Thursday, May 31, 2012

Advantages of the FHA 203K Renovation Loan


The FHA 203k Renovation Loan allows a borrower to roll repair/renovation costs into their FHA loan. The repairs/renovation can include optional renovations/upgrades such as: interior and/or exterior paint, new flooring, kitchen/bath remodel, Energy Efficient Improvements, landscaping, etc. The process in obtaining and utilizing an FHA 203k loan can be very simple when working with the right loan officer who understands the program, and offers advantages to everyone involved in the transaction.
Advantages to Borrower
- Repair/renovation costs are rolled into the loan
- Both major and minor items are allowed
- Only 3.5% down on any FHA loan with up to 6% closing cost credit from seller allowed
- Loan amount can go up to 110% of the "after-improved value" on the appraisal
- Optional renovations/upgrades are allowed
- Customer can use a 203k consultant to help deal with contractors
- Interest on the entire loan may be tax deductible.
- Allows buyer to purchase homes that may not qualify under standard FHA guidelines
Advantages to the Seller
- Allows the home to sell to more buyers if it wouldn't qualify for a standard FHA loan
- Repairs being rolled into the loan and not requiring seller to make repairs out of pocket prior to close.
- Not having to go off and on the market due to not passing an FHA appraisal
Advantages to the Contractor
- Up to 30% available up front to purchase permits and materials
- Not having to worry about getting paid once the job is done.

Article Source: http://EzineArticles.com/4872061

Monday, May 28, 2012

Streamlined k

Many lenders are now treating every 203k as a "STREAMLINED k" initially. In most cases it will remain a Streamlined "k"

Procedure: The contractor goes out to see the property first and provides a bid on the work they decide needs to be completed. Whenever the cost of repairs exceeds $15,000 a consultant, plan reviewer, or appraiser MUST be brought in to do a final review once all the work has been completed.

Most every lender calls for a home inspection on the Streamlined "k" projects to get a feel for the condition of the structure, they will also likely call for a pest control report. Learn to read more than just section 1 and section 2 items as the written paragraphs are filled with information that may affect your project compliance. They sometimes call for a structural engineer and if that happens you are no longer a Streamlined "k", you may very well be a Full 203k at that point depending on what the engineer has to say.

The biggest problem I see with the streamlined k if you don't use a consultant to do the home inspection is that the home inspector or contractor misses something that the appraiser catches on the appraisal inspection. That is deadly to the process. The guideline clearly states that if the appraiser finds anything that should have been called by the contractor or home inspector this project is not forced to a Full 203k and now you call a 203k consultant out to the project and this could delay your closing if they can't get our right away. They have to complete a write up and that typically results in a 21-25 page report.

If we have been called in for a "plan review" to be sure there isn't anything else that needs to be added to the scope of work. We will create a draw request, and other necessary contracts and turns them in to the lender. This is an option not a mandatory requirement.

The loan closes and the work is completed. The nature of a Streamlined "k" allows the contractor two draws if they choose to exercise that feature they can get from 35-50% of the contract amount at the start of the project, and one draw upon completion when the Consultant does a final inspection (if over $15,000 in construction cost) and turns in a "compliance inspection report"

For more information please contact:
Mike Young
707.812.7668

Friday, May 25, 2012

What Are FHA Home Loans?


FHA home loans are mortgages for a primary residence insured by the Federal Housing Administration. Investors cannot purchase or refinance with FHA home loans. There are different types of FHA home loans included FHA insured loans, FHA loans with a repair escrow and FHA 203k loans.

FHA insurable loans means that a property meets the Federal Housing Administration's minimum property standards. These minimum standards include working heating, plumbing, electrical, roof and mechanical systems. Properties purchased with a FHA insured loan may still need cosmetic improvement, but the mechanical systems must be in working order.

FHA insured with a repair escrow home loans are used to purchase HUD homes listed with a repair escrow of less than $5,000. The repairs a home buyer may borrow money to fix are minimum property standard repair items such as mechanical systems. If the repairs exceed $5,000, a FHA 203k loan must be used to acquire or refinance a home.

