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FHA 203 K
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Luis Nieves Institute
203k Streamline, (203k(s), 203k mini, etc)
Up to $35,000 in Renovation Allowed
Self-Directed-Hire licensed contractors
Excluded Renovations- Structural,
Architectural & Landscaping
2 Draws- initial within 30-45 days of funding
and the final draw after inspection.
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Bathroom Renovation
Kitchen Renovation
New Windows, Siding
Flooring
Appliances
Painting
Decks, Patios
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Greater than $35,000 in Renovation Costs
Minimum of $5,000 in Renovation Costs
Up to 4 draws with a final draw after
inspection
Structural Renovations Allowed
Borrower may finance up to 6 months PITI
payments if home is considered
uninhabitable
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Requires an FHA Consultant to work with all parties (loan officer, lender, borrower and builder) to provide assistance with the loan process in accordance to HUD regulations.
CONSULTANT FEES per HUD
$5,000-$7,500 - $400
$7,500-$15,000 - $500
$15,001- $30,000 - $600
$30,001-$50,000 - $700
$50,001-$75,000 - $800
$75,001-$100,000 - $900
$100,001 + $1,000
https://entp.hud.gov/idapp/html/f17cnsltdata.cfm
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Owner Occupied Properties Only
Single Family Residence
Approved Condo’s
PUD’s
2-4 Unit Attached Properties
REO, Short Sale, Foreclosure Ok!
(need minimum of 12 mo. Cert. of completion,
no builder spec foreclosures)
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Purchase Price + Total Costs of Rehab $100,000 P.P. + $35,000 Rehab = $135,000
OR
100% of As Completed Value $150,000 Appraised Value
WHICHEVER IS LESS
$135,000 - $4,725 (3.5% down payment) = $130,275 Loan Amount
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620 Minimum FICO 31/43 DTI (for manual underwrite only) 36/48 DTI (for AUS approvals-can go
higher with compensating factors), DU Approval on 203k loan (can use any
lenders approval through DO) BK and Foreclosure Leniency
Ch 7 allowed after 24 months
Ch 13 or CCC allowed after 24 months provided performance has been satisfactory
Foreclosure allowed after 3 years provided the reason for FC or Deed- in-Lieu was due to extenuating circumstances
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30 Year Fixed Rate Mortgages
LTV cannot exceed 110% of “As Completed”
value
No Declining Market Issues
One Closing-Entire Loan Amount Paid at Closing.
Rehab Amount is Paid into Interest Bearing
Escrow Account at Closing.
Broker is paid in full and job is complete.
BOTH UPMIP and MIP are charged on 203k loans.
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Full documentation ONLY Miscellaneous income acceptable including
child support, alimony or maintenance income and note income.
Must show 12 month history and evidence that income will continue for 3 years.
Self Employment income must be stable with 2 year history.
Rental income ok with 2 year history on 1040.
Higher qualifying DTI ratios acceptable with compensating factors.
Non-Occupant Co-Borrower income used (purchase, or refinance if they were on original note)
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3.5% Minimum Down Payment
Down Payment can be 100% gift
Can use cash on hand or mattress money
Proceeds can come from 401k
Seller can contribute up to 6%
Cash reserves not required for 1-2 Units
(3 mo PITI reserves required for 3-4 Units)
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Corrections to Code Violations
Health and Safety Repairs
Correcting Structural Deficiencies
Smoke Detectors
If Utilities are turned off at time of
inspection, a 15% contingency reserve is
required
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Order an Appraisal from an approved FHA
Appraiser.
Appraised value to derive from plans and
specifications on renovation to be
completed, “As Completed Value”.
Appraiser to complete final inspection when
project is completed.
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Due to the nature of the 203k program, there
are a number of fees which the borrower will
incur throughout the completion of the
renovation. To save the borrower the
immediate expense, HUD has made
provisions which allow for various fees to be
financed. Guidelines have been established
to what fees can be charged.
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For each draw request the lender is required
to obtain a compliance inspection stating
that the work for that particular draw has
been satisfactorily completed. The HUD
Consultant is permitted to do these
inspections. Max fees for compliance
inspections on completed work will continue
to be set by each Homeownership Center.
(Use $100.00 per inspection as a general
figure).
