Dennis Vicars, Mortgage Banker Southwest Funding LP 1011 N. Causeway Blvd., # 8 Mandeville, LA 70471 direct 985-624-3941 | fax 985-624-3945 [email protected] | www.mylouisianamortgagebroker.com.
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Dennis Vicars, Mortgage Banker
Southwest Funding LP1011 N. Causeway Blvd., # 8
Mandeville, LA 70471direct 985-624-3941 | fax [email protected]| www.mylouisianamortgagebroker.com
37% of all Closings are Bank Owned Properties in need of Repairs. Let me help you make this! your 2011 Niche!!
Why didn’t I call Dennis?!?!
FHA 203K Loans Made Easy
Step 1: Get your Client Pre-Qualified Immediately. Complete an easy Pre-Qual Applicationand send it to Dennis Vicars at Southwest Funding.
Step 2: Once you have a Pre Approval Letter contact Dennis to discuss how to submit your bid.
Some items to consider when using FHA 203K financing are:
Watch the Video
Okay, maybe not, but I want to attempt to make it as simple as possible and hope you will take the time to read on. For many of us in the business who are "in the know" we forget the need to go back to 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.
FHA loans have become the driving force behind residential purchases over the past few years because of the increased FHA Maximum Mortgage limitsand now that the limits have been increased and prices have decreased, FHA loans have become the most utilized loan in recent years! HOWEVER, because it was not a popular loan, you would be amazed at how many of us in the real estate profession do not know what we are doing, especially when it comes to the 203K loan.
I spoke to an Agent the other day that was given such miss-information it made me cringe. Apparently a Lender told the Agent that an FHA 203K loans could not be secured on her property because the ingress and egress (driveway) access a gravel road! Luckily she called me later and I let her know no such rule existed and gave her a just some of the items that could be included in the rehabilitation of the property.
Don’t forget to check out how to go Green with a 203K
When a buyer wants to buy a home that needs repairs utilizing most Conventional or FHA financing, normally the repairs would have to be completed prior to the closing of escrow and the repairs would fall on the responsibility of the owner. With so many foreclosures in today's market, many times these houses in need of repair are listed "as is", which in the past required a cash buyer or conventional financing and either are seldom found these days! Not using the FHA 203K loan as your financing tool I believe is pure ignorance of the program and lenders haven’t properly prepare you the agents on how to use the great financing tool to close the deal. Listed below are just a few things your client can include in their FHA 203K Streamline.
If the property is in the right neighborhood, but doesn’t have the right number of bedrooms or they need an extra bathroom they can include the cost of these additions with the FHA 203K Standard Loan Financing Program, as long as the market supports these additions. BIG PLUS I almost forget to mention, when your client use the FHA 203K Standard Financing we can include up to 6 months of house payments in their loan so they can continue living in at their current residence and not worry about making a mortgage payment and rent! We’ll also including up to 15% in contingency reserves just in case your client has some additional cost and once all the repairs are complete any money left over in reserves or built in house payments will be applied to the principle of the loan.
The FHA 203K loans allow your client 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) What does this mean? You client buys a house for $170,000 that needs $50,000 in repairs and closing cost and the Subject To Value is estimated at $200,000, we can offer financing on that home in the amount of $212,300 or 3.5% of the after improved value.
Of course in this market most bank owned properties are being sold at significantly reduce values and you are a savvy negotiator, so lets take that same home with a purchases price of $130,000; homes in the area with similar square footage and curb appeal are selling for $200,000 and we still have $50,000 in repairs and closing cost. We can offer financing up to $173,700 or 3.5% of the purchase price plus the cost of repairs and after the improvements are done your borrower begins the home ownership with over 13% equity built in once the final disbursement has been made translating into $19,300 of equity for a $6,300 investment in six months or less! Too good to be true? NOPE. That's it in a nutshell.... Think about just how easy it is to sale a home when you crunch the numbers like that and work with a lender that knows how to partner with you to move your inventory!
And, don’t forget to tell you clients or have them ask me about the Energy Efficient Mortgage Add On that will have reduce Utility Cost and a must do when doing a remodel. Your buyer is automatically approved and can save them $100 of dollars a month.