FHA 203k loans are rehab loans used for home improvement. There is also a FHA Streamlined 203k for limited improvements of up to an additional $35,000 to improve or update a home. The repair money is added to the purchase amount (minus the down payment) for payment on one mortgage. Properties must have an appraised value to include the cost of improvements. Purchasing a home for $100,000 and borrowing $25,000 for improvements mean the home must appraise for at least $125,000. Repairs are completed after closing and paid from an escrow account with rehabilitation funds to include a minimum 10% contingency fund.

With a FHA Streamline 203k there are specific repairs that are allowed or not allowed, in order to qualify. Properties in need of major renovation or that requires the repair of structural damage are ineligible for a Streamline 203k. Other restrictions apply.

A FHA 203k loan is more versatile rehab loan and eligible improvements include new appliances, painting, additions like adding a second floor, finishing the basement, and new granite countertops just to name a few. You can also set up a mortgage payment reserve of up to six months of mortgage payments so that you don't face the burden of two mortgages during the renovation period.

FHA home loans are used to purchase and refinance homes including HUD homes for sale across the country. First time buyers can purchase and renovate a dream home and find great value in HUD owned properties.



Article Source: http://EzineArticles.com/4826775

Tuesday, May 22, 2012

How to Get FHA 203K Rehabilitation Loans to Buy That Fixer Upper You Keep Driving By!


Some might say, "Why buy a fixer upper with a rehab loan?"

1) Have you found a beautiful home in a great neighborhood, however, you did not have the needed funds to repair it?

2) It gives you the chance to find a great property when inventory levels are tight.

3) You now have the chance to work on a rehab project.

4) Investors/Contractors finally have a flexible and workable program for them to purchase now to save a lot of cash being tied up for the long run.

5) Low interest rates for construction type financing.

6) Most of the homes for sale are distressed and this will allow financing.

FHA is the ticket to housing success either way you look at it today! The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD), administers various single family mortgage insurance programs. These programs operate through FHA-approved lending institutions which submit applications to have the property appraised and have the buyer's credit approved. These lenders fund the loans which the Department insures. FHA and HUD do not make direct loans to help people buy homes. It allows the money to be insured so that the Lender can now sell it to the secondary mortgage market which is FNMA and other quasi-government entities.

Lenders have successfully used the FHA 203k loan program in partnership with state and local housing agencies and nonprofit organizations to rehabilitate properties. These lenders, along with Federal, State and Local government agencies, have found ways to combine the FHA 203k loan with other financial resources, such as HUD's HOME, HOPE, and Community Development Block Grant Programs, to assist borrowers. If you really want to see other means of using this program, remember that several well known state housing finance agencies have designed programs tailored specifically for use with FHA 203k loans. Buyer's will also be able to draw on the expertise of local housing agencies and nonprofit organizations to help manage the rehabilitation processing.

Here's a quick rundown of how FHA 203K loan can be used:

This program can be used to accomplish rehabilitation and/or improvement of an existing one-to-four unit dwelling in one of three ways:

- To purchase a dwelling and the land on which the dwelling is located and rehabilitate it.
- To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.
- To refinance existing indebtedness and rehabilitate a dwelling;

To purchase a dwelling and the land on which the dwelling is located and rehabilitate it, and to refinance existing indebtedness and rehabilitate such a dwelling, the mortgage must be a first lien on the property and the loan proceeds (other than rehabilitation funds) must be available before the rehabilitation begins.


Article Source: http://EzineArticles.com/2334006

Saturday, May 19, 2012

203K Loans - The Quicker Fixer Upper!


203K loans ROCK! If Fannie Mae and Freddie Mac could do what FHA is doing, and has been doing for many years, then maybe they wouldn't be in so much trouble! So many of the homes on the market right now that are foreclosed or a short-sale need lots of fixing up. Okay, well maybe not a LOT, but they at least need some new carpet, a fresh coat of paint, and some appliances in the kitchen! Welcome the 203K Home Improvement Loan from FHA.

Some may think this is a new program, but in fact it has been around for many years. It lost it's popularity for some time, especially during the housing boom. Many lenders are finally bringing it back...even though it never went away.

There are two kinds of 203K loans: the regular and the streamline. The streamline is the most common right now. It allows up to $35 thousand in extra funds after closing to fix up the home that you are buying. There are only a few conditions: The home must appraise in the "after improved value" and the funds cannot be used to make structural fixes or changes. The funds can be used for items like new carpet, new paint, new appliances, new windows, fix/install HVAC, fix/install lighting, and so much more!

