California Renovation Loans / 203k vs HomeStyle

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Mortgage and Lending with Guaranteed Rate NLMS#448414

203K and HomeStyle Renovation Loans are the perfect loan if you want to purchase and renovate with minimal out of pocket expense.  Renovation Loans, through federally-backed funds, make it possible to finance a home in California and repair / upgrade it at the same time.

 

Can you imagine this as "home"? BEFORE - Can you imagine seeing this and wanting to call it "Home"

AFTER

AFTER - With a little vision and help you could turn that teardown into a "Home"

There are several Renovation Loans available to meet a wide array of financing goals and I will go through the differences between each Renovation Loan and share advantages of using one over the other but they all share the same basic concept.

A Renovation Loan lets you purchase or refinance and rehabilitate a property with one loan, one approval process and one payment. The projected rehabilitation costs are held in an escrow account established by the Lender and disbursed as work is completed and inspected. The loan amount / down payment is based on the projected market value of the property when all repairs are completed or sales price plus renovation costs, whichever is lower. On all Renovation Loans the renovation budget will include labor, material, permit costs, inspection fees, up to 6 months of financed mortgage payments, and a contingency reserve fund of at least 10% to cover unforeseen repairs during the renovation phase.

Some General benefits across the board that is applicable with all renovation loan products:

  • You can purchase a home that does not require repairs and finance the cost of “modernization” or cosmetic repairs
  • The loan enables you to purchase distressed properties that require repairs including Short Sales and Foreclosure properties that are sold in As-Is condition to cash only buyers
  • Properties in “below-average” condition can be upgraded through repairs and maintenance
  • Where zoning allows, a Renovation Loan can be used to convert a single family dwelling to 2-4 units and vice versa.
  • Up to six months of PITI (principal, interest, tax and insurance) payments can be financed to assist those who would otherwise be required to make double-housing payments.
  • A Renovation Loan can be used for complete reconstruction of a home on its original foundation
  • Increase square footage by building an addition, building a second floor or finishing a basement or attic space
  • Make Improvements for accessibility for persons with disabilities

happy home

FHA 203(k) Loans – Purchase and Refinance

A “203K” loan has become the slang term for all renovation loans however it is actually the name of the FHA Renovation Loan. An FHA 203K is available for Owner-Occupied primary residence transactions only and has looser credit requirements allowing credit scores down to 640 (exceptions can be made down to 620 on a case by case basis) and allowing expanded debt to income ratios up to 55% with as little as 3.5% down payment on a purchase and little to no out of pocket expenses upfront on a 203K Renovation Refinance. The 203K loan amount is based on the Lessor of the Total Acquisition Cost or 110% of the Projected after improved value.

The FHA 203K Renovation Loan can be completed under either a Limited K Loan or a Consultant K Loan. Choosing which loan suits you best will depend on the amount and type of improvements the property needs.

Limited 203K: The limited K program is for homes needing limited repairs and requiring relatively little expertise to manage. This is primarily designed for a “streamlined” project where the home can be occupied immediately after closing, and the contractor will receive one draw in the amount of 50% of the total contract and the final payment at completion. It has no minimum repair costs but has a cap of $35,000 (which leaves the labor and material budget at about $31,000). Examples of Limited 203K repairs:

  • Eliminating health and safety hazards that would violate HUD’s MPR;
  • Repairing or replacing wells and/or septic systems;
  • Connecting to public water and sewage systems;
  • Repairing/replacing plumbing, heating, AC and electrical systems;
  • Making changes for improved functions and modernization;
  • Eliminating obsolescence;
  • Repairing or installing new roofing, provided the structural integrity of the Structure will not be impacted by the work being performed; siding; gutters; and downspouts;
  • Making energy conservation improvements;
  • Creating accessibility for persons with disabilities;
  • Installing or repairing fences, walkways, and driveways;
  • Installing a new refrigerator, cooktop, oven, dishwasher, built-in microwave oven and washer/dryer;
  • Repairing or removing an in-ground swimming pool;
  • Installing smoke detectors;
  • Installing, replacing or repairing exterior decks, patios, and porches; and
  • Covering lead-based paint stabilization costs if the Structure was built before 1978

 

Consultant K: The Consultant K is typically used for homes that need repairs in excess of $35,000 or require structural repairs; however there must be at least $5,000 worth of repairs. The Consultant K program allows for more extensive work to be done and has little restrictions on what can be done with the exception of luxury items like pools, spas, gazebos, tennis courts, etc…Examples of Consultant K repairs:

