Loan Programs

FHA Loans

Find out about requirements (including credit scores), guidelines, rates, loan limits, how to qualify and how to apply for an FHA Loan.

This post is limited to qualifying for FHA loans as a home buyer – First Time or repeat.

What is an FHA Loan?

Federal Housing Administration (FHA) Loans are insured by Housing and Urban Development (HUD) which allows lenders to offer low downpayment loans to homebuyers like you. FHA loans have been helping people become homeowners since 1934. FHA insures loans for first time home buyer mortgage loan, FHA streamline refinance, FHA regular refinance, Cash-out refinance and also home purchase by people who are NOT first time home buyers. FHA however doesn’t provide loan directly. You need to work with an FHA approved lender like Arcus Lending to qualify for the home purchase or refinance loan.

What is the credit score requirement for an FHA Loan?

While FHA guidelines allow for much lower credit scores, most of the lenders require a minimum of 640 fico score.

How to qualify for an FHA Loan?

You need to meet the following basic requirements for qualifying for an FHA loan (this is not an exhaustive guideline and a particular lender may even have their own set of guidelines):

• Property must be owner occupied.
• FHA loans are available for 1-4 units houses including single family residence, town-homes, condominiums and even manufactured homes.
• A minimum downpayment of 3.5% is required. The downpayment can be gifted from parents, children, siblings or other close relatives.
• Impound account is required on all FHA loan. As part of impound account, payment for property taxes and home insurance are broken down into monthly payments and are paid to the lender along with mortgage payments every month. The lender then makes a payment directly to county or your home insurance company when its due.
• A two years employment history is required. However, if you went to school immediately prior to starting your employment, the school years can be counted towards “two years” requirement as long as your job is in the same field as your education.
• You should have enough income to meet the maximum debt to income ratio requirement of 43%. In some cases, that ratio can be allowed to as high as 50%.
• Upfront mortgage insurance (UFMIP) of 1.75% and annual mortgage insurance of 0.25% – 0.65% is required on all FHA loans. 
• FHA offers 30 year fixed, 15 year fixed and 5 year ARM loan.

What are FHA Loan limits?

For 2017, the FHA national “floor” loan limit for 1 unit house is $275,665. This means that all counties in the country will at least have this as their loan limit. FHA also classified several counties as “high-cost” meaning the loan limits in those counties are higher than $275,665. The maximum loan limits in some counties can be as high as $636,150 and in other counties it’s between the floor i.e. $275,665 and the highest loan limit i.e. $636,150. Click here to find out the FHA loan limit for your county.

How to apply for an FHA Loan?

To get an FHA loan you need to work with an FHA approved lender. If you want to work directly with me to get pre-approved or get a rate quote you can complete the FHA rate quote form here.

Buying Condominiums using FHA loans

Only FHA approved condominiums are eligible for FHA financing. Some town homes are also classified as condos and hence should be on FHA approved project list. To find out if a condo project is on an approved list or not go to https://entp.hud.gov/idapp/html/condlook.cfm

FHA Streamline Refinance

What is FHA Streamline Refinance?

Refinancing of a current FHA insured loan into another FHA insured loan is called an FHA Streamline Refinance. The mortgage to be refinanced must be current (not delinquent). Not all FHA to FHA refinances are streamline in nature.

Is there a minimum waiting period before which you can do a Streamline Refinance?

Even though FHA loans come with no pre-payment penalty, you need to wait for 211 days from your last FHA loan before which you are eligible for a new FHA streamline refinance.

Is there an appraisal required on FHA Streamline?

One of the biggest benefits of an FHA Streamline Refinance is that no appraisals are required. Your Loan-to-Value Ratio (LTV) is calculated based on the last appraised value when you got the current loan. However, no cash-outs are allowed. In some cases appraisal may be required.

What is the Payment Benefit Requirement?

