203K Streamline Program

203K Streamline
Program
Agenda
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FHA 203k Streamline Overview
Advantages and Opportunities
Process Flow
Guidelines
Working with First American Mortgage Trust
Resources
The 203K Streamline Loan
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Provides borrowers with an affordable, stable
financing solution that combines the purchase or
refinance of the home along with the costs of the
improvements into a single loan
FHA guidelines apply
Opportunity to borrow against the value of the home
after-improvements
Owner-occupied 1-4 unit properties, PUDs and
Condos
Properties must have certificate of occupancy for a
minimum of 12 months
Can be used with HUD REO programs and bank
owned properties in ill repair
Opportunity for Borrowers who:
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Are interested in purchasing a property that needs
repairs
Are existing homeowners who need funds to
rehabilitate their property
Want to save time and money by financing the purchase
or refinance with the cost of the repairs
May not qualify for a conventional loan
Are first-time homebuyers (not a requirement)
Live in disadvantaged neighborhoods
Want to improve their home and neighborhood
Target Markets
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Borrowers purchasing a home in need of rehabilitation
• REOs, foreclosures, and short sales
• Incomplete renovations (must already have a CO)
• Out-dated kitchen, bathrooms, etc.
Borrowers refinancing existing home and making
improvements
• Improve instead of move
• Build equity in existing property
• Out-dated kitchen, bathrooms, etc.
Guidelines
General Qualifications
General Guidelines
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Standard FHA investment = 96.50% LTV for purchases,
97.75% for rate/term (additional down payment may be required)
Loan-to-Value is based on the lesser of:
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NO minimum cost of the rehabilitation
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The sales price or “as is” appraised value + repairs OR
110% of “as completed” appraised value
No money released at closing
Only paid on documented completed work
All funds disbursed by loan servicer
Allows borrowers to finance up to an additional $35,000,
including fees and contingency reserve into their
mortgage to make improvements
30 year fixed-rate mortgages only (purchase or refinance)
Interested party/seller contributions allowed up to 6%
Owner Occupied Properties only
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Attached and detached single family residences, condos and PUDs
2-4 unit properties
Additional Opportunities
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HUD REO
• Can be combined with 203k – if approved by HUD
• Can use HUD appraisal as the as is value IF completed
within allotted time
Short Sales & Bank Owned Properties
• Can renovate properties that suffer from deferred
maintenance
• Damaged and missing systems
Guidelines
Borrower Qualifications
Credit and Income
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FHA guidelines apply
Minimum 600 credit score required on all 203K
government loan transactions
Full documentation manual underwrite only
Standard DTI Guidelines are 31%/43%
2-month cash reserves are required on 1-2 unit properties
3-4 unit purchase transactions require 3-month reserves
Guidelines
Property Improvements
Eligible Improvements
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Roofs, gutters, and downspouts
Upgrade or Replace existing heating, ventilation, and air
conditioning systems
Upgrade or Replace Plumbing and Electrical systems
Flooring (Non structural, repair or replacement)
Painting Interior/Exterior
Lead-based paint stabilization or abatement of lead-based
paint hazards
Minor remodeling that does not involve structural repairs,
Bathrooms and kitchens
New Appliances (Range and/or Oven, Range hood, Microwave, Refrigerator,
Trash Compactor and Washer/Dryer - built in or Free Standing)
Eligible Improvements
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Improvements for accessibility for persons with
disabilities - remodeling kitchens and baths for wheelchair access, lowering
kitchen cabinets, or installing wider doors (non load bearing walls only) and
exterior ramps
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Exterior decks, patios, porches and fences
Basement finishing and remodeling that does not involve
structural repairs including waterproofing
Replacement of windows and doors and exterior wall residing
Mold Abatement or Termite Active Infestation repairs
(tenting, etc)
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Repair or replacement of septic tank
Ineligible 203k Streamline
Improvements
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Pool construction
Adding driveway or sidewalk
Replacing posts in crawl spaces
Major landscaping or similar site amenities
Repair of structural damage – regardless of the cost (any
structural repair necessitates a full 203k loan)
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Sub Flooring
Foundation
New construction including room additions
No construction on detached garages or outbuildings
Ineligible 203k Streamline
Improvements
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Major rehabilitation or remodeling such as the relocation
of load bearing walls
Any repair or improvement that will require more than 6
