tells you about FHA loans

Here we go...."203k loans for dummies"

* 203k loans allow you to FINANCE the cost of the repairs in the new loan amount. (Not to exceed 110% of the after improved value determined by the appraiser and 203k consultant) What does this mean? I buy a house for 200,000 that needs 50,000 in repairs and I can borrow the extra 50,000? Too good to be true? NOPE. That's it in a nutshell....

Details please.........
* Down payment is based on the sale price PLUS the final cost of the repairs x 3.5% so for example:Sale price is 200,000 (DO not calculate 3.5% on this) PLUS 50,000 in repairs/costs (which includes certain costs and reserves the lender will require) 250,000 x 3.5%. Down payment is $8750.00 (closing costs are separate as usual)

* Buyer will hire (lender can recommend) a HUD approved FHA 203k Consultant to go to the property with the buyer to determine the required repairs and wish list repairs.The fee charged by the consultant can be included in the mortgage. The fee can range anywhere between $ 400 to $1200 depending on the repairs required. Please check with the consultant prior to scheduling your appointment.

*Buyer will obtain estimates from several licensed contractors for the work to be completed depending on how extensive the repairs.

Three estimates are recommended for each contractor but not necessary. The buyer can act as their own general contractor only if experienced and licensed. (FHA says experienced, but most investors require the buyer to be licensed) The contractors must provide documentation to be approved by the lender prior to approval.

The consultant will determine the "required" repairs versus the "wish list repairs". You must start with the required repairs and then move on from there for you wish list. This is an important step for the consultant and appraiser so that you don't over improve the home and exceed the comparable properties in the area.

* Once the consultant completes his report of required and wish list repairs, the lender will forward it to the appraiser for an "After Improved Value". This is where you may run into problems with OVER improving the property based on current values. Between the consultant, appraiser and buyer - the FINAL FINAL report will be tweeked to come up with a final report that the contractors will be hired to do.

* So now the file is submitted to underwriting and approved ( you need to qualify at the full amount you are borrowing of course, which may include your current mortgage payment for the home you will live in during the rehab period) and the normal steps for closing will occur.(BIG PLUS - you can include 6 months of mortgage payments in the new loan amount since it's assumed that you will have TWO housing payments during the rehabilitation of the new home. This money will be deducted each month during the reahab process) This is optional.* Closing occurs, and the work begins within 30 days of closing/funding. (This is when your mortgage payments start since this is when you started borrowing the money - however, if you included the 6 mths mtg payments, they will be deducted from escrow starting when your first payment is due)

* Disbursements are made throughout the following 6 months from the escrow account (normally 4 draws with one final inspection, but this can be increased for higher repair amounts) as the work is completed.

Remember you paid the seller for the price of the home, and then you borrowed an additional amount of X which is sitting in an escrow account to pay the contractors (your total loan is the total amount you borrowed)

Once the last disbursement is made and the final inspection showing COMPLETED AS PER THE CONTRACT........you are done! Simple as 1 2 3 - okay maybe not, but that's why having an experienced lender on your side is crucial!

There are specific properties and repair requirements for this type of loan, so please call me for specific details if this sounds like the right loan for your new home.Please send me your before and after pics! I would love to see them and maybe even post them for people to see what can be done with this awesome program! Or contact Colleen Craig FHA 203k Specialist for more detailsHappy Rehabbing!
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Advanced Restoration Corporation is a full-service restoration contractor with the ability and 203(k) knowledge to provide complete Rehabilitation & Restoration services to your new home!

For more information about 203(k) loans and mortgage professionals authorized to generate FHA 203(k) loans, please contact Gary Matzelle at (516) 903-4107.