For you to qualify for an FHA Streamline loan, the new loan must meet a certain payment benefit requirement or you should be moving from an ARM (Adjustable Rate Mortgage) to a Fixed Loan. The table below shows the exact benefit requirements:

What if I dont meet the Payment Benefit Requirement?

If you can’t meet the 5% benefit requirement, you can still refinance from an FHA loan to another FHA loan. You may still be eligible for an UFMIP refund (see below), you would have to get the house appraised again. And the new Loan-to-Value ratio will be calculated based on the new appraised value, and that ratio can not exceed 97.75%.

How much refund do I get on my UFMIP?

When you refinance from an FHA loan to another FHA loan within 36 months, you are eligible for a partial UFMIP (Up front Mortgage Insurance) refund. The refund is a percentage of the actual UFMIP you paid on your current FHA mortgage. The percentage goes down every month and ultimately becomes zero after 36 months. The table below provides all the details:

What is the MIP rate on an FHA Streamline Refinance?

The MIP (Mortgage Insurance Premium) on an FHA Streamline (and even a regular FHA loan) are of 2 types – Up front Mortgage Insurance Premium (UFMIP) and the Annual Mortgage Insurance Premium. The current UFMIP is 1.75% for all loans. However, the Annual Mortgage Insurance Premium numbers vary based on the loan terms, loan amount and LTV. The table below details all possible scenarios.

Note – If your current FHA Loan was endorsed before May 31, 2009, you may be eligible for reduced UFMIP of 0.01% and an annual mortgage insurance premium of 0.55%. If you are not sure if your current loan was endorsed before that date, contact us and we can find that for you.

How Can I get a Mortgage Rate Quote for FHA Streamline Refinance?

FHA Streamline Refinance typically has the same rates as other FHA programs. The best way to get a live and most current rate quote is by completing this Rate Quote Request Form.

What are the closing costs on an FHA Streamline Refinance?

Typical closing costs may include Lender origination fees (Points) and Escrow/Title related expenses and can add up to 3%-5% of your loan amount depending on the lender and the loan amount. At Arcus Lending, we do offer a no point and no closing cost option. Start here with completing a form in less than 60 seconds (No SSN required).

You will also be required to set-up a new impound/escrow account and will have to come up with reserves money for your Property Taxes and Home Insurance. However, your current lender will refund you the escrow reserves balance after the new refinance is closed.

Home Equity Line Of Credit (HELOC)

Home Equity Line of Credit (HELOC) is a home mortgage loan that works much like credit cards. It allows you to borrow funds up to a certain established credit limit, usually on as needed basis. However unlike credit cards which are unsecured debts, HELOCs are collateralized against your home.

There are several benefits of a HELOC:

1. You pay interest only on drawn amount and not the credit limit.
2. Low annual fees – usually less than $100.
3. Can help you avoid paying private mortgage insurance (PMI).
4. Can help you keep the 1st mortgage under the conforming or conforming high balance limit.
5. Can increase your borrowing power.

Arcus Lending HELOC Program:We offer both simultaneous close and stand alone HELOCs.

Simultaneous close –We offer up to 89.9% CLTV loan on simultaneous close 2nds. Meaning, even if you have only 10% down payment (while buying a home) or only 10% equity (while refinancing), you can avoid private mortgage insurance (PMI) by taking two loans. A first mortgage for 80% and a second mortgage HELOC for 9.9%. Lets look at an example:

• Purchase price – $450,000
• Down Payment – $50,000

Without a simultaneous close HELOC, your only option is to get one loan for $400,000 and pay mortgage insurance since your downpayment is under 20%. But with our HELOC Loan, we can do the first loan for $360,000 and a HELOC for $40,000 thus avoiding mortgage insurance.

Such loan structure can also be used to get a lower interest rate by staying within the conforming loan limit. Lets look at another example:

• Purchase Price- $900,000
• Downpayment – 20% or $180,000
• Loan Amount – $720,000

If you are in a county where conforming high balance limit is $625,500 you can avoid paying much higher interest rate for a jumbo loan, by getting 2 mortgages – First for $625,500 and the HELOC for $94,500.