So now when you are looking at a house that has "good bones," picture it with all the fixings. The loan only takes a few extra steps, but well worth the extra effort to be able to make your new house your new home!


Article Source: http://EzineArticles.com/2867716

Wednesday, May 16, 2012

Does That Foreclosure Need A Little TLC?


All across the US we have foreclosures sitting and waiting for an new owner. Some of the properties are in fine condition, but many are dilapidated and in disrepair. They sit and sit because traditional lenders will not lend on properties in disrepair. However, there is a solution to this and it can provide you and your family with a hefty future profit to boot.

FHA 203K and Fannie Mae Renovation Loans have been around for a while, but with the glut of new construction that occurred between 2001 and 2006 there wasn't much need for them. Not so anymore! All across the US foreclosures sit empty and unwanted, available at drastically reduced prices waiting for that buyer with enough gumption to take on the task of renovating a home. Every month I see buyers willing to take that plunge who end up sitting on 20-50% equity post close because they did.

How do Renovation Loans work? It's simpler than you think!

FHA 203K & 203K Streamline -- This loan works almost no differently than a traditional FHA loan. The qualification standards are that of regular FHA loans and the rates aren't that much different either. Here's the process..

1.) Buyer contacts an FHA approved lender for pre-approval & info on the proper format for the contract.

2.) Buyer locates a property.

3.) Buyer submits the sales contract and agrees to a price.

4.) Buyer forwards all credit docs to lender for credit approval.

5.) Buyer submits work write up to lender and appraisal is ordered.

6.) Buyer obtains contractor bids and hires contractor.

7.) Fully processed credit package is submitted to the lender and loan is approved.

8.) Loan closes for the purchase money and repair money is escrowed.

9.) 50% of the escrowed funds are released post closing to the contractor.

10.) Contractor completes work and remaining 50% of funds are released once the final inspection is completed

As you can see the process is pretty straightforward. The only difference between the 203K Streamline and the 203K full version is that a 203K Consultant is required for the full version. The scope and dollar amount of the repair determines if you will use a 203K or a 203K Streamline. The only caveat in the way we run the process is that we strongly recommend a consultant for almost all the 203K's we do. It seems to simply the process and it protects the buyer from unscrupulous contractors (or unscrupulous lenders).


Article Source: http://EzineArticles.com/1179162

Sunday, May 13, 2012

Have Bad Credit? How to Use FHA 203k to Purchase Distressed Real Estate


A hot topic is distressed real estate. With all of the foreclosures and REO (real estate owned) properties on the market for sale, there are good deals to be had. The FHA 203k loan, sometimes called energy efficient mortgage or EEM for short, is a program that is available to help you purchase a distressed property and rehabilitate with energy-efficient "green" improvements.

It's no secret that many of the foreclosures or REO properties have deferred maintenance. So it's possible the electrical system does not work as it should, the hot water heater could leak, the air conditioner may need to be serviced or replaced with an energy efficient unit. Maybe the paint is dull and needs to be freshened up. All of these updates or repairs (and many more!) can be added into the cost of your mortgage, making your home more energy efficient and helping you to reduce your carbon footprint. Although there are tight lending guidelines that banks and lenders are required to follow, luckily enough there are still funds available to lend and bring these distressed properties back up to modern living standards with the FHA 203k loan. Even if you have less than perfect credit, FHA is on your side to help make your home ownership dream come true!

FHA loans are flexible when it comes to bad credit. If you have premature credit, FHA can approve a loan based on a single trade line and a single credit score, whereas conventional lending requires no less than two of the three credit scores. FHA is also great for first time home buyers who may have limited funds in the bank. The FHA 203k program allows buyers to put as little as 3.5 percent as a down payment (even though it's a good idea to put down more). Another bonus of FHA is that you may still qualify whether or not you can demonstrate consistent work history over the previous two consecutive years. FHA loans are really forgiving.

Even prospective borrowers with more seriously damaged credit still have hope. Those with judgments, liens, collections, foreclosures or bankruptcies, who are interested in taking advantage of the distressed real estate market may still reach home ownership dreams. Here are some guidelines to follow:

--Collections - Not all collection accounts will be required to be paid prior to closing. Each collection trade line will be reviewed on a case-by-case base. If the collection still shows on your credit report, satisfaction might be requested in order to remove the negative trade lines prior to closing.

