Sunday, June 29, 2014

Example of FHA 203k Feasibility Analysis Report Uses


Feasibility analysis are quite often misunderstood, if you want to know more about what that is and its uses click here Feasibility Analysis.

Today we are going to talk about a couple of examples where the feasibility analysis saved the day for a couple of our clients.

Example 1 - Two elderly ladies just lost their sister and inherited a nice home in Walnut Creek CA. Nice location, but this home had no updating in more than fifty years. What is it worth?

You are the Realtor and you can pull a CMA to determine the value compared to other homes in the neighborhood. But how about taking into account the sub standard condition of the home? One thing we all have happen is the seller sometimes has an unrealistic idea of the value of their property.

To determine that we need to know what will it cost to bring it up to current livability standards or Minimum Property Standards (MPS). It would not be fair for the buyer to expect more from a seller.

By creating the "feasibility analysis" the seller now is fully aware of the value of the home and they can't be "low-balled" by a slick sales person or buyer into thinking their property is worth less.

Remember it isn't for the seller to update the property for the buyer... but to bring it to the FHA MPS. While a potential buyer might likely want to update the kitchen and bathrooms, if they are functional and in working order with no health or safety issues it is not required to "repair or replace them".

Example 2 - Bank owned property with major structural issues. No offer while on the market for 18 months. We were hired to do a "feasibility analysis".

We were asked to take a look via the feasibility analysis. Please provide us with all the information you already know about the property when asking for this report so it can be as accurate as possible for you.

In this case "a major lender" failed to share relevant information about the listing. In spite of it we came up with our report. The REO manager commented that "The cost of the feasibility analysis was much less expensive than the engineer they had out and found the same issues and cost analysis but had much more information about the other issues and updating needed on the home NOT just the engineering aspects which the engineer had ignored".

What were they thinking? Who knows? In any case they put our report in the home, received their first offer in 18 months just three days later and sold the home because everyone, buyer and seller, now knew just what it would cost to make the necessary and reasonable repairs.

Thursday, June 26, 2014

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.

Alberts is an enthusiastic and adventurous writer with experience in home design and internet business. To read more tips and tricks like the ones in this article, please click here: FHA vs Conventional Loan [] and Negative Amortization []
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Monday, June 23, 2014

What are Minimum Property Standards (MPS)?


What are Minimum Property Standards (MPS)?

In a nut shell these are typically health and safety issues. These are considered minimum property standards for anyone living in a home in the USA.

These can be simple things like broken windows, obvious trip hazards, holes in the floor, and more complex things like obvious dry rot, rodent damage, support posts that are failing, and foundation issues.

If you can see dry rot then order a termite or "structural pest report" as the appraiser is obligated to call for one if they see it for a 203b or a 203k loan. The way around this if it is a 203k loan is to have the consultant call for those items to be corrected... this way the appraiser sees it fixed rather than damage.

Why are they important to you as a Realtor?

Simply because your appraiser will use them, your 203k consultant will use them, and you should know them so you have a smoother closing.

Knowing these thing in advance can keep your closing on track. Ignore them and find yourself having to get a termite report, that could be death on a good many sales. If one is called for you must now deal with all of the issues in that report.

What happens if we have a streamlined k loan and the appraiser calls for a termite report?

Then your loan likely has just become a full or Standard 203k loan. Look at the time you wasted and now your payday maybe pushed back or eliminated all together with this new stipulation. Once the termite report is brought into the equation you must cure it's findings.

What can you do to help prevent these last minute surprises?

Make all of your renovation loans Standard 203k loans and stay away from the streamlined k which accounts for 98% of the problem 203k loans in the USA. Welcome to our newest affiliate in Brandan MS, Charlie Sessums, home inspector and FHA 203k consultant.

Friday, June 20, 2014

Renovation Loans: FHA 203(K), Fannie's Homestyle Renovation Mortgage and Conventional Rehab Loans

With a plethora of homes still sold as short sales and foreclosures, renovation loans are increasingly popular with homebuyers. Many family dwellings are being redesigned for additional family members these days. As rental housing costs rise, families decide to live together and save money. There are multiple situations that could apply: boomerang children, aging parents, or divorced with grandchildren - the family home is in need of expansion or renovation to ensure everyone fits comfortably.