Stand-alone HELOC – You can get a stand-alone HELOC either as a 1st mortgage (if your house is free and clear) or as a 2nd mortgage (if you have more than 10% equity in the house). You can use this money for remodeling, paying for child’s tuition fee, vacation, buying a new car, buying another home or anything else that’s important for you.

Contact us to find out current rate and if you qualify for this loan.

Veterans Administration (VA) Loans

Veterans Affairs (VA) home loans are mortgages that are insured by the VA. The loans are made by mortgage lenders and banks. Service members, veterans, – and eligible surviving spouses may qualify for VA home loans. Note that this post is ONLY about home purchase loans utilizing VA loans – same guidelines may not apply for VA refinance or Interest Rate Reduction Loans (VA IRRLs).

Who qualifies to get a VA Home Loan?

Eligibility is based on the veteran’s length and type of military service. Generally speaking, VA determines that veterans who fulfill the criteria below are eligible for the VA home loan benefit:

• Veterans with two years of continuous active-duty and an honorable discharge
• Veterans with six years of service in the Selected Reserves or National Guard and an honorable discharge
• Veterans with 90 days active-duty wartime service and an honorable discharge
• Veterans with 181 days of continuous active-duty during peacetimes listed below and an honorable discharge:

– July 26, 1947 – June 26,
– 1950 February 1, 1955 – August 4,
– 1964 May 8, 1975 – August 1, 1990

• Un-remarried surviving spouse of a veteran

– Eligibility determined by the VeteranVeterans Administration A veteran
must have died on active-duty or as a result of service-connected injuries or illness

Get a VA Home Loan Live Rate Quote Here

Obtaining Certificate of Eligibility

A certificate of eligibility is required for all VA home purchase loans. This can be obtained through VA’s website https://vip.vba.va.gov or by contacting the VA’s eligibility center at 1700 Clairmont Road, Decatur, GA 30031 Phone: 888-768-2132. Most regional loan centers also prepare a certificate of eligibility for walk-in veterans.

Loan to Value (LTV) Ratio and Downpayment Requirements

You can borrow up to 100% of the purchase price (or appraised value whichever is lower). Funding fees (see later in the post) can also be financed in the loan amount. No minimum down payment or cash investment required unless:

• Your available entitlement is less than 25% of the total loan amount, including funding fee or
• There is a Co-borrower on the loan who is not a veteran or the spouse of the veteran borrower

VA Loan Amount Limits

The Department of Veterans Affairs (VA) Loan Guaranty program does not set a maximum amount that an eligible veteran may borrow using a VA guaranteed loan. For 2018, the maximum loan limit can be higher than $1M in certain counties. However, most lenders don’t lend beyond $679,650. All the counties qualify for a loan amount of $453,100 (or lower).

Get the VA Loans Rate Quote by Clicking Here

Credit Score Requirements

Most lenders would require a minimum credit score of 640.

Occupancy

Veteran must either occupy the home at the time of closing or certify that he or she will occupy within 60 days of loan closing. The veteran’s spouse who occupies the home satisfies the occupancy requirement when the veteran cannot occupy the home due to over-seas active-duty assignment.

VA Loans Funding Fees

See the chart below (updated January 1, 2020) for funding fees. As noted above funding fees can be added to the loan amount and you do not need to pay this from your pocket at close.

Condominium Financing Using VA Loans

Only VA approved condos are eligible for VA financing. To check whether a condo is VA approved or not go to https://vip.vba.va.gov/portal/VBAH/VBAHome/condopudsearch

80/10/10 Loans

Jumbo 80/10/10 Loan (10% Down Payment) up to $1.7 Million

December 19, 2012 Shashank Shekhar

If you are planning to buy a high-priced home (say at or under $2 Million), but do not have 20% down payment and still want to avoid super-expensive mortgage insurance (PMI), we have just the right loan program for you.