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An FHA Consultant can provide a feasibility
study at the request of the borrower prior to
submitting an offer to a seller. An additional
fee of $100.00 can be included in the
mortgage for this service.
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In order to ensure that the mortgage position
remains intact on title, a title update or lien
waiver is required prior to any draw releases.
The amount allowed to be financed for any
of these title updates is $50.00 per draw,
and any unused moneys will be used to pay
down the mortgage amount at the
completion of the project. (Fees can be
higher, use $50.00 as an estimate).
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Contingency Reserve
(10% - 20% of total rehab costs)
Supplemental Origination Fee 1.5% of the rehab portion of the loan amount only
Presidents First Commitment Fee Initial Fee $1195.00
Reduced fees based on volume
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The 203k Loan
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After the property is located, the homebuyer and real estate agent or (HUD Consultant) should make a marketability analysis prior to signing the sales contract. The following should be determined. The extent of the rehab work to be completed Rough cost estimate of the work and The expected market value of the property
after completion of the work. NOTE: the borrower does not want to spend money for appraisals and specs, then discover that the value of the property will be less than the purchase price plus the cost of improvements
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Contract should be contingent upon approval Seller should allow inspectors, contractors, or
HUD consultant access to the property for estimates
Within 7-10 days of the agreement, the buyer should obtain an inspection of the property by a professional home inspector and termite company.
If the borrower is purchasing a HUD-REO, it should be stated in the sales contract what portion of the closing costs HUD is going to pay, and any incentive programs HUD is willing to offer at the time.
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HUD Consultant conducts an inspection of
the property and determines what repairs
are needed to meet HUD minimum property
requirements.
Borrower will also indicate any work they
wish to have done at this time.
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You should receive a copy of the work to be completed (specifications of repairs). From the HUD Consultant that includes the consultants cost estimates for the completion of the project.
The plans, specs and contractor estimates should match up dollar for dollar prior to underwriting submission.
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Request a HUD Case
Number
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Make two copies of the plans and specs
Send one copy to the appraiser to order the
“as completed” appraisal.
The second copy should go to the borrower
to obtain a contractor.
The borrower consults with a contractor to
provide a detailed written estimate for the
work they will complete.
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Once the borrower receive the copy of the
specifications of repairs, they will select the
contractor they wish to use and obtain their
insurance, license and a copy of the builders
application.
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All renovation-related costs must be
disclosed. The following costs are disclosed
on the Maximum Mortgage Worksheet: Contingency Reserve
Consultant Fee
Architecture Fees
Draw Fees
Supplemental Origination Fee
Permits
Presidents First Commitment Fee
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Is used for mortgage calculation purposes to
determine the maximum insurable mortgage
amount (loan amount).
http://www.hud.gov/offices/adm/hudclips/f
orms/files/92700.pdf
Information from the MMWS is transferred to
the Mortgage Credit Analysis Worksheet
following directions on the reverse of the
MMWS.
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Basic Information Section
Be sure to include FHA case number
Section A
A1. Contract Sales Price or Existing Debt The contract sales price of the sales
property should be filled in this box. If the mortgage is a refinance, then insert the existing debt on the property and the box for existing debt is checked.
$170,000 A1
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A2. “As-Is” Value
This value will be derived from the sales price in most cases. If the underwriter feels that an “as is” appraisal is necessary (HUD Homes), then that value will be entered here. This is the value of the property prior to any renovation being done. You must use the lesser of A2 or the Original Acquisition Cost plus Debts incurred for renovation since acquisition if the property has been owned for less than 1 year on a refinance.
$170,000 A2
A3. “After-Improved” Value
This value will come from the 203k appraisal. This appraisal is the appraisers estimate of the property value after completing the proposed renovations. This value is determined by the use of comparisons in the immediate area around the subject property in similar condition to the condition anticipated for the improved property.
$220,000 A3
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A4. 110% After-Improved Value
This is simply the After-Improved value multiplied by 110% ($220,000 x 110%).
$242,000 A4
A5. Borrower’s Estimated Closing Costs
These costs should include FHA allowable closing costs such as the origination fee, credit report, appraisal fees, mortgage tax, title search, insurance premiums, and re-cert fees.
$0 A5
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A6. Allowable Energy Improvements The Allowable Energy Improvements will
be determined by the energy audit (HERS Report) and will consist of those items that will return a measurable savings in energy costs over the life of the improvements. Mortgagee Letters 93-13, 95-46 and 98-02 discuss the alternatives for testing and criteria for the improvements.
