There is a huge demand for FHA 203K loans in this market. That demand has prompted a lot of unqualified lenders and loan officers to attempt to grab their piece of the pie. This loan is not for rookie, it requires experience and expertise. Your choice of lenders is hugely important when pursuing a renovation loan. You need to research and you need to ask your potential lender the right questions. Here are the 3 most important questions to ask your 203K lender.
1.) How Many 203K / Renovation Loans Have You Closed?
The answer should be at least 10 minimum. As I said above, FHA 203K and Fannie Mae Homestyle renovation loans require experience and expertise. There are caveats, there are gotchas around every corner. I've closed 150 renovation loans and I still get surprised by underwriting requests.
2.) Who Services the Loan?
Who is responsible for disbursing the funds? Do they do so in a timely manner? If Bank of America is servicing the answer is no. They take months to disburse. Avoid like the plague any lender relying on them for servicing unless you want to have angry contractors knocking at your door. On streamline 203K loans the first draw should be disbursed within 2 weeks of closing. On full 203Ks and Fannie Mae Homestyle loans funds should be disbursed within one week of the draw request.
3.) Do You Offer the Full 203K or Just the Streamline 203K?
Why does this matter? I just need a streamline 203K. It matters because there are numerous items that can flip a streamline 203K to full 203k. I outline a few of the biggies HERE. If your lender only offers the baby 203K and you need to flip to the full 203K your loan is dead. Make sure your 203K lender has access to both.
Renovation loans are one of the most useful products on the market right now and we dominate our 203K market. They are not easy loans, your selection of lender is extremely important. If shop solely on rate or go for the cheapest GFE then you will get what you pay for. Choose your renovation lender wisely!
I get lots of questions about renovation loans and which one is the right a particular situation. Many people are quickly becoming familiar with the FHA 203K, but not so many know about its conforming sister the Fannie Mae Homestyle. So, when is the Fannie Mae Homestyle the right loan?
1.) Unfinshed New Construction — FHA 203K loans require a certificate of occupancy (known as a C.O.). This is a nearly impossible request on unfinished new construction foreclosures. This makes FHA 203K loans virtually impossible on unfinished new construction foreclosures. This is where the Fannie Homestyle comes into play. The Homestyle only requires homes be “substantially complete”. What does that mean? Well, it is open to interpretation, but anything with the systems in place that is at least 75% complete might be a good candidate for a Homestyle.
2.) Loans Over FHA Loan Limits — If you are over local FHA loan limits and need to do a renovation loan then your clear choice is the Fannie Mae Homestyle. In most places across the US conforming loan limits exceed those of FHA. For example, in Atlanta FHA loan limits are $346,250 while Fannie Mae Homestyle limits are $417,000.
3.) Borrowers with 10- 20% Down — FHA 203K loans have mortgage insurance for 5 years regardless of the amount you put down (30 Yr fixed rate). It is possible via the Fannie Mae Homestyle to put 20% down and to avoid mortgage insurance entirely.
4.) This is NOT My Primary Residence — FHA loans require you to occupy the residence as your primary residence. Fannie Mae Homestyle loans will allow your to renovate a residence as a 2nd home OR AN INVESTMENT PROPERTY!
5.) I Have a FHA Loan! — Already have a FHA loan? Chances are you won’t be able to get another. Look at the Fannie Mae Homestyle to renovate if this is your situation.
There are certainly more situations where the Homestyle is a more appropriate loan then a FHA 203K. Consult a knowledgeable Renovation Loan Specialist to determine what is best for your situation. We are here to HELP!
Easy question right? Full FHA 203K over $35,000 in repair and the Streamline 203K under $35,000 in repair. Post over right? We can all go home and call it a day, right?
Sadly no. I get calls every daily from disappointed homebuyers, disappointed Realtors and disappointed loan officers who’ve had a Streamline 203K denied. Denied not because of the 203k renovation amount, denied because the scope of the work did not fall under Streamline FHA 203k guidelines.
1.) Termite Damage — When I worked as a mortgage broker and didn’t have access to the Full 203K this was the single biggest deal destroyer in the 203K renovation loan market. A termite letter is not required by all lenders, but it is required by some. If you live in the South and are looking to buy an older home then there’s a good shot that house has had termites at some point. Termites eat joists, they eat subfloors, they eat things that are structural in nature. Any structural damage is automatically a Full 203K, no exceptions. Be aware of this issue.