How does an 80/10/10 loan work?

Usually, a 2nd mortgage or a Home Equity Line of Credit (HELOC) is offered up to 90% of the home value. Such kind of loans are popularly known as 80/10/10 loans, where the first mortgage is 80 percent of the home value, second mortgage or HELOC is 10 percent and the rest 10 percent is the down payment by the borrower.

Get a Rate Quote for an 80/10/10 Loan

What are the benefits of an 80/10/10 loan?

PMI is required on all conventional loans with less than 20% downpayment. So if you had 10% downpayment and you opted for one loan of 90%, you would end up paying PMI. However, an 80/10/10 loan eliminates the need for a mortgage insurance. In some cases, this could mean a higher interest rate on the 1st mortgage. Hence, 80/10/10 loan is not for everyone. Depending on your credit qualification and financial goals, in some cases doing one 90% LTV loan and paying PMI may be a better idea. Make sure to contact me for a free consultation so that we can guide you which option is better for you.

Lets Look At Some Examples

Example #1 – Using 80/10/10 loan to avoid PMI

Say you are buying a house worth $650,000 and you only have 10% downpayment i.e. $65,000. You need a loan amount of $585,000. You can get one loan of 90% and pay mortgage insurance on it. Or you can get two loans – 1st mortgage for 80% i.e. $520,000 and a 2nd mortgage (HELOC) for 10% i.e. $65,000. You don’t pay mortgage insurance on either the 1st or the 2nd mortgage.

Example #2 – Using 80/10/10 loan to qualify for a higher loan amount

Say you wanted to buy an $825,000 house and had only 10% downpayment. You won’t qualify for any loan since Jumbo loans (loan amounts higher than conforming limits) require a minimum of 20% downpayment. So if your property is in a high-cost area and conforming limit is $679,650 (for 2018) – with a 10% down your maximum loan amount can’t exceed $679,650. But with an 80/10/10 loan, you can buy an $825,000 house by putting down only 10%.

Example #3 – Using 80/10/10 loan to avoid stricter jumbo mortgage guidelines

Say you are buying a $900,000 house and have 20% downpayment. You can get one loan of $720,000. But you don’t want to exceed the conforming limit and avoid getting a Jumbo loan. In this example, you can get a $679,650 loan on the 1st (assuming that is the loan limit in your county) and can get a HELOC (2nd mortgage) for the balance. You are still paying 20% down, so technically it is not an 80/10/10 loan. But using a HELOC on the 2nd and splitting the loan into two, you can avoid stricter guidelines that are often associated with a Jumbo Loan.

Get Pre-Approved for a Jumbo 80/10/10 Loan

How can I qualify for an 80/10/10 loan?

We offer this loan program for both home purchase and refinance. The property must be owner-occupied. A minimum credit score of 700 is required for a total loan (1st + 2nd) of $750,000.

We offer loan amount of up to $1.7M (purchase price of $1.89M) with 10% down payment.

You can also get a 15% down payment loan (80% 1st mortgage + 5% 2nd mortgage) up to $2 million purchase price. These Jumbo programs require a minimum 730 score and 6 months -18 months of reserves (depending on the loan amount and credit score).

The first mortgage has several loan programs to choose from – 7/1 ARM, 10/1 ARM or a 30 Year Fixed. Even an Interest Only option is available.

The second mortgage is always a variable rate line of credit.

Get a Customized Rate Quote for an 80/10/10 Loan

*Not all of the programs mentioned in this post are available in all the states. There are additional underwriting guidelines for which you need to qualify.*

FHA 203 (k) Rehab Loans

Have you found that almost perfect San Jose home in the right location that is selling at a reduced price because it needs a little rehab work?

