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203(k) FinancingDaniel Dobbs….Senior Loan Officer

American Commerce Mortgage(949) 250-3981 Dandobbs6@gmail.com

OCBANKREPO.com

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Introduction

• Daniel Dobbs; 24 years as a loan consultant • Closed over 1,000 personal transactions• Brokers & Notary License• AA from OCC ….B.A in Comm from CSUF …• Published writer, photographer• Formerly Licensed by the DRE for Continuing Ed• Attended all the Google’s work shops for SEO• Have Produced 4 RE Videos• Built 8 highly Google Ranked Websites

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Today’s Agenda

• Introduction

• 20 minutes or less

• Featured Programs:

• “Standard” FHA 203k ($100k max)

• “Streamlined” FHA 203k ($ 35K max)

• Eligible / Ineligible Properties

• Eligible / Ineligible Improvements

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Today’s Agenda

• Qualifying

• Flow Process (who does what and when)

• Disbursement Process

• Making this Work

• FHA 203k Resources

• FHA Worksheets

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Why the 203(k)?

• FHA 203(k)– Increase loan origination volume– Sell more listings– Work with more buyers – Helps buyers buy the worst home in the

best neighborhood (referrals)– The good news….very few industry

professionals know anything about

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Eligible Properties

• SFRs, PUDs Condos (Rehab limited only to unit interior)

• 2-4 unit properties..1 unit must be owner occupied

• Condos in FHA approved projects

• REOs, foreclosures, and short sales

• Rental properties in wrecked condition

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In-Eligible Properties

• Homes that have never been completed

• Log Homes

• Condotels

• Cooperatives

• New home never before occupied (1 yr)

• REOs, foreclosures, and short sales

• Rental properties in wrecked condition

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Eligible Improvements are:

• Permanent part of the home & adds value

• Architectural exhibits not required

• Additions to the structure (bed & bath)

• Finish basement or attic patios, decks, roofing, landscaping or terraces

• Safety, energy efficiency & electrical upgrades (solar panels)

• Handicapped accessibility improvements

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Eligible Improvements are:

• Upgrade of existing HVAC systems• Appliances• Upgrade of plumbing & electrical systems• Flooring• Minor remodeling (no structural repairs)• Weatherization – including storm windows/

doors, insulation, weather stripping, etc• Purchase & installation of new

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Ineligible Improvements are:

• Luxury Items

• Pools / Hot Tubs…($1500 can go to repair of present pool and spa)

• Tennis Courts…. Gazebos

• Any improvement that will take longer than than 3 months

• Amenity improvements

• New or foundation repairs

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Rehab House #1

• Appraised Value: $525,000• Net Sales Price: $500,000• Closing costs: $25,000

• Up to 6% of the sales price• No Cash Back…No Cash-Out

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Rehab House

• Appraised Value: $525,000

• Net Sales Price: $500,000

• Closing costs: Seller pays 25,000

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Available Loan Programs

• 30 yr … Owner Occupied … Primary Res • “Jumbo” loan amounts (to $625,000)• “Conforming” loans (to $417,000)• 1-yr adjustable-rate mortgages are for

Conforming loan limits only (no jumbos)• Temporary rate “buy down” (no permanent )• No permanent buy downs• Loan is fully assumable to qualified buyers with

credit check

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FHA Eligible Closing Costs

• The buyer is limited to paying 1 point origination..originators can receive rebate pricing

• Buyer can pay discount points…must be a true cost and can not be charged by broker..only a mortgage banker or other direct lending instition

• Other Loan Costs• Escrow & Title Fees• Appraisal• Pre - Paids (prop taxes, insurance premiums..

Hoa dues)

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How to Qualify?

• US Citizens, Perm.& Non-Resident aliens

• Owner- Occ, Primary Res, No 2nd homes

• UW may be automated or manual

• Standard FHA guidelines apply

• Non-Occupant Co-signers “ok”

• Move-up Buyers (75% equity in current home if that is being rented out…verified by appraisal)

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How to Qualify?

• Self Employed $$$ “ok” avg. over 2 years

• 2 years Complete Fed. Tax Returns

• W-2’s

• Beware of hidden expenses that are revealed on the 1040’s (i.e. child care union dues, child support / alimony)

• 1 month Paystubs

• 2 mos. Bank Statements

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Marginal Credit OK (1)

Chapter 7 BK allowed 24 mos after discharge date & good credit has been re-established

Less than 24 mos. (more than 12 mos) may be allowed…provided the reason for BK was due to extenuating circumstances and unlikely to re occur

Chapter 13 BK allowed after 12 mo.

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Marginal Credit (2)

• Provided payment history has been satisfactory & with court approval

• Foreclosures/deed-in-lieu “OK” after 3 yrs

• Court ordered judgments & Tax liens may be included in the refinance

• All “neg” credit must be addressed by letters of explanation and documentation

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Down Payment

Purchases/Refi – 3.5% minimum required

Checking, savings,401K or cash-on-hand

Gift from relative, fiancé or domestic partner

Can be from Non-Occupying on borrower

Cash Reserves NOT REQUIRED on 1-2 unit properties….