--Bankruptcy - Chapter 7 discharge of bankruptcy should be two of more years from loan application and show reestablished credit on all recent trade lines. Chapter 13 must show at least 1 year of payments to the courts after the restructure. No late payments are allowed since the bankruptcy started.

--Foreclosure - Foreclosures will not disqualify you from obtaining a FHA loan. However, buyers must typically wait a minimum of three years from the foreclosure date prior to purchasing (possibly less if you have extenuating circumstances and have established good credit).

--Liens - Federal liens are not eligible, such as a tax lien. Liens must be paid off or at minimum, a repayment plan must be established. Federal loans, such as student loans cannot be delinquent and must be brought current prior to application.

So, if you have been daydreaming about taking advantage of a good deal in the real estate market, chances are that you might be in a better position than you think. You don't need to be a bench warmer. You can play too!


Article Source: http://EzineArticles.com/6637144

Thursday, May 10, 2012

Energy Efficient Mortgage and the 203k


What is all the whoopla about the EEM?

The Energy Efficient Mortgage (EEM) was set up in 1993 to Green UP the nation's housing stock. We must be more responsible for conserving our natural resources. Being more energy conscious is a MUST. Everyone wants to upgrade their windows to "dual pane" windows... they look nice and modernize the LOOK of the home but are they an effective means of spending your money on a rehab project? NO is the short answer. In most cases they make the home more aesthetically appealing and may make it sell faster but for being a prudent way to spend your money for a ROI (return on investment) it's just NOT there.

How should you go about KNOWING where to put your money for the PAYBACK you are really looking for? That is easy...  get a HERS inspection. HERS = Home Energy Rating System. This is a comprehensive report that assesses the energy usage and loss and will provide information that will show you exactly what you should spend your money on to save you the most money in the shortest possible time and really make a difference in your energy usage and the money you pay for that energy. In most cases under floor and attic insulation are much more effective than dual pane windows. Every home inspection course I've ever taken has indicated that dual pane windows are one of the worst investments with regards to PAYBACK that you can make yet you might consider sealed triple-pane windows as an alternative. Now this is not to say you shouldn't use dual pane windows if you have an extensive rehab project. Just realize that it is the perception rather than the energy efficiency that you are using them.

Piggyback the EEM on top of the 203k. Instead of just "rehabbing a home" get a HERS report and be sure to rehab your home in the most efficient manner to maximize your savings. Wow, that is profound.

Monday, May 7, 2012

203k FHA Mortgage, Everything You Need To Know


General Idea:

The FHA insurance program of Section 203 (k) allows homebuyers and homeowners to finance both the purchase (or refinance) a home and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of existing housing.

Purpose of 203(k):

The 203k program is one of many programs offered by the FHA, which insures home loans, thus encourages lenders to provide mortgage credit to borrowers that would not otherwise qualify for loans conventional economic terms (such as home buyers first time) and residents of depressed areas (to where it can be difficult to get a mortgage).

The 203k mortgage satisfies a unique and important need for homebuyers in another way as well. When a buyer wants to buy a home that needs repair or modernization, the buyer generally must follow a rigorous and costly process, first obtaining financing to obtain (purchase) the home, and then getting additional financing for the repair work finally find a permanent mortgage when work is completed to pay for temporary loans. Generally, the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amount of months to pay the loan back. However, the 203k program offers a win win solution for both the lending institution and the potential borrower, ensuring a single loan at a fixed (or adjustable) interest rate in the long term to finance both the acquisition and rehabilitation of a property. The 203k insured loans save borrower's time and money, and also protects lenders, allowing them to have the loan insured even before the condition and value of the property may offer adequate security. In 1996 alone, FHA settled insurance commitments for 17,000 homes; the estimated number of homes estimated to be insured under the 203k FHA program for the year of 1997 is 19,000, and 15,000 for 1998. For housing repair activities that do not require the purchase or refinancing of the property, borrowers may also consider HUD program.