Rehab loans such as the FHA 203(k) program or the Fannie Mae HomeStyle Renovation Mortgage are the perfect answer for some first time homebuyers, too. If the borrower qualifies for the 203(k) program, the buyer can borrow based on what the house is expected to be worth after the home rehab is completed.

I will summarize some common home renovation loans available to consumers and some of the requirements for each. Interest rates are subject to vary for each loan detailed, so be sure to check with a qualified loan officer first, before embarking on a home purchase or refinance.

Renovation loans are effective for consumers and banks and mortgage companies because they offer the necessary resources to remove foreclosures from the market and redo them. Plus, these loans provide first time homebuyers, (who have historically been 30-40% of a healthy real estate market), the opportunity to renovate before moving in.

FHA 203(k) Rehab Loan

FHA insured home renovation loans are more popular now then ever before, because resources for renovations are greatly needed. A streamline 203(k) loan includes less than $35,000 in renovations. For homebuyers needing over $35,000 in rehab work, a full 203(k) is necessary.

To qualify for the FHA 203(k) loan, the borrower must agree to hire a real estate consultant to assess the construction plan and sign off on each phase. The project must be completed in six months, with five draws (or payments to contractors) allowed. A list of approved property renovations is included with the loan. Many borrowers feel this loan is too complicated - or the list of renovations too restricted for their projects. But the interest rate on FHA loans is low enough to make it worthwhile.

If interested in a FHA 203 (k) loan, find a mortgage broker with experience in this type of rehab loan to complete the transaction. FHA loans are typically available for owner occupied residences. These loans are government insured and have a more expensive mortgage insurance rate (PMI), with a 1.75% up front payment and a monthly payment of 1.35%, compared to other loan products. Jeff Hurd, Mortgage Banker with Fidelity Bank Mortgage in Newport News, Virginia, said "With conventional rehab loans, the consumer has the option to pay all of the PMI up front, monthly or have the lender pay it (LPMI)."

Fannie Mae's HomeStyle Renovation Mortgage

When comparing the Fannie Mae HomeStyle loan to the 203 (k), Hurd says the HomeStyle loan product offers more flexibility with repairs and renovations and in the types of homes purchased. The Fannie Mae HomeStyle Loan offers a wider scope of renovation projects, and can be utilized on a second home and an investment property as well as a primary residence."

Other advantages of the Fannie Mae HomeStyle Renovation Mortgage include less money down then conventional rehab loans (a minimum of 5%) and less cost for the mortgage insurance. Monthly mortgage insurance payments are reduced with higher down payments and/or a good credit score above 680. The conventional Homestyle will typically present a PMI pricing advantage over FHA. With Fannie Mae's HomeStyle Renovation Mortgage, home purchases and improvements can be combined into one loan for virtually any property - and it doesn't have to be Fannie Mae owned. The repairs or renovations must be permanently affixed to the structure and add value to the property. Lenders have to be pre-approved to sell this product, so make certain to ask the loan officer if he or she is participating in this home finance program.

Rehab Loans - the Time is Now

Now is a great time to purchase a home with a rehab loan. There are so many houses that may be in distress. Whether the house is bank owned, or it's a foreclosure or short sale, or a homeowner is upside down and doesn't want to put the money into a property to fix it up - there are homes to choose from. Right now homebuyers have a good opportunity to buy a house for a great price and renovate it with the financing. These rehab loan products make it easier to buy a house and complete home rehab projects at the same time, before the move in date. Chances are excellent that a consumer can purchase a property, make the necessary renovations and walk out of the transaction with equity in the home. Hurd says, "There is a market of savvy consumers ready to acquire these houses now."

The housing market has changed tremendously over the last five to seven years. Because there are still vacant properties available in this real estate market, rehab loans are a means of obtaining these properties in need of repair. Homebuyers now can expand their choices of homes to live in because they can remodel to suit their needs. Real estate investors can purchase, rehab and rent or resell the property.

Rehab loans are an excellent stimulus for the real estate market and a great way for homebuyers to purchase what they want without having to worry about liquidating cash investments or having tens of thousands of dollars in addition to a mortgage to fund home renovations.