2.) Framing — Yeah, you might think taking out a wall to make the bathroom bigger is cosmetic, but you are not an underwriter. Moving a load bearing wall is structural and is not an eligible Streamline FHA 203k repair. But, but, this wall is not load bearing! Says who? Your contractor? Want to pay $400 for a Structural Engineer’s report to verify? I didn’t think so. Moving walls means you need a Full 203K.
3.) Subflooring — Yeah, I love those houses built in the 20’s as well. Problem is, those houses have settled. Your indoor putting surface will take on a new level of difficultly in most of those houses. No problem, lets level this out! Nope, not with a Streamline 203K. That is also structural, you’ll need a Full 203K for that.
4.) Landscaping, Grading, Site Amenities — The drainage is bad and the driveway sucks, I want to fix that! Sorry, not on the streamline 203K. No landscaping and no site amenity improvements are allowed. You’ll need a Full 203K for that too.
I guess you are out of luck buying that fixer upper. You’ll probably never get a loan. Your destined to be paying your landlord’s rent or hearing your upstairs neighbors playing Guitar Hero forever. Don’t throw the towel in just yet though. When you are searching for a 203K Renovation lender just make sure they offer the full 203K as well. With access to both products you can eliminate any of the potential streamline 203K deal killers you may face. Luckily we have you covered, we can even help investors renovate via the Fannie Mae Homestyle. So get out there and buy yourself a heap, we’ll fix it up for you!
So much of today’s existing housing stock is in the form of foreclosures. Many of them aren’t livable and have been vacant for some time. What if we could get a movement going to help take these properties and provide affordable green renovations for buyers in need through FHA 203K renovation loans? Not only are you fulfilling the mission of FHA 203K, to restore and preserve America’s existing housing stock, but you are also incorporating money and energy saving green improvements into those homes. I’m not talking about solar panels and wind turbines here; I am talking about simple and affordable 203K streamline improvements like EnergyStar windows and appliances, low flow toilets and showers with on demand water heaters. Not only would these kind of improvements benefit the planet, but they would also help the low to moderate income home buyers save on their monthly energy bills. That makes their mortgage more affordable, lessens the likelihood they default on their mortgage and helps restore the integrity and quality of the neighborhood by ensuring that its homes are in good condition and OCCUPIED!
With the passage of the stimulus bill today there is a very important allocation that can further this goal...
In negotiations between House and Senate leaders, the $5.2 billion the House had earmarked for community development block grants and a neighborhood stabilization program was also slashed to $3 billion. Of that, $2 billion is earmarked for the neighborhood stabilization program, which helps states, local governments, and nonprofits purchase and rehabilitate foreclosed, vacant properties.
Why can we not use this provision to provide reduced FHA 203K downpayments to homebuyers buying foreclosures throughtout out the US? We can put a simple stipulation that to qualify you must renovate that foreclosure with energy efficient improvements. Why are we not doing this? This is a simple, yet effective, way to kill two birds with one stone. I suggest we all contact our local governments and request that we use this tactic to bring our housing market out of the current funk. With FHA 203K and simple green renovations we can solve two problems at once.
Turning a house into a dream home - that is the power of FHA 203K renovation financing. From extra bedrooms to a kitchen update, a family room to a luxurious master bath, from a modest expansion to full on ground up remodel, FHA 203K renovation financing offers homeowners a cost effective way to fulfill their unique vision.
This article will explore some of the most frequently asked questions of this sometimes misunderstood loan program.
Q: What is the minimum down payment on a FHA 203K loan?
A: 3.5%, but you can put down as much as you like. The down payment can come from cash on hand, gift from a family member or from your 401K.
Q: I want to do my FHA 203K renovations myself. Can I?
A: Sometimes. On very simple renovations with a low dollar amount you may be allowed to do the work yourself if you are trained to do so. However, on any substantial renovation we will require a General Contractor. You can read more HERE
A: Yes, but restrictions apply as to the number of units in each building. FHA also has other guidelines on condo complexes. If the condo is eligible you will only be able to do interior work. All in all, condo's are tough to get approved.
Q: Can I be reimbursed for materials I purchase outside the work listed on the initial FHA 203K write-up?
A: No. Your 203K renovation escrow amount is established before the loan closes. In some rare cases you can request a change order after your closing to fix an issue that came up during the 203K renovation process. Be aware, however, that you must do this PRIOR to completing the work. Generally, any work performed outside the scope of repair as listed on the bid when your loan closed will be your responsibility to fund.
Q: Do I need a home inspection?
A: Yes! You should get a home inspection on the purchase of ANY home. The inspection will help ensure our 203K loan doesn’t encounter any unexpected problems during the renovation process.
