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Sell More REOs, short sales and foreclosures

Buyers can turn this. Sell More REOs, short sales and foreclosures. Into this!. Finance remodels at closing with the FHA 203(k) Streamline Home Loan. Target Markets. Borrowers purchasing a home in need of rehabilitation REOs, foreclosures, and short sales

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Sell More REOs, short sales and foreclosures

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  1. Buyers can turn this Sell More REOs, short sales and foreclosures Into this! Finance remodels at closing with the FHA 203(k) Streamline Home Loan

  2. Target Markets • Borrowers purchasing a home in need of rehabilitation • REOs, foreclosures, and short sales • Incomplete non-structural renovations • Cosmetic “Fixers” • Out-dated kitchen, bathrooms, etc. • Peak potential buyer interest with what‘could be’ and not ‘what is’

  3. Opportunity for Borrowers who… • Are interested in purchasing a property that needs repairs • Want to save time and money by financing the purchase with the cost of the repairs • May not qualify for a conventional loan due to down payment requirements • First time homebuyers are allowed but not a requirement. • Wish to improve the energy efficiency of their home

  4. The 203(K) Streamline Basics • Provides borrowers with an affordable financing solution that combines the purchase of the home along with the costs of the improvements into a single loan • Use the value of the home AFTER improved the determine the loan amount TODAY…… • Allows borrowers to finance up to an additional $35,000, including fees and contingency reserve into their mortgage to make improvements • Use this loan in conjunction with a HUD REO, Energy Efficient Mortgage or Good Neighbor Next Door program. • Repair work can be completed by contractor or borrower* *some restrictions apply for borrower completed repairs

  5. More Basics • Standard FHA investment/equity required: • 96.50% LTV for purchase transactions • Loan-to-Value is based on the lesser of: • The sales price or “as is” appraised value + repairs OR • 110% of “as completed” appraised value (100% for Condo’s) • NO minimum cost of the rehabilitation • Initial draw is disbursed at closing • Final draw is disbursed by once all work is completed • Property must be an existing property and at least one year old from the date of the certificate of occupancy.

  6. More Basics FHA underwriting guidelines apply • 30 year fixed-rate mortgages only • Owner Occupied Properties only • Attached and detached single family residences, FHA approved condos and PUDs • 2-4 unit properties • Interested party/seller contributions allowed up to 6%

  7. Additional Opportunities • Energy Efficient Mortgage • Allow the borrower to finance 100% of eligible EEM improvements and up to $2,000 more for weatherization items. • HUD REO • Can be combined with 203(k) – if approved by HUD • May be used with HUD $100 Down Programs • Eligible to be combined with the Good Neighbor Next Door Program (Law Enforcement Officers, Teachers, Fire Fighters) • High Balance Loans

  8. Eligible Improvements • Repair or Replace: • Roofs, gutters, and downspouts • Heating, ventilation and air conditioning systems • Finish Flooring and non structural sub flooring– (does not include structural sub floor elements such as floor joists)

  9. Eligible Improvements • Upgrade or Replace Plumbing and Electrical systems • Painting: Interior/Exteriorincluding lead-based paint stabilization or abatement of lead-based paint hazards

  10. Eligible Improvements • Bathroom and Kitchen remodels that do not involve any structural repairs • New Kitchen Appliances: built in or free standing • Washer and Dryer

  11. Eligible Improvements • Energy Efficient items, including windows, doors, HVAC systems, furnaces, solar panels, appliances • Windows and doors

  12. Eligible Improvements • Improvements for accessibility for persons with disabilities – kitchen and bath remodels to lower counter/cabinet height, installing wheelchair access ramps, widening doorways (non load bearing walls only)

  13. Eligible Improvements • Exterior improvements such as decks, patios, and porches • Basement Waterproofing, finishing and remodeling – including adding walls and bathrooms provided that there are no structural elements involved.

  14. Eligible Improvements • Treatment of active termite infestation and repairs (tenting, etc.) • Mold Abatement if performed by a licensed Mold Abatement Contractor

  15. Eligible Improvements • Repair or Replacement of septic tank or well systems • Connection to public water or sewer • Up to $1500 in pool repairs to correct any health and safety issues only…….