Elaine VonCannon is an award winning REALTOR with RE/Max Capital in Williamsburg, Virginia. She specializes in retirement and relocation in the Williamsburg, South Eastern Virginia area and in Virginia Estate properties. To learn more visit or Email Elaine at
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Tuesday, June 17, 2014

Every 203k Should Be a Standard 203k... No More Streamlined k's

Home Inspector with, covering California & most other states S0289

It is my opinion based on fact that every FHA 203k loan should be a Standard or Full 203k. In 2005 the Streamlined k came on board as there were those in the industry that felt many small renovation projects didn't really need a "consultant".

Now after about 9 years the Streamlined k accounts for 98% of the problem 203k loans in the industry.

I met a client today who was told by everyone that they should use a particular contractor on their Streamlined k loan. Her contractor bid under $2,700 and the one that they were told to use came up with a whole lot more work... NOT, but charged nearly $10,000. Remember that 50% of the construction cost is paid to the contractor up front.

In this case if the work was really only worth $2,700 and they got 50% of $10,000 they have already been paid twice what the going price was. Is it a wonder the contractor then did shoddy work and left the client hanging? Wow, the consultant earns their money, use one.

If you are going to recommend a contractor, don't recommend your spouse. Keep it at arm's length.

Saturday, June 14, 2014

FHA Vs Conventional Loans - Which is Better For You?

There are many different types of financing available to those looking to purchase a home or refinance their mortgage. The key to finding the right loan for a homeowner's individual situation is knowing what he or she needs from their mortgage and can afford. Homeowners should research the differences between what FHA loans and conventional loans have to offer to determine which financing option is best for them.

FHA Loan Information

The Federal Housing Administration (FHA) insures FHA loans, which protects the lender in the event that the borrower defaults on the loan. This insurance makes these loans less risky for lenders, and they are more likely to offer low interest rates on them. The FHA is fully committed to its borrowers and has assistance in place for borrowers who need assistance making their mortgage payments.

If an applicant has a credit score of at least 580, the down payment on an FHA loan will be 3.5%. If the applicant has a lower credit score, the down payment will increase to 10%. Although, while the FHA does allow for loans to be granted to people with credit scores below 620, most lenders today do not. The FHA also requires that applicants have at least one year free of any delinquent mortgage or rent payments. Overall, FHA loans have less strict credit and income requirements compared to other home loans.

With an FHA loan, the borrower must be financing his or her primary residence. There is also an upfront mortgage insurance premium (which just increased to 2.25% from 1.75%), as well as monthly mortgage insurance. These loans also allow homeowners to refinance a greater value of their home (up to 97%!) and feature a streamline refinance option, which requires less documentation and quicker processing.

Conventional Loan Information

Conventional loans are not insured by the government, so lenders mitigate their risk by imposing tighter qualification standards. These loans tend to have higher interest rates than FHA loans because the rates are more likely to be driven by a borrower's credit scores and other risk factors. With a conventional loan, an applicant needs to have a good credit score and income to receive competitive loan terms. These loans do not have to be used only on primary residences, but can also be used on investment properties.

The down payment on conventional loans tends to be higher, with the requirement currently set around 10% for most loans. Applicants will need to have a credit score of 660 or higher to be eligible and, in most cases, will need a 700 to receive competitive interest rates. There is no upfront mortgage premium requirement, but there will be monthly mortgage insurance if the borrower's loan-to-value ratio is greater than or equal to 80%. There are refinancing options with conventional loans, but the amount a homeowner can refinance is only 80% for a cash out and 95% for a non-cash out, compared to 85% and 97% respectively for FHA loans. There is also no streamline refinance option available.

Which Type of Financing is Right For You?

After assessing his or her financial situation and weighing the pros and cons of FHA and conventional loans, an applicant can determine the best loan for his or her situation. Different loans are beneficial for different types of situations and it is important to be well informed so the best choice is made. An FHA loan would likely be more beneficial for those wanting to borrow more than 80% of the purchase price or home value, those with lower credit scores, or those who do not have a lot of money for a down payment because they can have access to lower interest rates. This loan might also be better for borrowers who want a cash-out loan because they will likely receive a lower rate than with a conventional loan.