  • Converting a one-family Structure to a two-, three- or four-family Structure;
  • Decreasing an existing multi-unit Structure to a one- to four-family Structure;
  • Reconstructing a Structure that has been or will be demolished, provided the complete existing foundation system is not affected and will still be used;
  • Repairing, reconstructing or elevating an existing foundation where the Structure will not be demolished;
  • Purchasing an existing Structure on another site, moving it onto a new foundation and repairing/renovating it;
  • Making structural alterations such as the repair or replacement of structural damage, additions to the Structure, and finished attics and/or basements;
  • Rehabilitating, improving or constructing a garage;
  • Eliminating health and safety hazards that would violate HUD’s Minimum Property Requirements (MPR);
  • Installing or repairing wells and/or septic systems;
  • Connecting to public water and sewage systems;
  • Repairing/replacing plumbing, heating, AC and electrical systems;
  • Making changes for improved functions and modernization;
  • Making changes for aesthetic appeal;
  • Repairing or adding roofing, gutters and downspouts;
  • Making energy conservation improvements;
  • Creating accessibility for persons with disabilities;
  • Installing or repairing fences, walkways, and driveways;
  • Installing a new refrigerator, cooktop, oven, dishwasher, built-in microwave oven, and washer/dryer;
  • Repairing or removing an in-ground swimming pool;
  • Installing smoke detectors;
  • Making site improvements;
  • Landscaping;
  • Installing or repairing exterior decks, patios, and porches;
  • Constructing a windstorm shelter; and
  • Covering lead-based paint stabilization costs, if the Structure was built before 1978, in accordance with the Single Family mortgage insurance lead-based paint rule and the U.S. Environmental Protection Agency’s (EPA)

Sample FHA 203K Consultant Project Before / After:

before-and-after-photos-house

All FHA 203K Renovation Loans require both Upfront Mortgage Insurance and Monthly Mortgage insurance for the life of the loan.

Fannie Mae HomeStyle® – Purchase AND Refinance

This HomeStyle® Renovation Loan is very attractive since unlike the FHA 203K there is no Mortgage Insurance if you put a 20% down payment. This Renovation Loan is also available to Owner Occupied, 2nd Home and Investment Buyers unlike the FHA 203K being restricted to only Owner Occupied Buyers.

The credit qualifying is a little tighter on this product in regards to previous foreclosures, short sales and BK’s but otherwise as an Owner Occupied Buyer if you have a minimum of a 620 Credit Score you can borrower up to 95% with mortgage insurance (available as a monthly premium, upfront premium or lender paid premium), however unlike the FHA 203K the monthly mortgage insurance will automatically go away once your balance drops to 78% of the original appraised value. If you are buying as a 2nd home or Investment Property you will need a minimum of 20% down payment with a minimum credit score of 620; however 2-4 units are not eligible as a 2nd home or Investment property.

The debt to income ratios are more restrictive than the FHA 203K but generally will go up to 45% compared to FHA 203K max of 55%. With the HomeStyle® Renovation Loan, the Loan Amount is based on 100% of the After Improved value unlike the FHA 203K basing the loan on up to 110% of the After Improved value. A huge difference with the HomeStyle® Renovation Loan is that you can complete Luxury Items in the Renovation Budget, such as: Pools / Gazebos / Pool House / Tennis Courts, etc.

Sample HomeStyle® Renovation Project Before / After:

before pool after pool

Loan inquiries and applications in states where I am not licensed will be referred to a Loan Officer who is licensed in the property state. Equal Housing Lender. Prospect Mortgage is located at 15301 Ventura Blvd., Suite D300, Sherman Oaks, CA 91403. Prospect Mortgage, LLC (Unique Identifier #3296) is a Delaware limited liability company licensed by the Department of Corporations under the California Residential Mortgage Lending Act. Information and pricing are subject to change at any time and without notice. This is not an offer for extension of credit or a commitment to lend.

 

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Topic:
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fha
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Rainer
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Michael Thacker - Re/Max Real Estate Center - Louisville
Re/Max Real Estate Center - The Thacker Group - Louisville, KY
Your best friend who just happens to be a Realtor

Congrats on your first blog post, and welcome!!

Nov 02, 2015 09:40 AM #3
Rainmaker
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Carol Williams
Although I'm retired, I love sharing my knowledge and learning from other real estate industry professionals. - Wenatchee, WA
Retired Agent / Broker / Property Manager

Nice blog, Sheri McLaughlin . Welcome to the world of ActiveRain blogging.  You'll find this platform a valuable resource where we freely share and learn from each others experiences. 

Nov 02, 2015 10:48 AM #4
Rainmaker
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Tony and Suzanne Marriott, Associate Brokers
BVO Luxury Group @ Keller Williams Arizona Realty - Scottsdale, AZ
Serving Scottsdale, Phoenix and Maricopa County AZ

Sheri McLaughlin Welcome to Active Rain!  As REALTORS who have been here (on and off) for more than 9 years, it's well worth it!

Nov 02, 2015 11:03 AM #5
Ambassador
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Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Sheri, love your before and after photos.  What a difference!  And welcome to ActiveRain.