Unfortunately, most mortgage loan programs require homes “in need of work” to be complete before the financing can be secured for the purchase transaction. Whether the property needs a little or a lot of work, most First-Time Home Buyers simply don’t have the up-front cash to invest in a property prior to actually securing the financing.

However, the FHA 203(k) Rehab Loan may be your answer to turning that “fixer-upper” into your dream home.

The FHA 203(k) Rehab Loan is a popular mortgage program designed for buyers that want to finance the cost of home improvements into a new loan.

The financing for this loan will include the purchase price, as well as the improvements you are either required to do to be able to live in the home, or that you want to do, such as upgrade the kitchen, bathroom, etc.

This is also a great loan program for San Jose Real Estate Agents trying to sell homes that need repair. Buyers will have an option to complete those repairs and upgrades without a large upfront financial commitment. Think of this as a one-time close construction loan. At closing, the seller receives their money and the rest is put into an escrow account for the buyer to use for rehabbing the property.

Advantages of 203k Rehab Loans:

Savings –

Repairs on a fixer-upper can be expensive, and the 203k Rehab Loan allows borrowers to finance the improvements into the new loan vs having to pay for the upgrades prior to closing.

Low Interest Rates:

Historically, FHA Mortgage Loans have lower than average rates when compared to commercial or conventional financing programs.

Great Property Deals:

Since Rehab Loans are designed for “fixer-uppers,A buyers can qualify for a loan on a home that needs work, and actually finance the construction costs / repairs up front.

FHA Rehab Loan Background:

The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD), offers this loan program to provide for the rehabilitation and repair of single family properties. One single loan is used to pay for the purchase (or refinance) and the cost of rehabilitation or updating of the home. Those properties include condominiums, town homes and single family homes. This loan is only available for homebuyers purchasing a primary residence that they will occupy. Unfortunately, it is not a program for investors to purchase a home – fix it up – and then sell.

As you can imagine, there are vastly different degrees of just how much work it would take to bring a house up to your standards.

Sometimes it may only require minor cosmetic work, like new flooring, upgrade a kitchen or bath, put on a new roof or install new windows you get the idea. Or it could be that you find a home that is the perfect price and location, but inside it needs a complete gut job.

You like the shell of the house but want to blow out the walls to change the floor plan, need to totally re-do plumbing, electrical major stuff! Maybe the bones of the house are terrific but it is just too small you need to add an extra bedroom or even an entire new level!

The FHA 203(k) Rehabilitation program, (we’ll call it the K) is designed to address all of these circumstances. Another great thing about this loan program is that it is originated and underwritten just like a standard FHA loan program. So you can purchase the home with the same 3.5% down payment of a regular FHA loan, depending on your loan amount. In some high cost areas the down payment may be 5%, but there is no larger down payment required on a 203(k) than there is on the regular FHA loan program. And the seller can also still assist you with your closing cost as well just like with a regular FHA loan.

203(k) Rehab Loans Eligible Property Types:

The property has to have been completed for at least one year, and it has to be a one- to four- family dwelling.

You can use the program to convert a one family dwelling to a two-, three-, or a maximum of four family dwelling.

Eligible property types are single family detached homes, single family attached (like row houses) town homes and condominiums. Cooperatives (Co-ops) are not allowed.

The program will let you pop the top find a single story home and add a new level, take a home demolish it (at least a portion of the foundation must remain) and build a brand new home in its place, and even take an existing house (or modular unit) from one location and move it to a new location.

That’s pretty cool!!

Let’s take a look at a perfect scenario:

You find this great house that is in the perfect location, close to transportation, great school district, excellent floor plan and the yard you always wanted. It’s the lowest price in the neighborhood.

So what’s not to like?

It’s a foreclosure.

And, the last occupant decided to just destroy the house before they left – taking all the appliances, ripped up the carpet, punched holes in the walls, broke windows They even took a toilet with them! Who takes a toilet?