$0 A6
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Section B: Rehabilitation and Other Allowable Costs
B1. Total Cost of Repairs (Line 36, HUD – 9746-A (8/95))
On a Full 203k, once the signed specifications of repairs has been reviewed or completed by the HUD Consultant, the Consultant signs a template draw request form (HUD 9746-A) which lists the agreed upon total of the specifications of repairs. The total on the Draw Request form (line 36) is entered on this line. Your borrower might not have met with the HUD Consultant yet, if that is the case, this will be a “best guess”. This form can be updated later in the transaction.
$37,000 B1
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B2. Contingency Reserve on Repair Costs
This amount should be between 10% and 20% of the renovation amount, and is determined by the underwriter after considering the recommendation of the consultant. The contingency reserve can be paid in cash. If the contingency reserve is paid in cash enter a “0” in this section. Make a note in the remarks section that the contingency has been paid in cash and note the amount. That amount must be placed in the repair escrow account at closing. If the contingency reserve comes from someone other than the borrower, document the file with the donors name. If the contingency reserve is not used in the case, the funds will be returned to the donor.
$3,700 B2
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B3. Inspection and Title Update Fees
Inspection Fees:
Maximum fees for compliance inspection on completed work will continue to be set by each HUD Office. The number of inspection allowed on a project is case by case, and depends on the complexity of the work. The lender is responsible to ensure that payment is made to the inspector even though the fees are paid my the mortgagor so having the fees readily available in the escrow account is desirable.
# of Inspections 4 x $100 = $400
Title Update Fees:
To protect the lenders first lien mortgage position from mechanics liens on the property, reasonable fees charged by a title company may be included as an allowable cost of rehabilitation. Where the mortgage position is protected and is not in jeopardy, this fee may not apply.
# Title Updates 4 s $75 = $300
Sum of Inspection Fees & Title Update Fees
$700 B3 17/06/2014 Luis Nieves Institute All Rights Reserved 2013 36
B4. Mortgage Payments
The borrower is permitted to finance in the escrow account up to 6 months mortgage payments on a 203k. This is allowed ONLY when the property is uninhabitable. If the renovation is complete prior to the 6 months, the remaining mortgage payments will be used to pay down the principal at the Final Release. They cannot be used to make monthly mortgage payments while living in the subject property. PITI and monthly MIP payment are to be used in the calculation of the mortgage payment.
# Mortgage Payments x $ = $0 B4
B5. Subtotoal for Rehabilitation Escrow Account (sum of B1 through B4)
$41,400 B5
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B6. Architectural and Engineering Fees
The borrower may finance the fees charged by an architect to do the necessary drawings of the plans for the Appraiser to review.
$800 B6
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B7. HUD Consultant Fees
Not necessary for 203k Streamlined but, in cases where the rehabilitation project is large, less than $35,000 in total rehabilitation cost or there are structural changes, you must have an HUD Consultant. The most current schedule of maximum are listed below. An additional fee of $100 can be financed if the borrower requests a feasibility study prior to submitting a sales contract to a seller. The amount entered here must also be contained in the written agreement between the consultant and borrower.
$700 B7
CONSULTANT FEES per HUD
$5,000-$7,500 - $400
$7,500-$15,000 - $500
$15,001- $30,000 - $600
$30,001-$50,000 - $700
$50,001-$75,000 - $800
$75,001-$100,000 - $900
$100,001 + $1,000
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B8. Permits Building permits can be financed and should be shown on this line.
Permits must be in place prior to the first release of funds. $700 B8 B9. Other Fees (explain in remarks) $0 B9 B10. Subtotal B5-B9 $43,600 B10
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B11. Supplemental Origination Fee
1.5% of the rehabilitation amount or $350.00 (whichever is greater). This fee goes to the lender.
$654.00 B11 17/06/2014 Luis Nieves Institute All Rights Reserved 2013 41
B12. Discount Points on the Repair Costs and Fees
The discount points on the portion of the mortgage amount allotted to rehabilitation can be financed on the 203k. This is based off of multiplying the discount by line 10 and the product should be shown on this line. The borrower can choose not to finance this portion. The number of discount points being charged on the rehabilitation costs cannot exceed those being charged on the total mortgage amount and is a portion of the total discount charged, not in addition to.
