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FHA Presentation from FHA - adapted for myEnergyLoan realtor training in Venice, FL in April, 2010.
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Energy Efficient Mortgages 203K & Streamline 203K
Energy Efficient Mortgages 203K & Streamline 203K
TOPICS of DISCUSSION
• Energy Efficient Mortgage (EEM)• 203k Standard• 203k Streamline• 203k Underwriting
Energy Efficient Mortgage (EEM)
Energy Efficient Mortgage BenefitsAn energy-efficient home is more affordable due to
the reduced operating costs. Cost-effective energy improvements result in― lower utility bills, ―conserve energy and, thus, ―make more income available for the mortgage
payment.
Energy Efficient Mortgage (EEM)
Energy Rating
A Home Energy Rating System (HERS) summary is required to determine the cost benefit of the energy items– Contact a HERS rating official to obtain a
rating report
Energy Efficient Mortgage (EEM)
Energy Efficient Mortgage Challenges
Access to a HERS or RESNET Energy Rating Services can be problematic as some states have very few raters.
Delays in providing an energy audit on a residential property - urban & suburban areas. Rural areas will take longer due to a lack of raters in the area.
Training of certified raters & certified retrofit contractors (approximately $1200 for a one day course)
Energy Efficient Mortgage (EEM)
Energy Rating
• The home energy rating– is a standard measurement of the home's energy efficiency– involves an on-site inspection by a home energy rater – is determined by insulation levels, window efficiency, wall-
to-window ratios, the heating and cooling system efficiency, and the solar orientation of the home
Energy Efficient Mortgage (EEM)
TOP TEN EEM STATES Volume as of May 2009CA 150
IL 129
NJ 82
FL 73
VA 64
PA 59
TX 58
WA 37
IN 35
MD 35
Energy Efficient Mortgage (EEM)
Underwriting Standard underwriting procedures apply
• 3.5 percent down payment (max 96.5% loan-to-value for a refinance)
• Closing costs are not included in the 3.5% down payment
• Financeable upfront mortgage insurance premium• 1-4 unit, existing and new construction properties
are eligible
Energy Efficient Mortgage (EEM)
Maximum Loan Amount
The maximum amount for the portion of the EEM for energy improvements is the lesser of 5% of:– The value of the property, or – 115% of the median area price of a single family
dwelling, or – 150% of the conforming Freddie Mac limit
Energy Efficient Mortgage (EEM)
Example
– $380,000 (value) x 5% = 19,000 – 488,750 (max loan limit for Stockton county for 1-
unit) x 5% =24,437– 417,000 (Freddie Mac cap) x150% = 625,500 x
5% = 31,275
Energy Efficient Mortgage (EEM)
The FHA maximum loan limit for the area may be exceeded by the cost of the energy efficient improvements.
Maximum loan limit for a 1-unit property in Stockton, CA is $488,750
Energy Efficient Mortgage (EEM)
EEM & 203k Combination
The EEM may be used in conjunction with the FHA’s Rehabilitation “203(k) and Streamline K” loan programs
203(k) – Rehabilitation Loan Program
What is a 203k?
• One loan to finance both acquisition & rehabilitation of a property (or refinance and rehabilitation)
203(k) – Rehabilitation Loan Program
Purpose of the 203k• Restore and preserve the nation’s housing
stock• Expand homeownership opportunities• Help community revitalization
203(k) – Rehabilitation Loan Program
Loan Amount
• The loan amount is based on projected value after the work is completed
203(k) – Rehabilitation Loan Program
FHA has two types of rehabilitation loans
1. Standard 203k Rehabiliation – includes more complex repairs (i.e.structural) and requires a minimum of $5,000 in repairs
2. Streamline 203k Rehabilitation – covers uncomplicated repairs up to $35,000 with no minimum dollar threshold– no structural repairs allowed
203(k) – Standard Rehabilitation Loan Program
Eligibility Property must be at least one year old1-4 unitsCondos (interior only)Manufactured HomesNew construction on part of the original
foundation
203(k) – Standard Rehabilitation Loan Program
• Eligible Properties Continued–Existing house moved to a new foundation–Mixed use residential properties (rehab
residential portion only)• 25% commercial – 1 story• 49% commercial – 2 story• 33% commercial – 3 story
203(k) – Standard Rehabilitation Loan Program
Improvements
• Minimum $5,000 rehab costs– Must increase the marketability and value of the
property (“must have” repairs not “wish list” repairs)• Repairs & Improvements must comply with HUD HB
4910.1 – Meet local building & zoning codes– Corrections of code violations– Energy improvements
203(k) – Standard Rehabilitation Loan Program
Continued…
structural alterations and reconstruction
modernization and improvements to the home's function
elimination of health and safety hazards
changes that improve appearance and eliminate obsolescence
203(k) – Standard Rehabilitation Loan Program
Continued…
reconditioning or replacing plumbing; installing a well and/or septic system
adding or replacing roofing, gutters, and downspouts
adding or replacing floors and/or floor treatments
major landscape work and site improvements
enhancing accessibility for a disabled person
making energy conservation improvements
203(k) – Standard Rehabilitation Loan Program
Ineligible Improvements
–Luxury items are not eligible• Swimming pools, saunas, barbecue pits,
satellite dishes, etc.)
203(k) – