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FHA Rehab Loans

FHA 203(k) vs FNMA Homestyle – Info You Should Know

contractorThe FHA 203(k) Standard Rehab Loan, the FHA Streamline 203(k) and the FNMA Homestyle Renovation Mortgage are single-close mortgage that enables borrowers to purchase a home that needs repairs, or refinance the mortgage on their existing home and include the necessary funds for renovation in the loan balance. The loan amount is based on the “as-completed” value of the home not the present value
Here is an overview of what you should know about each program.

 

FHA 203(k) Standard
•  All FHA(203k) loans require a FHA Approved Consultant who acts as a “construction manager” to oversee and inspect the rehabilitation project from start to finish. Consultant works with the borrower’s contractor to write-up a cost estimate and work plan  for the project
•  Used for the purchase or refinance of properties needing major structural repairs. Any repair is acceptable; however – health and safety items and building code violations must be addressed first.
•  Minimum $5,000 requirement for repair cost. The loan amount including purchase price and rehab cost cannot exceed the FHA maximum loan amount for the county.
•  Cost of rehab includes: energy package and lead paint abatement costs, consultant fees, architectural and engineering fees, contingency reserves, inspections and up to 6 months PITI if homeowner can’t live in property during the rehab.
•  Maximum repair amount is 110% of the after-improved value
•  Maximum LTV 96.5%
•  Eligible Properties include:
◊  1-4 unit owner-occupied properties
◊  Owner-occupied FHA approved condos in a 1-4 unit structure are eligible when   the funds are being used only to renovate the interior space of the subject unit.
◊  Mixed-use owner-occupied properties are eligible when the rehab funds are used only on the residential sections and access areas leading to it
•  Project must begin within 30 days of loan closing and must be completed within 6 months. Rehab projects lasting more than 6 months are not eligible.

FHA (203k) Streamline
Used for the purchase or refinance of properties needing minor repairs or upgrading
No Minimum Repair cost. Maximum repair cost of up to $35,000 for non-structural repairs only
•  Eligible Properties include:
◊ 1-4 unit owner-occupied properties
◊ Owner-occupied FHA approved condos in a 1-4 unit structure are eligible when   the funds are being used only to renovate the interior space of the subject unit.
◊Mixed-use owner-occupied properties are eligible when the rehab             funds are used only on the residential sections and access areas leading to it

A 203(k) Consultant is not required in most cases
Maximum LTV is 96.5%.
Contractor must be licensed and bonded. Borrower is allowed to choose their own contractor as long as they meet FHA guidelines. Contractor provides written work plan and cost estimates.

FNMA Homestyle
•  FNMA Homestyle is the only rehab loan product that allows for a relationship between the borrower and the contractor.
•  FNMA Homestyle is an ideal product for borrowers who have loan amounts which exceed FHA county limits or have an LTV of less than 80%.
•  Any type of structural and non-structural repair is eligible as long as it is permanently affixed to the property and adds value.
•  Eligible properties include: 1-4 unit principal residences; one-unit second homes; one unit investor properties including condos, co-ops and PUDS.
•  Renovations must be completed within a 12 month period.
•  Maximum Repair amount is 50% of after improved value.
•  Maximum LTV is 95% for one-unit principal residence; 85% for 2 unit principal residence; 75% for 3-4 unit residence and 90% for second homes.
•  All renovation work must be performed by a licensed contractor. The borrower must choose his or her own contractor to perform the needed renovation, subject to the lender’s determination that the contractor is qualified and experienced
•  Under Fannie Mae’s “Do It Yourself” repair option, which is available for one-unit properties only, the borrower may complete repairs that the lender reviews and approves in advance.

Many of the existing homes that are listed for sale in today’s markets are functionally obsolete because they are older and don’t have the amenities today’s buyers are looking for in a home.

The answer is you can get a mortgage to buy a house and fix it up at the same time using the same loan Renovation financing otherwise known as FHA 203K and FannieMae HomeStyle loans; provide solutions for this stalled market segment. The renovation financing revolution is in full bloom as home buyers are taking properties in need of attention and turning them into dream homes with help from the FHA and Fannie Mae.prequal-vs-preapproval

Call  Rick Cignoli @ 860.945.9284 to discuss the right mortgage option for your family and to take advantage of my FREE Mortgage “Jump Start” Pre-Approval service

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https://www.forbes.com/sites/markgreene/2016/01/19/203k-and-homestyle-mortgage-loans-the-renovation-revolution/#6f027b71e1a8

 

 

Categories
FHA Mortgage Process Uncategorized

The FHA 203(k) Loan–Turning “Fixer-Uppers”into Dream Homes

The purchase of a house that needs repair is often a catch-22 situation. The bank won’t lend the money to buy the house until the repairs are complete, and the repairs can’t be done until the house has been purchased.

203k 2The FHA 203(k) Rehab Loan Program can help you with this dilemma. It allows you to purchase a property plus include in the loan the cost of making the repairs and improvements with a single mortgage. It is available to persons wanting to purchase or who own a 1-4 family owner-occupied property.

The total amount of your mortgage will be based on the projected value of your home after the renovation is complete, taking into account the cost of the work to be done. A portion of the loan is used to buy the new home, or in the case of a refinance, to pay-off any existing debt. The remainder of the loan proceeds are placed in an account for your benefit and released in stages as the rehabilitation work is completed.

Here are the Steps to a Successful Closing of a FHA 203(k) Loan:

• A potential homebuyer locates a fixer-upper and executes a sales contract after doing a feasibility analysis of the property with their Realtor. The contract should state that the buyer is seeking a 203(k) loan and that the contract is contingent on loan approval based on additional required repairs by the FHA or the lender.
• Within 7 to 10 days of signing the purchase agreement. the buyer should obtain an inspection of the property by a professional Home Inspector, a termite company and a well/septic inspector (when applicable) to make sure there are no unseen problems with the property.
• The buyer is also required to work with an  FHA Approved Consultant who will inspect the property along with the borrower to determine what repairs are needed to meet minimum FHA requirements. The borrower will also indicate any additional work they wish to have done to the property.
The Consultant will provide the buyer with a Work Write-up/Specification of Repairs which includes the Consultant’s cost estimate for completion of the project.
• The buyer will then select a contractor to perform the work. All rehab work must be performed by an experienced, licensed contractor and satisfy all lender requirements. All subcontractors must be licensed as well. FHA does not allow borrowers to use relatives as their contractor. “Self-Help” is not allowed either.
• A Homeowner/Contractor Agreement is executed between the borrowers and the contractor to ensure that a contractor is in place who will be able to complete the work for the loan amount.
The Homeowner/Contractor Agreement will include a detailed proposal (Plans and Specs) from the contractor showing the scope of the work to be done and including a detailed cost estimate on each repair of improvement of the project. This estimate must ultimately match $ for $ with the Consultant’s Work Write-up/Specification of Repairs. All work must be completed within 6 months of closing the loan.
• The Buyer is then ready to submit a formal application to the lender. The loan amount will include the agreed on purchase price for the property plus the estimated cost to rehab the property. The amount of the loan could also include a contingency reserve of 10% to 20% of the total remodeling costs and would be used to cover any extra work not included in the original proposal. It can also include up to 6 months of mortgage payments if the borrower is not going to live in the property during construction.
♦ The total loan cannot exceed FHA’s maximum mortgage limit for the        area.
♦  The 203k loan requires a minimum 3.5% down payment based on    the total amount of the home’s purchase price plus the cost of repairs.
• An “After Improved” Appraisal is ordered to determine the value of the property after the project is completed as compared to similar properties in the neighborhood.
• When the borrower passes the lender’s credit-worthiness test and the project meets FHA Guidelines, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the allowable closing costs.
• At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.
• The mortgage payments and remodeling begin after the loan closes. The borrower can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it is estimated to complete the rehab.
• Escrowed funds are released to the contractor during construction through a series of draw requests for completed work. To ensure completion of the job, 10% of each draw is held back; this money is paid after the lender determines there will be no liens on the property.