  16. Ineligible Improvements • Pool repair or construction greater than the $1500 health and safety allowance • Solar panels used to heat a pool or spa

  17. Ineligible Improvements • Adding a sidewalk or driveway. Some repairs may be allowed if deemed a health and safety concern by the appraiser • Landscaping or similar site amenities

  18. Ineligible Improvements • New Construction including room additions • Structural Sub Floors

  19. Ineligible Improvements • Repair of structural damage • Major rehabilitation or remodeling such as the relocation of load bearing walls • Replacing posts in crawl spaces

  20. Ineligible Improvements • Any repair or improvement that will require more than 6 months to complete or will displace the borrower for more than 30 days. • Work that will not begin within 30 days of closing • Repairs that will require more than 2 draws

  21. Borrower Self-Help Requirements THERE ARE 3 TYPES OF SELF HELP…….. • Borrowers who are purchasing materials or appliances outside of a standard contractors bid. The borrower must provide a bid or cost breakdown for those materials – include those costs in the 203k loan and complete a Self-Help Agreement. • Borrowers who are having their work done by Home Depot or Lowes. Even though a contractor is doing the work – the specific contractor is not usually identified until the work begins. Since the exact contractor info is unknown, these borrowers are considered “self help” borrowers and must sign a Self-Help Agreement

  22. Borrower Self-Help Requirements • Borrowers doing their own work must sign a Self-Help Agreement certifying to the following: • Must be qualified to complete the work – borrower must be a licensed contractor and have documented work experience in the appropriate field • They have sufficient assets to pay a contractor should the work or materials be unacceptable to the fee inspector – must be able to document • They will provide sufficient funds to the escrow account to pay a contractor to complete the work if needed • The work will be completed within the allotted time frame and they will retain receipts and lien waivers • They will secure permits as needed • They will maintain liability insurance if not on the hazard policy to cover any persons who work on the job site – documented Note: Regardless if the borrower qualifies under the above requirements, all borrower self –help must be approved by the lender prior

  23. Contractor Requirements • Borrower selects a contractor • Contractor provides a copy of a valid license • Contractors must be able to provide proof of qualifications – Resume, and 3 References (not required for sub contractors working under a general contractors license) • All contractors must provide adequate insurance and/or bond coverage (not required for sub contractors working under a general contractors license)

  24. Contractor Requirements • Contractors who have employees must provide proof of workman’s comp insurance for all sub contractors doing work on the job site NOTE: If the property is located in a state that does not require workman’s comp insurance – the contractor MUST be able to confirm they have at least $1 million dollars in liability insurance

  25. Contractor Bids • Contractor provides a work estimate for the repairs/improvements being done • The contractors bid or cost estimate must clearly state the nature and type of all repairs and the cost itemization for each repair • Contractor bids should also be broken down by material and labors costs • The cost estimates must be reasonable based on the nature of the repair and the size of the home • Plaza Home Mortgage will review the contractors bids carefully to ensure that all required repairs are included, and the costs estimates are reasonable, and may require the contractor to provide additional cost estimates if necessary

  26. Energy Efficient Mortgages with the Streamline 203k • Eligible EEM Improvements may be financed above the $35,000 203(K) streamline limit • 100% of the EEM improvements may be financed. The LTV calculations apply only on the 203k streamline loan before adding the EEM amount • An energy rating report (HERS) is required for all EEM items included with the exception of appliances that can be confirmed to be energy star rated • In addition to EEM items – the borrower may finance an additional $2,000 for weatherization repairs • Must be cost effective: • The monthly energy savings must be greater than the payment increase based on a CEC approved Certified HERS Rater (Home Energy Rating System)

  27. HERS Consultants • Utility Companies • Local, state or federal agency • Local, state or federal agency designated for the purpose of providing HERS for residential properties • A non-profit organization experienced in home energy ratings on residential properties • Great resource at www.energystar.gov

  28. EEM and Energy Efficient Appliances • Energy Efficient appliances are a great add on to the streamline 203k • Energy Star Appliances include: • Clothes Washers, Dishwashers, Refrigerators, Freezers, Dehumidifiers, Room Air cleaners and Purifiers • Draws 50% at closing and 50% after final inspection Microwaves & clothes dryers are not EEM eligible

  29. Tips • The $35,000 Maximum Rehabilitation includes the cost of the repairs, contingency reserve, plus all fees. • There is no minimum rehabilitation amount on the streamline 203k. • A 10% contingency reserve will be required on all streamline 203k loans that have any repair or construction.

  30. Borrower and Contractor Must Be Aware • Rehabilitation MUST begin within 30 days of closing. (weather related delays considered case by case) • The initial draw (which equals 50% of each bid) will be disbursed at closing to allow for the rehabilitation to begin immediately. • The streamline 203k only has 2 draws • All contractors must complete their work and a final inspection be issued before ANY contractors receive their final draw • Title must be clear before final payment is made

  31. What Happens After Closing?

  32. Other Resources • For FHA Mortgage Limits by area: https://entp.hud.gov/idapp/html/hicostlook.cfm • For information on U.S. Department of Housing and Urban Development, visit: http://www.hud.gov • For information on FHA mortgage program questions, e-mail: info@fhaoutreach.com • HUD Handbook 4240.4 – 203(K) Rehabilitation Home Mortgage Insurance

  33. Your 203(k) Streamline Expert Chuck Utlak (NMLS#17856) Owner/Banker for details! Real Estate Resource Home Loans 16530 106th Court, Orland Park, IL 60467 PH: 708-645-8888, Direct: 708-364-5133 Email: cutlak@rrhomeloans.com

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