Monday, March 31, 2014

Lots of Streamlined k Loans Changing to Standard 203k Lately


Prior to 2005 all FHA 203k loans were Standard 203k's then along came the Streamlined k in an effort to save the consultant's fee primarily... I have to laugh because according to HUD the Streamlined k loan accounts for about 98% of the problem 203k loans. mmm...

We save our clients several times our fee typically when they call us out on a project. We just had one where there were several contractor bids in place prior to calling us out... we took a look at the bids, gave our analysis and found there was about $35,000 in construction cost that we just couldn't account for, mmm... about the cost of a 10% contingency reserve.

The contingency reserve is typically 10% but it is also typically exposed as it belongs to the borrower or home owner if it isn't used. In any case was our fee justified? Of course. Who wouldn't pay $1000 more to save $35,000?

Now lately we have taken over about six new projects that were all to be streamlined k loans that for one reason and another became full or standard 203ks. The typical reasons are as follows:

1) Bid exceeds $34,200... oh, you thought it couldn't exceed $35,000 but we know better. Once it trips through the check valve and becomes a full 203k there is no going back. You can't just go back and take a few hundred dollars out of the project cost to make it a streamline k again... nope, it doesn't work that way.
What a consultant might do in this case is anylize the work and if an EEM (Energy Efficient Mortgage) can be piggyback it can be added into the mix and you can exceed the maximum mortgage amount of $35,000 by up to $8,000 under the right circumstances and still keep it a Streamlined k loan.

2) Structural issues... very typical. No one provided the Structural Pest Control report to the lender till it was about to close and it had damage to the rim joist and support system under the bathroom where a leak existed for a few years and rotted out the sub structure. Oops... it is structural therefore it is is a Standard 203k loan

3) The main roof support had a 24' post that had no footing, it was sitting on the floor but didn't even extend to a footing at ground level. Oops... structural again.

Saturday, March 29, 2014

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Tuesday, March 25, 2014

What Does a 203k Consultant Do For a Fee?


Lately I'm wondering that myself.

Normally we provide the first "scope of work" then bid the job, and put it out to bid to contractors but lately we are being undermined by the home buyer. They think they will reinvent my job and do it their way... and it is costing them money.

Example 1

Buyer give us a budget then walked through the home together... they wanted this and that and it got to the point where we were well over their budget and they continued to add more and more work... Interesting, but "no cigar". While I had asked for a termite report they were dragging their feet on ordering one... why? It seems they wanted to see my bid first then they would order the termite report and possibly add things into the mix.

1) I had to do my write up...

2) Then go back and do it again with the termite report

3) Then go back and start cutting items to get it back down to their budget

So, now they want to go back to the seller and try to renegotiate the sales price. My fee is based on the amount of the construction - the highest amount it reaches and I price out before we start cutting it back...mmm. $800 + mileage for example - Inspection time is about 1.5-2 hours, in this case 2 hours. Time to prepare report 3-4 days then add the termite report an other day or so - 5 days typically. Now they want to go back to the seller and try to renegotiate the price, if there is no movement on the seller's part then the deal dies. Client is out $800 + mileage.

Example 2

Same home doing it a different way

Feasibility Analysis instead of a full report - Cost for this service is $350 no mileage charge. The purpose of a feasibility analysis is to provide a report. Inspection time 30 minutes, write the report and turn in the next day. Agent negotiates with seller with a tool in his/her hand that lends credence to the reason for doing so. If the deal dies here the client is out only $350, if they are responsive then we do the full inspection, sorry the $350 is a separate fee and doesn't apply to the full report.

Sellers arent' typically interested in a buyer's wish list... only in the FHA MPS (Minimum Property Standards) so they won't negotiate based on a new kitchen if the existing kitchen meets the MPS.

Saturday, March 22, 2014

What About Using A Fireplace As The Heating Source For An FHA Purchase


We did a log home this past week, waiting for the contractor's bid to come in. It isn't a log cabin as it is huge.

Can the fireplace be the only source of heat for my new home in the mountains?

The Guideline actually states the heating system must be capable of maintaining 70 degree's at 36" off the floor and be thermostatically controlled. Can you meet that criteria with a fireplace?

Maybe, if it is a gas fired fireplace, possibly free standing that you can adapt a thermostat to you might be in business. We have see this happen in a few homes over the years. The kitchen will likely put out heat into the home when cooking and washing as well but the gas fired fireplace with a thermostat should be sufficient in many cases.