months to complete or will displace the borrower for
more than 30 days
Work that will not begin within 30 days of closing
Rehab activities that will require more than 2 draws (unless
exception granted by FHA Consultant AND Lender)
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Repairs that require detailed drawings or architectural
exhibits
NOTE: Some of these repairs ARE eligible under the full 203k
Program
Appraisal Requirements
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Order the Appraisal as a 203k rehabilitation loan
Provide AMC with a copy of the borrower requested repairs and improvements
(contractor’s bids or consultant’s write up)
Appraiser provides a completed report with an “After Improved” and separate “As
Is” value
Appraiser may require additional items not included in the contractors bids if
needed to meet FHA minimum property standards (In this case the borrower will
have to provide additional contractors bids covering all appraiser required repairs)
Interior Photos required if there is any construction work being done on the
property
If the appraiser recommends a pest inspection –one will be required by FAMT and
any repair items on the pest inspection report must be completed in the 203k
streamline
All Appraiser repair items MUST be within the $35,000 limit (including all
contingency, inspection fees and 203k costs) or the loan will be ineligible for
streamline 203k financing. No items listed on the appraisal can be left out of the
bids
Utilities must be on at the time of the appraisal inspection to confirm that all
mechanical systems are operational –if not, the repair of the mechanical systems
must be included in the 203k streamline improvements and require a 15%
contingency reserve
Occupancy
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Construction must BEGIN within 30 days of closing
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Borrower may not be DISPLACED for more than 30 days during the
Rehabilitation period
Examples of conditions that may displace a borrower for
more than 30 days….
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Properties that do not have running water (plumbing repairs that would
require the water to be shut off for long periods of time)
No electricity electrical repairs that would require the electricity to be shut
off for long periods of time.
Missing doors or windows
Repairs to the only bathroom in the property
Missing stove (no place to cook)
No heat source
Loan flow prior to submission to First
American Mortgage Trust
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Borrower makes application with broker and provides
the standard credit documentation (bank statements,
employment information)
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Lender/Broker pulls CAIVRS, LDP, and GSA (Any issues must be
resolved prior to continuing the process)
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Case # is ordered by the broker for 203k rehab loan (case
number must be assigned to lender)
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Appraisal is ordered and a copy of the contractor’s bid
and other pertinent information is provided to the AMC
The appraiser is to indicate the “as is” and “after
improved” value
Processor orders the credit report, VOD, VOE, VOR, and
prepares the loan for submission to FAMT
Loan flow after submission to First
American Mortgage Trust
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Loan is reviewed for completeness and compliance prior
to acceptance into underwriting
Loan is submitted for underwriting, provided it meets
minimum requirements, with complete credit and
property information (we can not underwrite the 203k loan on a
property to be determined)
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Loan is approved and conditions are cleared
Loan closes
Rehabilitation of the property begins within 30 days of
closing
Repairs are completed
Loan flow after submission to First
American Mortgage Trust
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Borrower orders inspection of the improvements, an FHA
inspector or consultant must do the inspection and
complete the draw request documentation and take
photos of all completed work
Final funds are disbursed to the homeowner/contractor
by FAMT upon approval of final inspection (payment will be
made in both the contractor and homeowner’s name)
203k Requirements for Submission
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Maximum Mortgage Worksheet
203k Appraisal
92700a 203k Borrower Acknowledgment - Signed and completed
Homeowner/Contractor agreement from each contractor
Contractor W-9
Completed and signed contractor bids, license, resume
and proof of bond and E & O Insurance
Rehabilitation loan agreement – Signed with loan documents
Consultant write up (if applicable)
NOTE: Must also meet all credit requirements & overlays
Signed Homeowner/Contractor
Agreement
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Need a separate Agreement for EACH Contractor
Must be fully executed, all parties (borrower and
contractor) must sign
Contractor Documentation
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Contractor signed and completed W9
Completed and signed contractor bids
License
Proof of bond and E & O Insurance
Three references
Resume
MUST PROVIDE FOR EACH CONTRACTOR
Contractor Requirements
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Borrower selects a contractor