Type of Assistance:

The program of Section 203 (k) insures mortgages covering the purchase or refinancing and rehabilitation of housing, with one or more year of construction. A portion of the loan is used to pay the seller, or if a refinance, to pay the mortgage. The remaining funds are placed in an account in custody and released when the rehabilitation work has been completed. The cost of repair must exceed $ 5,000, but the total value of the property must still remain within the FHA mortgage limit for that zone. The property value is determined by (1) the value of the property before rehabilitation plus the cost of rehabilitation, (or 2) 110 percent of the appraised value of the property after rehabilitation, whichever is less. The property value is determined by (1) the appraised value prior to repairs plus the cost of rehabilitation, (or 2) 110 percent of the appraised value of the property after rehabilitation, whichever is less.

Many of the regulations and restrictions that make a commodity FHA mortgage insurance for single family dwelling (Section 203b, and relatively suitable for low-income borrowers apply here. But, some lenders may charge additional fees, such as supplemental origination fee, fees to cover the preparation of architectural documents and review of the repair plan, as well as higher appraisal fees. However, unlike other FHA insured mortgages for houses, borrowers under the 203k program do not pay a mortgage advance premium.

Eligible Borrowers:

FHA approved lenders, which include many banks, savings and loan associations and mortgage companies can make loans covered by insurance 203k and 203b.

Eligible Customers:

Everyone who can fit approval status for a regular FHA insured mortgage are eligible to apply. Cooperative units are not eligible, individual condominium units may be insured if located in projects approved by the FHA or the Department of Veterans Affairs, or meet certain criteria of Fannie Mae.

Eligible Actions:

The limit of rehabilitation covered by insurance, Section 203 (k) can range from relatively minor or surface reconstruction (as long as cost are over $ 5000) to virtually a total reconstruction: a home that has been demolished or will be flattened as part of rehabilitation is eligible, for example, provided that existing systems of the foundations remain in place. Insured loans under the program 203k can finance the rehabilitation of the residential part of a property, which also has non-residential use; also cover the refurbishment of a property of any size to a structure of one to four units.

The types of improvements that borrowers may make when using the program funding under Section 203 (k) include:

• Reconstruction and structural improvements.

• Changes for improved functions and modernization.

• Elimination of hazards to health and safety.

• Changes to improve appearance and elimination of obsolescence.

• Reconditioning or replacing plumbing, installation of well and / or septic system.

• Additions or replacement of roofs, gutters, and drains.

• Additions or replacement of floors and / or treatment of floors.

• Major landscape work and site improvements.

• Access improvements for people with disabilities.

• Improvements to energy conservation.

HUD requires that all properties financed under this program meet certain basic standards and structural efficiency. However, are not eligible for a 203k loan, luxurious amenities, and improvements that do not form a permanent part of a property.


Article Source: http://EzineArticles.com/5660824

Friday, May 4, 2012

Buy That House - The Fix-up Loan

Have you been looking for a house for some time now, but you have not found the one that is just right for you?

It could be for any number of reasons that the houses that you are seeing do not meet your requirements.

The layout is all wrong; The kitchen cabinets and counters are old and warped; The baths were in style back in 1945; You would be embarrassed to bring your friends and family to the place; The windows are of the old and energy wasting single pane variety; The furnace looks like the space capsule; The hardwood floors would be nice if they were sanded and buffed; The walls need to be painted after you scrub off years worth of cigarette deposits; The basement is dark, damp, and downright spooky;... And, yes, unfortunately, the list can go on and on. Certainly, you do not want to buy someone else's problems related to their lack of maintenance or a house styled to their preferences in design. Who has the time or the money to deal with these issues?

But wait. There may be a solution. You may be able to get a house, which meets your wants, needs, and desires. You may be able to have a house that is within your budget. You may be able to overcome the problems, which were created by these neglectful homeowners.

Indeed, you may be able to meet your objectives and at the same time actually purchase one of these homes, which have just left you disappointed and wanting for more.

The solution: The FHA 203K loan. Basically, this loan will allow you to purchase one of these less than desirable homes, fix it up, and still stay within the values for homes in that particular neighborhood within which you are looking.