Can you imagine fixing all of that?

Most first-time home buyers just turn around and walk out the door because they believe they couldn’t possibly come up with the money or the time to fix all of this.

So, a really great house goes unsold.

Two Types of FHA 203(k) Loans:

• The Streamlined K is used when you want to make minor cosmetic changes to a house and the total rehab cost can not exceed $35,000.
• A Standard FHA 203(k) loan allows you to make substantial structural improvements, repairs, remodeling and updating to a house even build a new one.

Streamlined 203(k):

A Streamlined 203(k) allows minimum or limited repairs to be done basically “cosmetic repairs, improvements or updates.

It also eliminates most of the paperwork required of a full 203(k) and simplifies the process to obtain rehab funds.

Under the Streamlined program, there is a minimum of $5,000 and a maximum of $35,000 to be financed in the mortgage amount to improve or upgrade the home.

No “structural repairs are allowed under a Streamlined K, however, making or correcting any structural items is not considered to be minor.

The minimum of $5,000 of required and substantial improvements that will increase the marketability and value of the home must first be included. Any repairs and improvements must comply with HUDÃ Minimum Property Standards and must meet all local building, zoning and other codes.

Minimum required repairs include any health and safety repairs like peeling lead paint or replacing missing railings. Whether you want those items included or not, all health and safety issues must be addressed first. Smoke detectors must also be added if missing.

Type of work for Streamlined 203(k):

• Repair, Replace or Upgrade
• Roof, gutters, downspouts
• Existing HVAC systems
• Plumbing and electrical systems
• Flooring
• Painting
• Appliances
• Weatherization
• Repair, replace or add exterior decks, patios, porches
• Basement waterproofing
• Window and door replacement and exterior siding
• Septic and/or well repair or replacement
• Improvements for accessibility
• Lead-based paint stabilization or abatement of lead-based paint hazards

What can’t you do? Ineligible improvements under the Streamlined 203(k):

• Major structural repairs
• New construction (adding a room)
• Repair of structural damage
• Repairs requiring detailed plans and specs
• Any repair taking more than 6 months to complete
• Repairs that would necessitate more than 2 draws
• Luxury items that are not a permanent part of the real estate
• Granite, marble countertops, jacuzzi tubs, hot tubs, pools, etc

Let’s go through the process of the Streamlined 203(k):

Find the home you’ll want to purchase and determine what improvements need to be made to the property.

The purchase contract offer is written the same as any other, accept you’ll want to make sure that there is language stating the purchase is contingent upon borrower acquiring an FHA 203(k) Loan.

In order to complete the financing of the improvements, you will need to meet with a contractor to determine what kind of work you are planning and how much it will cost.

The contractor will give you a copy of the contract, which you’ll need to pass on to the lender.

The lender will order an appraisal to determine what the value of the house will be once all of this work is completed.

Keep in mind, you’ll also need to be qualified for the full loan amount which is based on the purchase price plus the additional cost of repairs.

Once the loan is approved, you will go to closing like you normally would.

The amount that will be needed to do all of these repairs or improvements will be placed into an escrow account held by the lender.

As the work is being completed, there will be draws from the account to pay the contractor.

What does the Contractor you select need to do?

• Provide written work plan and cost estimates
• Must include nature and type of repair and the cost of completion
• Must be licensed and bonded for each specialized repair
• Must agree in writing to complete the work for the amount of the cost estimate and within the allowed time

Let’s take a look at a quick Streamlined 203(k) example:

Say you need $20,000 to do all the improvements to the house. Most lenders will require a 10-20% contingency reserve account to be set up. This is money they will set aside for any ‘“surprises’ that may happen during the rehab. You don’t want to have something come up that you didn’t expect and then have no money to fix it.

So, in this example another $2,000 would be financed to establish your reserve fund.

A total of $22,000 is now available to be placed into the rehab escrow account.