203(k) Loan Application Process

The 203(k) Rehab Program is available through FHA approved lenders and is available in New York. Here is a brief summary that provides the process for homeowners interested in applying for a 203(k) loan:

-Homebuyer Locates the Property
-Preliminary Feasibility Analysis
-Sales Contract is Executed
-Homebuyer Selects Mortgage Lender
-Homebuyer Prepares Work Write-up and Cost Estimate.
-Lender Requests HUD Case Number
-Plan Reviewer Visits Property
-Appraiser Performs the Appraisal
-Lender Reviews the Application
-Issuance of Conditional Commitment
-Lender Prepares Firm Commitment Application
-Lender Issues Firm Commitment
-Mortgage Loan Closing
-Mortgage Insurance Endorsement
-Rehabilitation Construction Begins
-Releases from Rehabilitation Escrow Account
-Completion of Work/Final Inspection

For more information on HUD/FHA programs, please visit the HUD website.

Advanced Restoration Corporation is a full-service 203(k) restoration contractor with the ability to provide complete Rehabilitation & Restoration services to your new home! We work closely with all FHA approved lenders and are committed to providing professional service throughout the NY Metro area.

For more information about mortgage companies authorized to generate FHA 203(k) loans, please contact Gary Matzelle at (516) 903-4107 or send an email to gmatzelle@advancedrestoration.com

What are Streamlined 203(k) Loans?

Foreclosures continue to dominate the real estate market and as a result, many homes are left in disrepair. If you are contemplating the purchase of a foreclosure requiring minor repairs, you may want to consider a "Streamlined" 203(k) loan. The Streamlined (k) Limited Repair Program was developed to augment FHA’s existing Section 203(k) rehabilitation program for less extensive repairs and improvement.



What improvements are eligible under the Streamlined 203 (k) program? The Streamlined (k) program is intended to facilitate uncomplicated rehabilitation and/or improvements to a home for which plans, consultants, engineers and/or architects are not required.


The Streamlined (k) program includes the discretionary improvements and/or repairs shown below:

*Repair/Replacement of 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

*Painting, both exterior and interior

* Weatherization, including storm windows and doors, insulation, weather stripping, etc.

*Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwave ovens

*Accessibility improvements for persons with disabilities

* Lead-based paint stabilization or abatement of lead-based paint hazards

*Repair/replace/add exterior decks, patios, porches *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


What are the minimum and maximum amounts for repair costs under this program? Given the need for homeowners to make minor repairs without exhausting personal savings, and in consideration of the increasing cost of materials, the minimum repair cost of $5,000 is eliminated and the ceiling is now raised to $35,000. This revised maximum repair/rehabilitation amount recognizes the cost of making older homes more energy efficient. When the repairs exceed $15,000, the mortgagee must perform or obtain an inspection to determine that all listed repairs were completed.

Can this program be used for repairs and improvements on purchases of HUD Homes? Like the regular Section 203(k) program, Streamlined (k) may be used for single-family housing sold by HUD. REO properties that have been designated by FHA’s Management and Marketing contractor (M&M) as “insurable” with repair escrow ($5,000 or less in required repairs) or “uninsurable” (with more than $5,000 but no more than $35,000 in required repairs) are eligible for the Streamlined (k) program provided that the repairs qualify as eligible work items as outlined.

If you are looking for a real estate professional on Long Island that is familiar with 203(k) loans and specializes in foreclosures, please conatct Mark P. Martin at Island Advantage Realty. Contact information for Mr. Martin is as follows- Telephone: (516)238-5498; Email: mmartin2@optonline.net.

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Advanced Restoration is a full service property damage restoration company that specializes in the 203(k) rehabilitation & restoration of homes and businesses. The company is family-owned and operated with a combined 75 years experience in dealing with Fire Damage Restoration, Water Damage Restoration, Flood & Storm Damage, Mold Remediation, Smoke Damage Restoration and Reconstruction. We service Long Island (Nassau County, NY; Suffolk County, NY) and the New York Metro area.

For more information on how Advanced Restoration can partner with you, please contact
Gary Matzelle at (516) 903-4107, or send an email to gmatzelle@advancedrestoration.com. Please visit our Website: http://www.advancedrestoration.com/