Contractor provides proof of credentials (resume, contractors
license, insurance or bond, 3 references)
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Any electrical or plumbing repairs REQUIRE the
contractor to be licensed - no exceptions (if an unlicensed
general contractor is using licensed sub contractors for electrical or plumbing
repairs – the Sub Contractor is required to provide a valid license)
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Contractors must be able to provide proof of
qualifications - Resume and 3 references (not required for sub
contractors working under a general contractors license)
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All contractors must provide adequate insurance and/or
bond coverage (not required for sub contractors working under a general
contractors license)
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Contractors who have employees must provide proof of
workman’s comp insurance for all sub contractors doing
work on the job site
Contractor Requirements
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Contractors must sign a fully completed
Homeowner/Contractor agreement along with the
borrower. The rehab amount listed on the
Homeowner/Contractor agreement must exactly match
the total of all bids from that contractor -it must also
indicate the work will begin within 30 days of closing and
be completed by a date no longer than 6 months from
closing (best practice is to pick a date that is the full 6 months from the
estimated close date –indicating an earlier date may require the form to be reexecuted if there is a delay in closing)
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All contractors must complete and sign a W9 form and
include their SS# (for individuals) or an employer ID# (for
corporations) Contractors who are an LLC must indicate the
type of LLC on the W9
Contractor Bids
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Contractor provides a work estimate for the
repairs/improvements being done
The contractor’s bid or cost estimate must clearly state
the nature and type of all repairs and the cost itemization
for each repair, labor & materials must be broken out
The cost estimates must be reasonable based on the
nature of the repair and the size of the home.
First American Mortgage Trust will review the contractor’s
bids carefully to ensure that all required repairs are
included, and the costs estimates are reasonable, and
may require the contractor to provide additional cost
estimates if necessary
If a consultant is involved, contractor’s bid must match
consultant’s write up
Maximum Mortgage Worksheet
Values from Appraisal
Maximum Mortgage Worksheet
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All applicable fields must be completed
Contingency: Determined by FAMT
Inspection Fees: usually from $150 to $300 per draw
Title Update Fee: 1 @ $75
Supplemental Origination Fee
C-6: Borrower’s required investment, may exceed 3.5%
Maximum Mortgage Amount
Important New GFE Information
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Purchase should include Transfer Taxes in Block 8
Must complete the left hand column of the tradeoff
table
Tips
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The $35,000 Maximum Rehabilitation includes the cost of the repairs,
plus all fees
There is no minimum rehabilitation amount on the Streamline 203k
A 10%-15% contingency reserve will be required on all Streamline 203k
loans
Supplemental Origination Fee is based on the greater of 1.5% of the
rehab amount or $350, paid to FAMT
All Appraisal required repair items must be included in the 203k
rehabilitation loan and be within the $35,000 maximum – otherwise the
loan will not be eligible for the streamline 203k
No Appraisal required repair (subject to) items can be done outside of the
203k streamline loan
BORROWER AND CONTRACTOR
MUST BE AWARE…
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No funds will be released at closing
Rehabilitation MUST begin within 30 days of closing
(weather related delays considered case by case)
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The 203k streamline only has 2 draws
The final draw will be disbursed at completion of all work
The final draw will not be disbursed to any contractors
until ALL contractors have completed the work on the
property and a final inspection has been provided
Title must be clear before final payment is made
The most common causes for a delay in draw are:
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Photos missing of work referenced on the draw request
Missing or incomplete draw request
Post Closing Guidelines
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No funds will be released at closing
Work begins within 30 days
Borrower will receive instructions on how to request the
final disbursement once all the work is completed on the
property
Borrower notifies FAMT that all work is completed and
requests information of FHA inspector
Title update is ordered to determine no mechanics liens
Final draw is disbursed
Resources
For details on FAMT’s standard FHA guidelines, please go to
www.nxtloan.com or call Alicia Vagos-Resnick at
617-232-1225 x60
For area median home prices:
https://entp.hud.gov/idapp/html/hicostlook.cfm
For information on U.S. Department of Housing and Urban
Development, visit: https://www.hud.gov/
For information on FHA mortgage program questions, e-mail:
[email protected]