Once you have completed settlement and own the house, the rehab account will be established and you will be able to start the work.

The contractor will request the first draw of up to 50% of his contract, which in this example is $10,000.

Once the work has been fully completed, he can request his final draw and receive the balance of his contract.

The money in the contingency reserve account is for emergency work. If down the road there was no need to use it and you decided to do some additional work to the house you could then request a change order and spend that money, but it would not be paid out to the contractor until the final draw.

The reason this program is called a Streamline is because there are fewer draws, less paperwork and only cosmetic, minor repairs involved.

All work should be completed in 6 months or less.

Advantages of Streamlined 203(k):

A great advantage of the Streamlined 203(k) vs the Standard FHA 203(k) is that there is less paperwork.

Under the streamline, there is a maximum of two draws per contractor. It is easier if you have only one contractor, but a maximum of two contractors to do this level of work is allowed.

After you have gone to settlement and your loan has closed, the contractor will receive the first of two draws. They are usually permitted to get up to 50% of the materials (sometimes 50% of the total work amount) in this draw.

The remaining monies are given out once the project is completed and the work has been inspected.

Standard FHA 203(k):

If you have a larger project that needs a full gut job or additional rooms, the Standard FHA 203(k) is the right program.

This is what we refer to as the “full blown .

Under this section of the program, much more extensive repairs or remodeling can be accomplished.

The full K allows you to make “structural changes to enlarge a house, build a new home on an existing foundation and even take an existing house and move it.

Unlike the Streamlined K, where the improvements are “cosmetic’s , under the full blown K the repairs or improvements can be and usually are “substantial.

So, you can imagine that the process is a bit more involved.

Think of it as a mini construction loan program where your contractor can ask for as many as 5 draws, and each draw request will need to have an inspector come out to make sure the work has been completed for that draw request prior to any monies being paid.

Because it is more involved than a standard loan, there are more costs involved.

Type of work for a Standard 203(k):

• Structural alterations and additions
• Garage
• Attached unit (new)
• Remodeled kitchen and baths
• Changes to eliminate obsolescence and reduce maintenance
• Modernize plumbing, heating, A/C and electrical systems
• Install or repair well or septic systems
• Roofing, gutters, downspouts
• Flooring, tiling and carpeting
• Energy conservation improvements
• Major landscaping
• Improvements for accessibility
• New free standing appliances
• Interior and exterior
• Swimming Pool repairs
• Other improvements that are a PERMANENT part of the real estate

*Luxury items are not permitted to be included in the financing.

What is different from the Streamlined K and the full FHA 203(k)?

The full K requires a HUD Consultant (selected from HUDÃ approved consultant list) to be retained by you.

They will come to the property and meet with you to discuss the anticipated improvements you want to make to the house. They will inspect the property for any health and safety issues required to be included in the rehab and will then provide you with a“Work Write-up for the project based on the work you would like to have done.

The HUD consultant is someone that is knowledgeable about construction and/ or rehab and who knows the 203(k) program.

What is the role of the HUD 203(k) consultant?

• To do a Feasibility Study on required repairs
• To do a Property Inspection/Report
• To work with you discussing your renovation needs
• To prepare a Work Write-up and any required architectural and other exhibits
• To do Draw Inspections, Change Orders and Final Inspection
• To be a liaison between you, the lender and your contractor
• To insure that work is completed in a timely and professional manner
• To watch over the monies spent on behalf of you and your lender

Whew!!! That’s a lot of stuff get into the nuts and bolts of the full blown K.

What are these studies, write-ups (what’s included) that the consultant provides and what does this cost?

Feasibility Study

It is only a rough estimate of the work that needs to be done and what the cost should approximate. It costs $100 and can be one of the items you finance.

Not every property or borrower needs a feasibility study.

