What about FHA Loans with a cosmetic repair allotment. Is this possible?
The other day a client found a house that a builder started but
didn't finish. The builder/owner was offering a credit towards
completing the repairs through escrow and during our conversation about
the house, I told her she should also talk to her lender about FHA Loans
that offer a credit towards cosmetic repairs.
Here is how it works, compliments of Paul Laterza Sr. Mortgage Consultant NMLS# 281572 Mortgage California
I’m pleased to announce the release of our in-house FHA Streamline 203K product!
This is an FHA first mortgage with additional funds
available for cosmetic repairs. We are offering this product as a
direct lender and mortgage banker. The streamline 203K has the same
credit and underwriting guidelines as an FHA loan with the exception of
the eligible improvements. With up to $35,000 in additional funds to
repair the subject property, there are only 2 disbursements. There is
not a minimum rehabilitation loan amount but there is a minimum loan
amount of $75,000. FHA loan limits apply and the total maximum loan
amount, including repairs, cannot exceed the maximum allowed by the
county.
Type of eligible improvements:
· Repair/Replacement of roofs, gutters and downspouts
· Repair/Replacement/upgrade of existing HVAC systems
· Repair/Replacement/upgrade of plumbing and electrical systems
· Repair/Replacement of flooring
· Minor remodeling, such as kitchens, which does not involve structural repairs
· Painting, both exterior and interior
· Weatherization, including storm windows and doors, insulation, weather stripping, etc.
· Purchase
and installation of appliances, including free-standing ranges,
refrigerators, washers/dryers, dishwashers and microwave ovens
· Accessibility improvements for persons with disabilities
· Lead-based paint stabilization or abatement of lead-based paint hazards
· Repair/replace/add exterior decks, patios, porches
· Basement finishing and remodeling, which does not involve structural repairs
· Basement waterproofing
· Window and door replacements and exterior wall re-siding
· Septic system and/or well repair or replacement
Requirements:
· 100% cosmetic
· cannot be used for structural alterations or reconstruction
· Self Help option is not available
· Work must be started within 30 days of close of escrow and completed within 6 months of closing
· Borrowers cannot be displaced from the property for longer than 30 days
· Contingency reserves: A contingency reserve of 10% is required
LTV/Loan amount determination lesser of:
· · Sales price or “as is” appraised value plus repair costs minus sales concessions or
· · 110% of “as completed” appraised value
· · To determine loan amount multiply by 96.50% (for Purchase)using the option above for value
Appraiser completes appraisal:
· When
ordering an appraisal, the appraisal dept must be informed the loan
will be a 203K Streamline loan. Only one appraisal is required as long
as the appraiser comments on the following:
· “as is” establishing the value of the property prior to any rehabilitation
· “After
Rehab” or “as completed” appraisal establishing the value of the
property after the rehabilitation work has been completed
· A final completion inspection will be required if renovation is >$15,000
· HUD REO’s may require a 2nd appraisal
Other notes:
· Borrowers must use a contractor and have a W-9 from the contractor and a copy of contractor’s license.
· If cost of the renovation is >$15,000 a completion inspection is required by FHA Inspector
· Work must be started within 30 days after closing and must be completed within 6 months.
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Example: Purchase of a 1-Unit property with 96.50% LTV/CLTV
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Purchase and Renovation costs
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Sales Price
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$ 120,000.00
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Labor/Material
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$ 24,500.00
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Contingency (10%)
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$ 2,450.00
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Soft Costs (permits, consultant fees, inspection fees, PITI, etc.)
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$ 2,420.00
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Supplemental Origination Fee (greater of $350 or 1.5% of the renovation costs
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$ 440.55
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Total for Purchase and Renovation
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$149,810.55
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“As-completed” value (determined by appraiser)
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$160,000.00
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Value to use for determination of LTV must be the
lesser of the total cost of renovation or the “as-completed” value.
In this example, $149,810.55 is less than $160,000, therefore the value
you must use when determining the maximum loan amount is $149,810.55
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Maximum Loan amount at 96.50
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$144,567.00
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For more information, Paul can be reached at:
Paul Laterza Sr. Mortgage Consultant NMLS# 281572 Mortgage California
Telephone (925) 639-1112 | Private Fax (408) 335-1098
paullaterza@mortgagecalifornia.com
www.mortgagecalifornia.com/paullaterza
Elisa Uribe Realtor #0142707
Opening the Door to Opportunity
Wells and Bennett Realtors
elisa@rockridgedigs.com
Office :510-485-7272 Fax: 866-230-9144
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