Here are some general statements about using this type of loan:

First, if you purchase one of these homes, then you can expect the price to be lower, than if the house were in good condition. The appraiser will definitely consider the value to be lower than the better houses. So a house that has the potential to be worth $200,000, for example, could be purchased for let's say $100,000 or a number, which reflects the amount of work, which is needed. Second, the work which needs to be done, in order to actually qualify for an FHA loan, plus the work, which you would like to have done to make the home your own is determined. Let us say for our example that the cost of this work would be $75,000. Notice that the total of the purchase price and the fix up cost are $175,000 rather than $200,000. Typically, one can expect to pay less than the nice house price, because there are very few buyers if any who will want to take on this endeavor without some profit or equity involved. However, even if there were no equity at the completion of the project, remember that your other objective was to have a house, which meets your requirements. The basic steps to purchase a home by this method are as follows:

· Work with your lender to determine the amount of house that you can afford and payments, which would be in your comfort range. With this information, you can determine the price range for homes that you can afford;

· Work with your Real Estate Agent to find a property. Even if you are using a FHA 203K loan, you will still want to look in the neighborhood of your choice, look for houses, which have sufficient living area for your needs, and are within the cost and value parameters, which were established with you and your lender. It is important that your Real Estate Agent have some knowledge, although they do not have to be an expert, of the cost of various home improvement projects;

· When you find a house that will meet your requirements, prepare an offer to purchase. The offer must state that you will be using an FHA 203K loan. There should be a feasibility contingency which is to determine the full scope and cost of the repairs;

· Once, you have a ratified contract, you will start your feasibility study. This step may require several experts. These experts will be perform the following activities:

- 203K HUD Consultant: Walk-through with a visual inspection to determine if the property has any chance of meeting the cost requirements. If the numbers do not work, then the contract should be terminated at that point.

- Home Inspector: An inspector will look at things in more detail than, the 203K Consultant. For instance, the inspector will pull the electric panel and examine for any not to code, unsafe, or outdated wiring. If the inspection uncovers problems, which were beyond your original repair estimates, then you may need to recalculate to determine if the numbers can still be managed. If not, then the contract should be terminated;

- 203K HUD Consultant / General Contractor: Return to the property for a more detailed examination. At this time, he will prepare a report, which itemizes, with costs, those things, which will be done. It may be worthwhile to bring your Contractor with you for this visit. It is your Contractor who will need to agree to the pricing that goes onto the 203K HUD Consultant's report;

- FHA Appraiser: The appraiser will look at value in two ways, one the value of the property in its current condition, and two, the value of the property in its fixed up condition. Also, the appraiser will make certain that the report from the 203K HUD Consultant includes conditions related to Minimum Property Condition Standards;

- Termite Inspector: FHA will probably require a termite certification, but the termite inspection is not necessarily needed upfront. Between the FHA 203K HUD consultant and the Home Inspector, you should get a good idea as to whether this should be done upfront or not.

- Lender: The Lender will review the report from the FHA 203K HUD Consultant to assure that all of the numbers still work. If so they will process the paperwork.

· If everything is still within budget after all of the inspections and appraisals, then the deal will go to settlement and the Buyer will take over ownership of the property. Notice that it is still the house, which needs work.

· Per the terms of the 203K Loan, the work must be completed within 6 months and should be overseen by a General Contractor. Also, it is preferable that any work that is to be done be by licensed contractors, however, it is possible for the Buyer to perform some work such as painting, although it is under the eye of the General Contractor.

· The General Contractor should understand that he does not get paid upfront. He gets paid in phases after various stages of the work are completed. As each stage is completed, The FHA 203K HUD Consultant and the Buyer examine it and then sign off if it is okay before the General Contractor gets his money.

The Buyer cannot move into the house until the house meets occupancy requirements. It is possible that, depending upon the improvements, the Buyer can move in from the start or possibly not until the project is complete.

The loan amount is based upon the purchase price plus the cost of the estimated repair costs, as prepared by the FHA 203K HUD Consultant. If the actual cost is less than estimated, then it increases the equity, but does not reduce the payment.

Since some degrees of repair will preclude the Buyer from moving in to the property right away, the FHA 203K Loan has a provision, whereby up to 6 months of payments can be financed right into the loan. With this feature, a Buyer is not paying for rent and a mortgage payment at the same time.

This is the basic procedure for a FHA 203K Loan. Of course, there are other details and the procedure could deviate on any given deal.