On the other hand, a conventional loan may be better for those who have excellent credit, those borrowing less than 80% of the purchase price/home value and those not wanting to get a cash-out loan because they can receive low interest rates and, unlike FHA loans, they will not have mortgage insurance if the loan amount is less than 80% of the purchase price or home value. For those who need further assistance choosing a type of loan, there are a variety of resources available. Speaking with a knowledgeable loan specialist is a good way to make the decision process less complicated.

Victoria Belle-Miller is the newest member of the writing staff. Her background in journalistic writing and ability to evaluate the issues that Americans face in daily life make her a strong addition to the FHA loans team and a valuable source of sound mortgage advice.
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Wednesday, June 11, 2014

What is a 203k Consultant?

I get approved consultants that call interested in our Award Winning software... One that called the other day thought our software provided way too much paperwork, much more than they needed or wanted. YIKES! Are they really consulting? NOT.

Our trained consultants obviously do a lot more for our clients than our competitors. We provide 100% of the paperwork that, when added to your 203b paperwork, is ready to submit to underwriting. Since the MMW is required to be filled out by the lender you merely take our numbers and input them on your MMW. Lenders should insist that your consultant has had training from us or gets their CE from us. Continuing Education is essential in any industry.

For more information please visit

Sunday, June 8, 2014

What is the Difference Between a Standard 203k & a Streamlined k?

I've just been reading a number of blog posts that all says something about this quesiton and they all seem to have different opinions... lets get it straight and clear the air

Streamlined k 

... is for NON-STRUCTURAL issues and a loan amount under $35,000 including costs and fees which are typically about $800 therefore the maximum amount of the contractor's bid is going to be about $34,200 NO MORE otherwise it becomes a Standard 203k loan. This is like a check valve. Should the contractor bid $34,500 and we add the $800 costs and fees it is now above $35,000 and trips the check valve to a full 203k loan and a consultant will be brought in on the project.

Don't be fooled into thinking this is all inclusive... it isn't. If your lender "requires" a contingency reserve like many do, we need to back that out of the contractor's maximum bid amount too. If the lender "requires" a 10% contingency the maximum contractor bid will be reduced to about $30,780... if the bid comes in higher than that this loan becomes a "Standard 203k" project. Simple, not quite. Academy Mortgage and a few others require a 20% contingency so we need to back out more from the contractor's bid to about $27,360. Anything over that amount and this is now a Standard 203k and a consultant would be brought in on the project. Wow, and everyone tells you the maximum loan amount for a streamlined k is $35,000 - the fact is that IT ISN'T! It never was, it was always $35,000 including costs and fees.

Standard 203k 

I have just been reading those other blogs that say the Standard 203k is for "structural repairs". Not necessarily. Just because the Streamlined k is for non structural repairs ONLY doesn't mean the Standard 203k is ONLY for structural repairs. In fact a Standard 203k can be for non structural repairs in excess of $35,000 or structural repairs that don't even come up to the $10,000. Just because the repairs are structural the Standard 203k is your only choice between these two loan programs.

A Standard 203k can be for repairs in which the only limit is the ability of the borrower to qualify up to the maximum loan amounts for the county where you are located. Alameda, Contra Costa, and Marin counties for example have a maximum loan amount of $729,750 which includes the purchase money or existing debt and the money to make the repairs. We are working on one that the construction cost alone is $670,000.

We had one in Sacramento County where the loan limit is $561,000 and the purchase was for $888,000. The home required $150,000 in construction repairs for a total of $1,038,000. Options were to pay cash and pay the entire $1,038,000 or get a loan for $561,000 and only have to pay $477,000 down payment. Keep your cash and let this low interest loan fixed for 30-years do it's job.

What program would I use for a fire burned home or tornado damaged home? 

Simple, if the home has been damaged by either of these issues it is likely going to have structural repairs. The insurance paid you off so keep that money in your bank and get a 30-year low interest fixed rate loan and use the Standard 203k for your repairs. Yahoo! You now have money in the bank and your house is livable again.

Thursday, June 5, 2014

Instant equity: 203K loans

Watch the report from Action News' Nydia Han to learn more about the 203k Loan.