Q: Can I get money before the 203k renovation begins?
A: There are no 203k upfront funds disbursed at most lenders with the exception money to order flooring, cabinetry and windows and other like materials that can sometimes take time to deliver and require an upfront deposit. For this reason we recommend your FHA 203K contractor have a line of credit so they can begin work immediately. You can read more about the contractor selection process HERE.
STAY TUNED for Part Two of my FHA 203K renovation financing FAQ.
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Original post just up at GoGreenWithFHA.com -- dedicated to green renovation financing through FHA 203K and Fannie Mae Homestyle loans!
5 Easy Energy Efficient Improvements You Can Make with FHA 203K
Times are tight and homeowners nationwide are looking for ways to lower their monthly energy bills, make their homes more efficient and do their part in creating a cleaner & greener planet earth. In the past we have shown you how to finance your improvements with FHA 203K financing, now we want to expound on how to use FHA 203K loans to potentially save yourself hundreds of dollars or more on your annual energy bills.
1. EnergyStar Appliances.
Replacing your appliances is an easy and affordable way to save 20%+ of your monthly energy bill. EnergyStar appliances are widely available and comparably priced to their less efficient equivalents. There is NO reason not to have them in your house.
2. Insulate, Insulate, Insulate…
Effective insulation slows the rate that heat flows out of the house in winter or into the house in summer, so less energy is required to heat or cool the house. Choosing the RIGHT contractor for your renovation can help you make sure your house is properly insulated. If your house has no wall insulation, and it has more-or-less continuous wall cavities (such as conventional stud walls), blown-in insulation can greatly improve your comfort and save enough energy to be very cost-effective. If your attic is unfinished, you can often look to upgrade your insulation there as well.
3. Improve Your Water Efficiency.
I don’t want to delve too deep into wasting water since I have already done that on a previous post. So, in an effort to avoid redundancy and save myself some time I’ll just direct you there and you can read the multiple ways you can reduce your water consumption. Savings by the Gallon With FHA 203K…
4. Replace Those Drafty Windows.
If your windows are old and leaky, it may be time to replace them with energy-efficient models. Windows are not huge energy losers, accounting for no more than 20% of a homes typical loss, but if you are replacing windows for other reasons then energy efficient windows are a no-brainer. Typically, EnergyStar windows cost no more than $15 more per window than their less efficient cousins.
5. Dump the Older Furnace.
If your furnace was built before 1992 and has a standing pilot, it probably wastes 35 percent of the fuel it uses. We recommend early replacement with a “condensing furnace” with annual efficiency of at least 90 percent. This type of furnace wastes no more than 10 percent of the natural gas you buy, and may save you as much as 27 percent on your heating bill.
The Fanne & Freddie foreclosure freeze is up tomorrow. I expect foreclosure numbers to be big for the next 6-12 weeks. If you are looking to grab a deal then get geared up because we should see foreclosure inventory numbers increase nationwide. The deals have been there and will continue to be there. The best ones are the properties that need work. With rates at all time historic lows, with the tax credit still in play and with huge inventories now is the time to purchase and renovate with FHA 203K Financing. We're seeing 20%+ equity on most of our 203K deals, the time to strike is now. Rates are in the low 5's with no discount points.
Investors, we have your rehab financing as well. NO MONEY DOWN for the most qualified buyers.
Give us a call, don't miss this window. We'll find you an expirenced REO / HUD Realtor, we'll giving you the financing, we'll give you knowledgable and affordable contractors and you'll reap the benefits. Nobody knows more about renovating foreclosures than we do. Period.
I’m sure you’ve been to the neighborhood Home Depot and seen the infinite collection of paint choices. Selecting the right kind of paint can seem daunting and it is important to remember all paint is not created equal when it comes to being eco-friendly.
Problems with Traditional Paint
According to the EPA, the concentration of pollutants inside your home is several times that of the great outdoors. The reason is quite simple, lack of proper ventilation. Obviously, the most dangerous time for you, your children and your pets is during the painting process and the few weeks after the painting has been applied. Traditional paints contain airborne chemicals known as VOC’s. VOC’s can headaches, fatigue, dizziness and possibly even cancer or heart disease. These concentrations are strongest when paint is fresh, but can linger around your house for years.
Eco-Friendly Paint Solutions
Low VOC Paints — Due to environmental regulations and increasing consumer demand, paint companies have developed new house paints that emit little or no VOCs. This is achieved by using water as a base instead of traditional, petroleum-based oil solvents. Low VOC paint is now widely available at most hardware stores with prices comparable to more traditional paint.