ELIGIBLE 203K IMPROVEMENTS
FHA 203k loans are offered only on 1-4 family owner-occupied properties. A full FHA 203k allows for complete renovations and rehabs of properties where the improvement cost exceeds $35,000. A Streamline FHA 203k may be used when the cost of the project ranges from $5,000 to $35,000.
The types of Improvements that borrowers may make using full FHA 203k financing include:

• Structural alterations and reconstruction
• Repair or replacing well and/or septic system
• Roofing, siding and gutters
• Major Landscape work and site improvements
• Enhancing accessibility for a disabled person
• Additions
• Kitchen and Bathroom renovations home repair 2
• Replace/Upgrade existing HVAC systems
• Replacement windows and doors
• Finish Basements and Waterproofing
• Plumbing and Electrical upgrade
• Appliances, Floor and Wall covering
• Elimination of health and safety hazards
Luxury Items that do not become permanent Part of the property are not eligible for improvements include; swimming pools, tennis/basketball courts, and hot tubs.

If you want to buy a home that needs repairs, FHA’s 203(k) may be a good option for you.Get Pre-Approved
Reach out to me with any questions or concerns you may have about the program and to take advantage of my FREE Jump Start Mortgage Pre-Approval

 

 

 

Categories
FHA Market Updates

NAR Supports Obama’s Housing Finance Reform Policy

National Association of RealtorsHere are excepts from a National Association of REALTOR® statement  on President Obama’s recent housing policy speech.

“NAR believes the principles of comprehensive housing finance reform outlined by President Obama will contribute to the long-term stability of our nation’s housing market and provide consumers with access to affordable mortgage credit, even during economic downturns.

“Realtors® remain steadfast in our efforts to preserve the government guarantee in any restructured secondary mortgage market to ensure the continued availability of safe, reliable mortgages.”

“Realtors® urge continued support for the Federal Housing Administration’s mortgage insurance programsFirst Home Buyer. Many First Home Buyers rely on FHA-insured loans to purchase a home. It is important that we preserve access to FHA for all qualified middle class families.

“NAR is ready and willing to work with President Obama and Congress to develop policies that ensure mortgage credit is always available at reasonable costs so that everyone who is willing and able to afford a home can do so.”

http://www.realtor.org/news-releases/2013/08/statement-from-nar-president-gary-thomas-on-president-obamas-housing-finance-reform-speech

Get Pre-Approved

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FHA Market Updates Mortgage Process

FHA Mortgage Insurance Premiums Are Not Cheap

With FHA-insured mortgage rates being quoted at about 0.750% lower than comparable conventional loan rates, home buyers often expect a significant savings on their monthly payment by choosing a FHA mortgage to finance the purchase of their new home.
This is not always the case. FHA imposes an Up-Front Mortgage Insurance Premium (UFMIP) of 1.75% to all its borrowers. This UFMIP is usually added to the base loan amount increasing the borrowers’ total loan amount and essentially cutting the equity created by their small down payment in half. In addition, FHA charges an annual Mortgage Insurance Premium (MIP) of 1.25% that is divided by 12 and added to the monthly mortgage payment.

Here’s an example:   A First Home Buyer purchases a single-family house for $155,000 and makes the minimum 3.5% ($5,425) down payment. Their base loan amount is $149,575. The UFMIP of $2618 is added to this base increasing the total loan amount to $152,193. The monthly principal and interest payment is calculated on this total loan amount. Using a 3.25% interest rate, the monthly mortgage payment is $662.04. Added to this payment is 1/12 of the annual MIP ($155.81) increasing the total monthly mortgage obligation $817.84. If taxes are $250 per month and Homeowners insurance (HOI)is $60 per month, the First Home Buyer’s total monthly obligation…Mortgage Principal and Interest + MIP + Taxes + Insurance…would be about $1,128 each month.
By comparison, and without going into much detail, payments on a 4.00% rate conventional mortgage with a 5.00% down payment could be about $820.00 per month including MI (plus taxes and HOI).

Why So Expensive?   Overall, Mortgage Insurance premiums on a FHA-insured mortgage are much higher than a comparable conventional loan. And this is from a government agency supposedly committed to making it easier and less expensive for First Home Buyers to get into the housing market.
Why?  This is because the FHA had a whole lot of loan defaults between 2008 and 2011 and its reserve funds are way below what is required by law. In order to remain solvent, FHA has increase mortgage insurance rates 4 times in the last 4 years. Yes, new home buyers are paying for the sins of the past. Plus, it is expected that premiums will increase again in 2013…we just don’t know how soon.