Wednesday, March 19, 2014

The Benefits of Getting an FHA Mortgage

The Federal Housing Administration, also known as FHA, does not lend money directly to home buyers to purchase a home. Instead, approved lenders issue loans that are then insured by FHA. While there are many mortgage programs available, the benefits of getting an FHA loan are numerous.

1. FHA loans accept a low down payment of 3.5% so that low to middle income consumers can attain homeownership.

2. The minimum credit score to obtain an FHA mortgage through automated underwriting is 620, well below the required score for conventional loans. Any score below 620 requires manual underwriting to determine any compensating factors that will warrant an approval.

3. The minimum debt-to-income ratio through automated underwriting for an FHA loan is 43%, well below the DTI requirement for a conventional loan. For DTI above 43%, manual underwriting and compensating factors are required.

4. FHA offers the FHA 203(k) mortgage insurance program for homes that require maintenance and repair. Both the home and the rehabilitation expenses are rolled into the loan.

5. Home buyers can use non-occupying co-borrowers in order to qualify for an FHA mortgage.

6. FHA mortgages are assumable which allows a home buyer to purchase a home from an existing FHA mortgage holder. The home buyer can assume the FHA mortgage which may carry a very low FHA interest rate.

7. FHA offers a sweat equity mortgage where the home buyer agrees to perform work on the home. The labor and costs of materials is counted towards the required down payment of the loan.

8. FHA has mortgage programs available for condominiums, co-operatives and manufactured housing.

9. FHA loans are available as fixed rate mortgages or adjustable rate mortgages.

10. The FHA streamline refinance program allows existing FHA mortgage holders to move to a better mortgage without the need of documentation, a credit history or an appraisal. The homeowners record of mortgage payments is considered in lieu of traditional credit scores.

11. Up to 6% sellers concessions can be used towards the FHA closing costs.

12. Gifts and housing grants or loans from FHA approved sources are allowed to be used towards the down payment.

FHA loans do charge an upfront mortgage insurance premium and an annual mortgage insurance premium. However, when considering the pros and cons, there are many more benefits of getting an FHA mortgage available to consumers who may not otherwise be able to purchase a home.

Rosemary Rugnetta has been writing since 2010 for, a company that matches consumers with banks and lenders offering low mortgage rates. Previous to her writing career, Rosemary spent 13 years working hands-on in the mortgage industry as a mortgage loan analyst, mortgage processor, mortgage underwriter and property manager.
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Sunday, March 16, 2014

I Need A Swimming Pool At My New Home Is The FHA 203k Going To Help?


No, sorry to say, BUT WAIT, we have a program that will do that very thing. The FannieMae HomeStyle Renovation will allow you to install a brand new pool and do the other repairs you may want to do. You don't gain the 10% advantage on the appraisal but otherwise it works very much like the FHA 203k program.

So, if you need a swimming pool or need to complete a partially completed pool, the FannieMae product may fit your need better.

The FHA 203k can include repairs to an existing pool up to $1,500 but that would not do much as you can imagine.

Thursday, March 13, 2014

203K Streamline vs. Standard

We briefly discuss the two types of 203K loans, the streamline and the standard.

Monday, March 10, 2014

I'm Thinking About a Renovation Loan, What Is My First Step?


There seems to be a large range of answers when you ask this question. They are not all correct however.

A consultant's job is to protect the client by forearming them with the cost of their construction prior to going out to bid. Giving them an idea of the cost of their project prior to taking contractor bids. Also to provide a "scope of work" that will aid in the contractor's bidding apples to apples.

What I have seen recently and more often in recent months:

1) We get called out to see a house and find they already have three contractor bids... interesting but now our job becomes to see if the bid they want to use is "reasonable" for the work they are doing.

2) We get called out to make our inspection and even though they have a bid, the scope of work isn't sufficient. The contractor missed a few items that are mandatory for the program and this adds costs to the project that wasn't anticipated yet, MUST be added.

3) Upon our inspection we see that there is insufficient egress at the bedroom windows. The borrower didn't plan on doing windows but now there is a MUST DO of replacing some windows to meet current egress requirements. In this last case the height from the floor to the bottom of the window is 57" and the current requirement is 42" and in this particular city it will be part of the "required repairs".

Saturday, March 1, 2014

Financing For Mixed Use Properties - 203k

Mike Young talks about how a 203k mortgage is a great way to find financing for a mixed use property. See more at