Nov 02, 2015 11:17 AM #6
Rainmaker
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Gary Coles (International Referrals)
Venture Realty International - Las Vegas, NV
Latin America Real Estate

Hi Sheri McLaughlin Congratulations on your first post here in the Rain.

Nov 02, 2015 01:05 PM #7
Rainmaker
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Kat Palmiotti
Grand Lux Realty, Monroe NY, 914-419-0270, kat@thehousekat.com - Monroe, NY
The House Kat

Welcome to ActiveRain. What a great list of the differences between the loans.

Nov 02, 2015 09:04 PM #8
Rainmaker
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Barbara Todaro
RE/MAX Executive Realty - Franklin, MA
Marketing Agent for The Todaro Team

Good morning, Sheri McLaughlin renovation loans have been a gift to many first time home buyers in our area..... they have the money to buy but need more to fix....

Nov 02, 2015 09:20 PM #9
Rainmaker
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Barbara Todaro
RE/MAX Executive Realty - Franklin, MA
Marketing Agent for The Todaro Team

and welcome to ActiveRain.... it's a great place to participate and I hope you enjoy every day of it...

Nov 02, 2015 09:21 PM #10
Rainmaker
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Stefan Winter
Real Estate in IL & NV | Owner of Real Estate Web Tech | Daily Vlogger - Las Vegas, NV
Owner - Winter Group & Real Estate Web Tech

Great pictures of some amazing flips, thank you for the information as well. Welcome to ActiveRain and have a great week!

Nov 03, 2015 05:06 AM #11
Rainmaker
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Captain Wayne - Rowlett Real Estate School
REcampus Fully Accredited Florida ONLINE & Classroom Training in Destin, Pensacola Florida - Panama City Beach, FL
Rowlett Real Estate School / Owner and Instructor

Wow, great job! I like to see the real life fixer uppers vs the HGTV stuff. The make beleive stuff gets old. 

Nov 03, 2015 06:54 AM #12
Rainmaker
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Captain Wayne - Rowlett Real Estate School
REcampus Fully Accredited Florida ONLINE & Classroom Training in Destin, Pensacola Florida - Panama City Beach, FL
Rowlett Real Estate School / Owner and Instructor

Welcome to ActiveRain,  it's great to have you aboard.  I look forward to reading more of your posts.

Nov 03, 2015 06:54 AM #13
Rainmaker
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Gilbert Real Estate Experts: Colby & Michele Myers
Orange Realty, LLC. - Gilbert, AZ

Congrats on your first post in ActiveRain!  We hope to see more posts in the near future.  Welcome to ActiveRain!

Nov 03, 2015 11:43 AM #14
Ambassador
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Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Welcome to ActiveRain Sheri McLaughlin .

Very detailed information about FHA 203k - and good to know that it can be used for modernization of the home, too.

Nov 03, 2015 01:58 PM #15
Rainmaker
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Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • Green • GRI • HAFA • PSC Calabasas CA

Hello Sheri,

Welcome to the Active Rain RE hood.

Congratulations on your first post here. Keep them coming!

Nov 03, 2015 04:10 PM #16
Rainmaker
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Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • Green • GRI • HAFA • PSC Calabasas CA

Last year my client took Homepath renovation loan, I had no idea what that meant and how it will work.

But 203k is a great solution for fixers or even for a refy.

Nov 03, 2015 04:12 PM #17
Rainmaker
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Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

Welcome to active rain. I love the post.

Nov 03, 2015 08:03 PM #18
Rainmaker
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Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker and Attorney Licensed in DC, MD, VA,

Great first post. Thanks for coming to Active Rain and sharing the information with us- We look forward to hearing more from you! 

Nov 03, 2015 08:37 PM #19
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Bob Crane
Woodland Management Service / Woodland Real Estate, Keller Williams Fox Cities - Stevens Point, WI
Forestland Experts! 715-204-9671

Thanks Sheri, money sources are always important in this business.

Welcome to Active Rain, looking forward to reading more of your posts, let me know if there is anything that I can do to help as you get started here.
Bob

Nov 04, 2015 12:28 PM #20
Rainmaker
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Mery Fernandez Empire Network Realty Luxury Brokerage
Empire Network Realty INC. - Orlando, FL
The Rise of An Empire, Let's Build Yours!

Hi Sheri! Welcome to the world of Activerain, may your blogging  create a whole new chapter in your Real Estate Career.

Nov 04, 2015 10:39 PM #21
Rainmaker
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Sybil Campbell
Long and Foster REALTORS® 5234 Monticello Ave Williamsburg, Virginia - Williamsburg, VA
REALTOR® ABR, SFR, SRES Williamsburg, Virginia

Good morning Sheri McLaughlin and welcome to Active Rain.  Great subject for a blog, nice job.

Nov 05, 2015 12:10 AM #22
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