The Good News!   When FHA does increase their premiums,  all existing FHA-insured borrowers will still pay their current interest rate and MIP premium. So if you are looking to buy your First Home and take advantage of an FHA-insured mortgage the sooner the better…really!

 
Call Me
to review you mortgage options and take advantage of my FREE Mortgage Pre-Approval service. I’m here to help.

Categories
FHA Market Updates

Buyers Choose Conventional Mortgages Over FHA Loans

The use of FHA mortgages declined over the summer. This new trend suggests that FHA-insured mortgages are losing favor among home buyers and conventional mortgages are gaining market share.

A conventional mortgage conforms to FNMA and FreddieMac lending guidelines. Reasons for this reversal include amazingly low rates; increased acceptance of higher LTV mortgages by PMI companies; and a reluctance to accept the recent increase in FHA mortgage insurance premiums.

Real estate agents may complain about onerous lending requirements, but they report no shortage of mortgage money available for home buyers; even those with less than a 20% down payment and credit scores in the 660-680 range.  With rates in the mid to upper 3.00% range, it’s almost free money!

Astute First Home Buyers know this is an unbelievable opportunity and are beginning to push the up prices of quality homes. NOW is the Time to Buy! 

Call Me @ 860.945.9284 to review your mortgage options and take advantage of my FREE Pre-Approval service. Let me show you how to save $30-50 month on a $165,000 with a conventional mortgage vs. a FHA-insured loan. I’m here to help.

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What is the FHA

What is a FHA Mortgage Loan?

What is a FHA Mortgage Loan?  The FHA 203(b) Mortgage Loan is the most “basic” FHA-insured mortgage loan. There are several types of FHA-insured loans … a whole alphabet soup of them.  This is the one buyers talk about when they apply for a home loan.

FHA loans are Not Just for First Homebuyers. FHA loans can also be used to:
•  move up to a bigger home
•  downsize to a smaller one
•  Buy a second/vacation home
•  Refinance an existing mortgage loan
•  However … You can have only one FHA-insured loan at a time. You can’t have a FHA insured loan in your name and get a second loan.

But before we go too much further …Let’s Talk About Some Basics.
The Federal Housing Administration (FHA) is a federal agency that insures loans made by FHA-approved lenders. The FHA’s objective is to assist in providing housing opportunities to families who cannot meet the qualification requirements for conventional mortgage loans.
•  FHA does not set interest rates. Rates are determined by market conditions and negotiated between the buyer and the lender.
•  FHA does not lend directly. The money comes from participating lenders. FHA works with these lenders to insure quality, regulatory compliance, and fairness in the lending process.
•  FHA Mortgage Insurance provides FHA-approved lenders with protection against the risk that homeowners will default (foreclosure) on their mortgage obligation. The comfort level of FHA insurance enables these lenders to consider applications from buyers with as little as 3.50% down payment, credit scores in the mid-600 range and low interest rates.

FHA 203b Loan Guidelines:
FHA sets the guidelines to qualify for a 203(B) mortgage. There are a lot of them. Participating lenders may add “overlay” criteria to qualify for their version of the 203b mortgage. For example; FHA sets minimum credit score of 580 to qualify for this program. Most lenders require a minimum score of 640 to qualify. Talk candidly with your mortgage broker about your situation and about his access to lenders who offer FHA mortgages with the overlays that address your needs.
Here is an overview of the more attractive features of a FHA 203b mortgage:
•  Owner occupied homes only — you must intend on living in the property.
•  The program is not restricted First-Time Home Buyers.  Any qualified borrower may utilize these loans for financing the purchase of a new home.
•  FHA insurance enables lenders to offer the program at a lower interest rate than might be available to a buyer with similar circumstances who opts for a conventional loan product.
•  The FHA 203b program allows for a 3.5% down payment. These monies can come from the borrowers’ own savings or can be a gift from family members. The program also allows 100% of the closing costs can be in the form of a gift.
•  The FHA 203(b) will consider the income of non-occupant co-borrower to help qualify for the loan. This is a great way for parents to help young buyers purchase their first home.
•  Seller Concessions: Home sellers can elect to contribute up to 6% of the house purchase price toward the closing costs associated with the loan. Buyers should discuss this option with their Realtor® when negotiating the purchase contract.
•  The 203(b) loan can be structured as a fixed rate mortgage or an adjustable rate mortgage (ARM) loan. There tends to be more flexibility in calculating household income and debt-to-income ratios.
•  The FHA 203(b) can be used to a single family, a duplex, a 3 family, or a 4 family multi-unit, owner occupied property. Remember, with a 3-4 unit loan, the down payment requirement is greater and the buyer must have 3 months mortgage, taxes and insurance payments (PITI) available in savings after the loan closes.