With that in mind……..

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The loan-to-value (LTV) is based on:

Lesser of sales price or

"as is" appraised value

-------------------------------------

PLUS repair costs

-------------------------------------

MINUS sales Concessions (carpet/paint)

110% of “as completed” appraised value

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For Example

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Available on Hud.gov

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Time Line – 3-7 Working Days

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Time Line …..Days??

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Making it Work

• Borrower puts together as many of these team members as soon as possible

• Lender and Loan Officer that is FHA 203K approved and experienced

• Motivated RE Agent

• Contractors

• Building material suppliers

• FHA Cost Consultant (CC) (HUD.gov)

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Making it Work (1)

• Borrower meets at property w/ Cost Consultant (400) to discuss repairs & best way maximize “future” increased value

• Agent is present to “open/close property”• CC prepares estimates for borrower• Borrower shops contractors (by fax if possible)• Borrower meets contractor (s) at property w/ RE

agent to “open /close home” & for final bids• Borrower can’t be compensated for their labor.

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Making it Work (2)

• Loan officer receives application and processes the loan

• Investor – Underwrites– Closes– Sets up Escrow Repair Account– Handles all Draws– Certifies inspections which aredone by the

original appraiser)

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Streamline “Draw Process” (1)

• For borrowers doing the work themselves, a self-help agreement is required before funds are disbursed - the check is payable to the borrower

• For borrowers working with a contractor, a W-9 must be provided to establish the contractor as “approved” –

• Shortly after the close of escrow before any work is commenced two-party check made payable to the borrower & the contractor.

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Streamline “ Draw Process (2)

• The check is then sent & to the borrower who signs the “check over” to contractor.

• The bank place a “hold” on the funds until the check clear (10 days) and this may slow the start date.

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Streamline “ Draw Process (3)

• Included with the disbursement is an instruction letter that explains how the final disbursement works

• Balance disbursed upon completion of all work• If the cost of the renovation is over $15,000 (of

course it is) an inspection by orig.appraiser is required (“signs off”) and sent to lender

• Final Check is disbursed within 10 days

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203K “Standard” Draw” Process (1)

• After the loan is funded & set up in system• Welcome package and Draw Request Guide is

sent to the borrower• Signed W-9 is required from contractor before

funds can be drawn• Disbursements are made as each phase of the

project is completed based on the draw paperwork provided by the cost consultant

• 20 days to START the DISBURSEMENTS

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203K “Standard” Draw” Process (2)

• 20 days to START the DISBURSEMENTS

• Exception are for the cost of flooring, roofing, cabinets, and windows -

• 50% of the cost of these items can be disbursed upfront as part of a normal draw

• Inspections are required prior to each disbursement

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203K “Standard” Draw Process (3)

• Inspections are required prior to each disbursement (max. of five draws are allowed)

• Draw amounts can vary and are based on the work performed

• Up to 6 months of house payments can be included in the loan IF home is not occupied during construction

• Borrower may not be compensated for his/her labor only actual costs (i.e materials)

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Borrower vs. Contractor

• Work can be completed by EITHER• Borrower must be qualified & approved to do

work before loan funds & sign “Self-Help” agreement

• Example: Borrower is a licensed plumber or electrician etc.

• Rehab must begin within 30 days of closing and finish in 3 months

• Borrower may not be compensated for his/her labor.

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Contractor Requirements

• Credentials verifying requirements for licensing, bonding & insurance

• Contractors provide estimates that clearly state nature & type of repair and the cost for completion of the work

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Trouble Shooting

• Loan must not exceed actual cost of construction, (purchase) or refinance of an existing lien, & reasonable closing costs .

• In other words: If a borrower submits cost estimates to the lender that does not increase m the property’s value DOLLAR FOR DOLLAR… the loan amount will be reduced and the borrower will need to fund the difference with their own money

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Trouble Shooting

• Unused loan proceeds not advanced …must be applied back to principal

• Their payments are not lowered..just the principal $$$

• Contractors “no showing” for estimates is a real problem.

• W-9’s not signed and submitted with first draw request.

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Trouble Shooting

• Please consult the Calif. State Contractors Board for violations or consumer complaints

• http://www.cslb.ca.gov/• Borrower choosing a lender that is not local

or “hands on”…or is FHA “Direct Endorsement approved then the loan is a 60 day + nightmare

• For a list of eligible lenders in your area visit HUD.gov

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FHA 203(k) Forms

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FHA 203(k) Resources

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In Closing

• If you would like to be on my mailing list …. please call or send me an email or visit my website OCBANKREPO.com

• I’d like to know your thoughts about the webinar & any suggestions to make it better

• And thank you …I know your time is valuable; this market is driving all of us to work harder and smarter…..and I hope you feel the time we spent together was worthwhile.

• Thank you & good luck