That's it. You can get the home of your dreams and in your price range and all from someone else's mess.



Article Source: http://EzineArticles.com/1940361

Tuesday, May 1, 2012

FHA 203k Closing Cost


What Homebuyers And Homeowners Should Know About The FHA 203k Closing Cost For Renovation.
Like all other real estate loans, the FHA 203K has the same typical closing costs such as Title, Lender, Attorney, Escrow and Recording Fees to name a few, but unlike the others there are also additional calculations involved that you'll need to consider when financing a 203K Loan. The first thing you'll need to do when figuring out 203K closing costs is to list and estimate the cost of all the repairs & rehab that you are planning for the property. This is essential because the 203k closing costs will be calculated based on this amount. The following is a list and explanation of costs involved when financing a 203K Loan.
Standard Fees:
FHA 203k Contingency Reserve
The first step is figuring out the FHA 203k contingency reserve on the repair & rehab costs...The contingency reserve are for overruns and un-expected expenses that can arise during the project. Now, if you ever had to hang up a picture on a wall and had to make two holes to place one nail then you'll understand why this reserve is needed. The amount for this reserve is 10% based off of the repair & rehab amount but can go as high as 20% depending on the project and property. The amount of the reserve is actually not a true cost because if you were to stay on budget the contingency reserve left over can be used to pay down the original loan or used for any extra work if approved.
FHA 203k Inspections & Title Updates
Inspections and title updates are completed to make sure the work is done and no additional liens are put on the property. Inspections are done by HUD Cost Consultants or Appraisers depending on whether it's a Standard (Full) FHA 203k or a Streamline 203k loan. Costs can vary on both of these fees. An average estimated amount to use would be $150 to $250 for Inspections and $50 for Title Updates.
Mortgage Payments Financed
If you have an FHA 203k loan that is the Standard version (full) rather than a Streamline then you can finance up to 6 months of payments. Now as appealing as living with dust and loud noises while cooking on a Bunsen burner might be to some, it's good to know the rest of you have the choice to have all the repairs and rehab done before moving in. Of course there are economic factors that play a role as well. Adding more money to your new loan may sound financially un-feasible but the flip side would be the cost of your comfort or the extra work time needed to complete work phases when a property isn't vacant which in return would have a cost.
Architectural and Engineering Fees
If you're doing an FHA 203k Streamline these fees would most likely not apply. But for projects that do need an architect or an engineer this cost can be financed into the 203k loan. Keep in mind that this fee depends on the scope of the Architect/Engineer services and is associated with the type of project your doing rather than with the 203k loan.
Consultant Fees
Standard (Full) 203k loans need an FHA cost consultant and are optional on 203k Streamlines. Their role in short is to review the work estimates so that they can do the work write ups, inspect the completed work and fill out the paperwork needed to get the checks released. Their fees range from $400 to $1000 and higher when the repair or rehab amounts are over $100k and when there is more than one unit. My advice is to talk to your consultant so you know what to expect from them and what the cost will be.
Permits
The repairs or rehab for your project may require permits from local city or county agencies. When permits are required the cost can be added into your 203k loan amount as well. Your contractor should be aware of any permits needed and should let you know when giving you an estimate.
Supplemental Origination Fees for the Standard and Streamline 203k
On all FHA loans an origination fee is typical. An origination fee is a percentage of the loan amount. For instance a 1% origination on a loan amount of $100k would be $1,000. The difference with an FHA 203k loan is that a supplemental origination fee is charged on the repair & rehab portion. That amount is 1.5% of the repair or rehab amount or $350.00 whichever is more. Consider this cost as an administration fee for setting up the escrow account that will handle and disburse the checks as needed.
Discount Points on Repair Cost and Fees
Interest rates at times will come at a price on what is called discount points. (Discount points like the origination fee is a percentage of the loan amount.) Same example 1% discount on a loan amount of $100k would be $1,000. So, sometimes to get a certain interest rate discount points are charged. Those same discount points would also apply to the repair and rehab portion as well.
Well there it is...the costs associated with the FHA 203k renovation loan. Now remember, these costs only apply to the repair and rehab amount and as mentioned earlier there would still be the standard closing costs such as Title, Lender, Attorney, Escrow and Recording Fees but these costs apply to all Real Estate Loans.

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