Now Let’s Talk About Mortgage Insurance.
To cover the risk of a borrower defaulting on the monthly payments, FHA charges an Up Front Mortgage Insurance Premium (UFMIP) as well as an annual Mortgage Insurance Premium (MIP).  The cost of this insurance is paid for by the borrower. The UFMIP is typically added to the base loan amount and becomes part of borrower’s monthly payment. The annual MIP is divided into monthly installments and included in the borrower’s monthly obligation.
Recent legislation has made FHA insurance more expensive. Give me a call. Let’srun the numbers to see if an FHA 203(b) is the best option for you and your family

Bottom Line
When your mortgage is insured by FHA, you become a secure and desirable borrower. Lenders are willing to extend benefits to you can’t find with conventional loans. The major benefit of FHA Loans is that you can qualify for a loan with a low down payment. Most conventional loans require a 20% down payment. FHA loans require a 3.5% down payment. With a gift for the down payment and seller concessions for the closing costs, you could move in with very little out-of pocket expense. Plus, should you have low credit scores or low income, you will still be able to take advantage of the benefits that make FHA Loans so affordable. Talk to your loan officer, or give me a call, to see if this is the Right mortgage option for you.

Categories
What is the FHA

What is the FHA?

What is the FHA?
The FHA’s main objective is to assist in providing housing opportunities for low and moderate-income families. FHA insured mortgage loans are a type of public assistance and historically have allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. Anyone who is a U.S. citizen, a permanent resident alien, or a non-permanent resident with a work visa and who meets the FHA’s lending guidelines can apply for a FHA-insured mortgage loan.

The Federal Housing Administration, commonly known as “FHA”  is an agency of the federal government that provides mortgage insurance on loans made by FHA-approved lenders. Congress created the Fedral Housing Adminstration in 1934. The FHA became a part of the Department of Housing and Urban Development in 1965.

Every loan … credit card car loan, or mortgage … carries a certain element of risk. Lenders are most concerned with the risk of default … the risk that homeowners won’t repay their mortgage loan. Low down payments and low credit scores increase lenders concern about risk. The smaller the down payment, the greater the risk that the borrower will walk away from the house when times get tough.

FHA mortgage insurance provides FHA-Approved Lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay-off the lender’s mortgage in the event of a homeowner’s default. The added comfort level of FHA insurance enables lenders to consider applications from buyers with as little as 3.50% down payment and credit scores in the mid-600 range. Loans must meet strict requirements established by the FHA to qualify for insurance.

As my Dad used to say, “Nothing in life is free.” The cost of this mortgage insurance is passed along to the homeowner. An up-front mortgage insurance premium (UFMIP) equal to a percentage of the loan amount is due at closing. This UFMIP is normally added to the loan amount and financed over the term of the loan. In addition, there is a monthly mortgage insurance premium (MIP), also referred to as PMI … that is included in the monthly payment. 

In summary … FHA enables homebuyers to own their own home with a small down payment. Little equity means greater risk to the lender. Greater risk means higher interest rates. FHA mortgage insurance reduces lender concerns. Borrower pays UFMIP and MIP to reduce lenders’ risk.  When compared to conventional financing, an FHA-insured mortgage loan provides those homebuyers with limited cash and lower credit scores with the best low-cost financing option.

Avoid disappointment and future regret! NOW is the time to buy! Call me today for details on FHA financing. I’m here to help.