Architectural Exhibits

• Those appropriate exhibits which show the scope of the work to be done
• Plot Plan (only for new addition)
• Proposed Interior Plan, showing structural changes
• Work Write Up and Cost Estimates

Components

• Home/Property Review Report (existing )
• Termite Report/ Well/Septic Report
• Energy Analysis or Home Energy Rating
• Proposed Plot Plan (for new additions)
• Proposed Floor Plan (with wall changes)
• Other reports/exhibits as necessary
• Work Write Up (description of work)
• Cost Estimates (detailed)

Home/Property Review

• Home Inspection Report – “Cornerstone of successful 203(k) loan
• What’s wrong with the house?
• Note deficiencies and certify the condition of all systems
• Get wood boring insect report
• Focus on health and safety concerns
• Meet HUDA Requirements for Existing Housing

Format for the Work Write-up

• There is no specific mandated format
• It must be prepared in categorical manner with 35 categories
• It must be detailed as to the work to be performed and costs
• It is recommended that it be done “room by room as well as by category
• There should be a break down between labor and materials

Cost Estimates

• Based on R.S. Means, Marshall Swift or Home Tech estimating systems
• Don’t use low bid, because there must be enough money for any contractor to complete the work
• Must include labor and materials
• Don’t eliminate labor costs because borrower says he will do the work

Contingency Reserve

• 10% to 20%
• If house is old or rehab is extensive
• Over 30 years old, must have at least 10%
• If utilities are off, must have 15%
• Savings from change order go into contingency
• At the end, contingency can pay for additional work or the changes

What are the Consultant costs associated with this?

• The consultant must be HUD approved and it’s typically $400 to $1000, depending on rehab cost
• There is also an inspection Fee – set by HOC – for maximum of 5 draw inspections – plus mileage

How are the Contractors paid?

There is no up-front money to the contractor on the full K vs the Streamlined. He receives his first draw check only after the work to be done under the draw schedule has been completed.

Contractors can have a maximum of 5 draws altogether. The HUD consultant will divide the work into draws depending on the scope of work to be done.

You may do the framing first, then the heating and electric, then the drywall for example. If each of those were in separate draw schedules, the contractor would get paid for each of those as they are completed and depending upon which draw they were to be counted in.

The consultant will go out to see that the work described under the first draw has been completed and will submit a request for that draw. For each of these draws a 10% contingency is held. Again, this is just to be sure there are no surprises and that all of the work is completed correctly.

So you can see that there is a difference in whether you use a Streamlined K or the standard FHA 203(k) loan.

Most foreclosed properties only require minor cosmetic repairs, so the Streamline is the way to go in most of those instances. Just make sure you have no structural improvements that need to be made if you are thinking of using the streamlined K. Even if the repair would cost say $5,000 which falls into the less than $35,000 max for the streamline, you would have to go with the standard K just because the work is a “structural. So make sure you know which repairs you are planning to do before you decide which 203(k) would work best for you.

These are both great loans to use to find that’s “almost perfect” home and truly make it into your Dream Home. Not all lenders are able to do this loan however, as you can see they require a bit more attention once the loan has closed. So, be sure to contact me if you think you need a Rehab Loan.

Homepath Loans

Homepath was created to facilitate the purchase of the bulk of REO properties currently serviced/guaranteed by FNMA (Fannie Mae).

Highlights:

• As little as 3% down allowed for owner occupied!
• As little as 10% down for non owner occupied and 2nd Homes!
• No Mortgage Insurance!
• No Appraisal Needed – Value determined by Sales Price
• You may qualify even if your credit is less than perfect
• Loan Amounts up to $801,950 allowed
• Loan Term Available : 30 Year Fixed
• Transaction Purpose : Purchase Only

Borrower Eligibility

• First Time Homebuyers allowed
• Non-Perm Resident Aliens not allowed
• Non-Occupant CoBorrowers not allowed

Here’s How to get started : Check www.homepath.com to ensure property is eligible for HomePath financing. And then contact us if you want more details on this special loan program.