Natural Paints — A natural paint does not contain heavy metal or any VOCs. Natural paints and wood finishes are often composed of natural plant dyes, oils, and waxes. There are various forms of natural paints on the market, including clay and milk based paints. These natural paints still have a ways to go as they tend to be more expensive and less durable than traditional paint.
Lime Wash — A reasonably inexpensive green alternative to traditional paint is lime wash. Limestone, a calcium-based mineral, is combined with water to form a simple, natural paint that is the basis of all whitewashes. Lime wash can be used indoors or outdoors and forms a unique, glowing finish that comes in a variety of colors.
As you start to tackle your next renvoation project consider all your paint options and how they fit into your plan. Eco-friendly paint is just one step in making your renovation green. I encourage you to read all of the “focus on green building materials” posts before you get started. Also visit our FHA 203K Renovation site to learn how to finance your next green renovation with 203K Financing or a FHA Energy Efficient Mortgage
Contractor selection is absolutely vital to a successful 203K loan process. I recommend at least three bids for 203K financing. Here's what to look for when selecting your 203K contractor:
Are They Properly Licensed ?
To complete a FHA 203K renovation in Georgia the contractor MUST be licensed by the state. You can verify their licensing via the Secretary of State's website. If they aren't listed then they need to be replaced. Georgia has strict new rules on contractor licensing that went into effect July 1st, 2008. If contractors have not met these licensing guidelines, not only will your 203K contractor have a tough time pulling permits, but you loan likely will not make it through underwriting in the first place. Don't be fooled by tax certificates and county business licenses, for your FHA 203K loan these are not sufficient. Alabama, Tennessee, Florida, Maryland, North Carolina, South Carolina, Virginia and most other states also have similar licensing requirements. Individual state licensing requirements are generally posted on the Secretary of State's website for your specific state.
Are They Properly Insured?
They should have at least $1,000,000 in general liability and meet any other requirements required by the state in which you are doing your 203K financing.
Do They Have References?
You should check at LEAST 3 references before allowing contractors to work on your 203K projects. We suggest you do the same & find out what past customers have to say about the quality of the work along with how fast they completed it. We also require 3 banking references to find out...
Do They Have a Line of Credit?
The reason we want our FHA 203K contractors to have a line of credit is so they can begin work immediately after closing without having to wait for the first draw. While some lenders will allow for disbursements at close for upfront costs incurred by the contractors, others will not. In some cases it can take 3 weeks to get that first draw. The easiest way to avoid any delays is to make sure they can start work immediately and can pay for it by using their line of credit.
Contractors can be one of the biggest issues with yourFHA 203K loan in the hands of a loan officer inexperienced with the product. Since we are FHA 203K experts and close multiple FHA Renovation Loans in Georgia, Florida, Alabama, Tennessee and Virginia every month we have experience in dealing with and choosing the right contractors. We got our experience the hard way and have seen nearly every contractor trick in the book (to the good contractors out there don't take offense, I love you). For more information on FHA 203K Loans give us a call at 404-551-3845 and we'll be more than happy to guide you through the process. Whether it be a renovation of that fantastic foreclosure deal down the street or upgrading your current residence, we can help!
The Housing & Economic Recovery Act of 2008 made quite a few changes to the mortgage industry, but none so important to home buyers looking to purchase in Atlanta with a FHA loan as the revision to the FHA required down payment and how it is calculated.
Beginning Jan. 1st, 2009 the down payment requirements for Georgia FHA Loans will increase from 3% to 3.5%. You might be thinking, big deal freaking deal. It's a whole 1/2 a point increase. However, the rule changes don’t stop there. The current FHA guidelines allow you to include a portion of your closing costs along with your appraisal fee into the 3% requirement. The new FHA guidelines prohibit that. That .05% is looking a little bigger right?
That's right, it requires more down payment on a straight FHA Purchase than it does a FHA 203K Renovation Loan! Tha means you can renovate (hopefully renovate GREEN) for less money down than if you bought the house with a traditional FHA loan.
Get the full scoop and a whole lot more expert FHA advice at MyFHABlog.com, the #1 source for FHA info anywhere on the web.
UPDATE 01/06/09 -- FHA MAY BE CLARIFYING THIS RULE AND REVERSING COURSE FROM THE PREVIOUSLY ISSUED MORTGAGEE LETTER BY REQUIRING 3.5% DOWN ON FHA 203K. STAY TUNED!
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
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