Down payment is based on the sale price PLUS the final cost of the repairs x 3.5% and closing costs are separate as usual, but can be paid by the seller when negotiating the sales contract price up to 6% of the final sale price.
Buyer often will hire (I can recommend one to you) a HUD approved FHA 203k Consultant to go to the property with the buyer to determine the required repairs and their wish list and the fee charged by the consultant can be included in the mortgage. The fee can range anywhere from $ 400 to $1000 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 in many purchases if experienced (FHA says experienced, but most investors require the buyer to be licensed). The buyer must provide documentation to be approved by the lender prior to doing a Self Improvement FHA 203K loan and often times you will be working with someone who working in the construction industry or has friends and/or relatives that can perform the work that can reduce the cost or repairs and increase their equity by thousands!
The consultant will determine the "required" repairs versus the "wish list repairs". Your client must start with the required repairs and then move on from there for their wish list. This is an important step for the consultant and appraiser, so that your client doesn’t over improve the home and exceed the comparable properties in the area.
Once the consultant completes their report of required and wish list repairs, we forward it to the appraiser for an "After Improved Value". This is where your clients may run into problems with OVER improving the property based on current values, so it is imperative that you listen closely to your buyers wish list and advise your clients what is and isn’t common for the area. Between the consultant, appraiser, your client and you - the FINAL report will be tweaked 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 (your client needs to qualify at the full amount they are borrowing of course and the normal steps for closing will occur. Closing occurs, and the work begins within 30 days of closing/funding. (This is when your clients mortgage payments start since this is when they started borrowing the money - however, if we included the 6 months mortgage payments; they will be deducted from escrow starting when their first payment is due)
Disbursements are made throughout the following 6 months from the escrow account (normally up to 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 client’s total loan is the total amount they borrowed).
Once the last disbursement is made and the final inspection showing COMPLETED AS PER THE CONTRACT........your clients are done! Simple as 1 2 3 - okay maybe not, but that's why having an experienced lender on your side is crucial!
One to Four Family Units
To be eligible, the property must be a one to four family dwelling that will be owner occupied and has been completed for at least one year. The number of units on the site must be acceptable according to the provisions of local zoning requirements. All newly constructed units must be attached to the existing dwelling. Cooperative units are not eligible.
Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place.
In addition to typical home rehabilitation projects, the FHA 203K Program can be used to convert a one-family dwelling to a two, three, or four family dwelling. An existing multi-unit dwelling could be decreased to a one to four family unit, so keep this in mind when being faced with selling a five or more unit property.
Existing Homes being moved on site or Modular Homes
An existing house (or modular unit) on another site can be moved onto the mortgaged property; however, release of loan proceeds for the existing structure on the non-mortgaged property is not allowed until the new foundation has been properly inspected and the dwelling has been properly placed and secured to the new foundation.
Yes we offer the FHA 203K on Manufactured home less than 15 years old and a minimum loan amount of $45,000. These homes must meet the same building requirements for FHA Manufactured Housing requirements established by FHA.
Mixed Used Properties
An FHA 203K mortgage may be originated on a "mixed use" residential property provided: (1) The property has no greater than 25 percent (for a one story building); 33 percent (for a three story building); and 49 percent (for a two story building) of its floor area used for commercial (storefront) purposes; (2) the commercial use will not affect the health and safety of the occupants of the residential property; and (3) the rehabilitation funds will only be used for the residential functions of the dwelling and areas used to access the residential part of the property.
FHA 203K mortgages can be used for individual units in condominium projects that have been approved by FHA, the Department of Veterans Affairs, or are acceptable to FNMA under the guidelines listed below.
Condominium rehabilitation is subject to the following conditions; Occupant and qualified non-profit borrowers only; no investors; Rehabilitation is limited to the interior of the unit. Mortgage proceeds are not to be used for the rehabilitation of the exterior or other areas which are the responsibility of the condominium association, except for the installation in the attic of the unit; The lesser of five units per condominium association, or 25% of the total number of units can be under rehabilitation at any one time;
The minimum mortgage amount cannot exceed 100% of the after improved value.
After rehabilitation is complete, the individual buildings within the condominium must not contain more than four units. By law, FHA 203K loans 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 an FHA 203K loan. Likewise, a project could contain a row of more than four attached townhouses and be eligible for an FHA 203K loan 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.