The total discount should be shown on the Firm Commitment
The cash discount should be shown on the Mortgage Credit Analysis Worksheet, MCAW
The financed discount should be shown on the Line B12 of the Maximum Mortgage Worksheet, MMWS.
$0 B12 17/06/2014 Luis Nieves Institute All Rights Reserved 2013 42
B13. Subtotal for Release at Closing The costs financed in items on lines B6 through B9 & B9, B11 and
B12 may be released at closing provided that paid receipts or contractual agreements requiring payment are obtained.
Sum of B6 through B9 $2,200 Sum of B11 and B12 $654 Total =$2,854 B13
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B14. Total Rehabilitation Cost
The numbers in B14 are carried forward to the mortgage calculation. You must remember to subtract A6, the EEM amount.
$41,400 Subtotal (B1->B4)
+$2,854 Subtotal (B6->B9+B11+B12)
-$0 Allowable Energy Improvements
=$44,254 B14
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SECTION C: Mortgage Calculation for Purchase Transactions
C1. The Lesser of the Sales Price (A1) or As Is Value (A2)
$170,000 C1
C2. Total Rehabilitation Cost (B14)
$44,254 C2
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C3. The Lesser of the sum of (C1=C2) or 110% of the After Improved Value (A4)
$170,000 Lesser of the sales price or As-Is value (C1)
+ $44,254 Total rehab cost (C2)
= $214,254 Total
OR $242,000 110% of the After-Improved Value (A4)-whichever is less
$214,254 C3
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C4. Mortgage Amount This is the sum of C3 +/- Required Adjustments (ie. sales concession in
excess of 6% of the sales price or HUD incentives). You then multiply that by the LTV Factor of Less Allowable down payment/HUD-Owned Properties. From time to time HUD has sales incentives which allows borrowers to purchase a home with a minimum down payment of $100 instead of 3.5%.
$207,826.37 C4 C5. Statutory Investment Required Take the value from C3 and multiply by 3%. If this is the HUD $100 Down
Payment Incentive Program, then $100 $6427.62 C5
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C6. Actual Cash Investment Required To calculate the actual cash investment the borrower
has contrinuted, you must take the sum of C3 and A5, then subtract C4 ($6427.62). This figure must be equal to or greater than C5. If this is less, then you must make an adjustment to C4 to make sure the borrower has a 3% investment.
C7. Adjusted Maximum Mortgage Amount (if required in
C6) $0 C7
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Section D is not needed on a
Purchase Transaction
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E1. Energy Efficient Mortgage Amount
Take the Maximum Mortgage Amount from Section C (either C4 or C7) and add in A6. The Maximum County Limit be exceeded by A6, up to $8,000. Mortgagee Letters 93-13, 95-46 and 98-02 discuss the alternatives for testing and criteria for the improvements.
$0 E1
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Remarks Section It is in the remarks section that you will
make notations about Cash Contingency Reserves and Other Fees. Note: UFMIP is added in this section.
Also, it is recommended that the 203k Maximum Mortgage Worksheet is signed prior to submission to underwriting. Many Lenders require it.
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By the time that the borrower selects their
contractor and signs the necessary contract,
the appraisal should be completed.
Upon receipt of the appraisal, you should
have all of the figures needed to complete
the final Maximum Mortgage Worksheet.52
All permits must be in place prior to the first
draw release.
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Seller or remaining balance (refinance) on the current mortgage is paid off.
Remaining Funds are put into an interest bearing escrow account.
1st disbursement to pay consultant, appraisal, permits etc.
Borrower begins to make mortgage payments on the entire principal of the loan, including the escrowed amount not yet disbursed.
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Renovation should begin within 30 days of closing.
Borrowers will make their regular PITI mortgage payments throughout, unless the home is inhabitable.
Escrowed funds are released to the borrower/contractor through draw requests, less 10% contingency which is paid at final draw.
Maximum renovation period is 6 months.
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Final inspection will require the appraiser to inspect the property to ensure that all required renovations were completed. Appraiser will issue final inspection certificate.
Title will issue all applicable lien waivers
All contingency hold-backs will be paid
Final draw will be paid
Any overage will be used to make a principle reduction payment
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www.onlinelni.com
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C: 787-486-5858
O: 787-615-5858
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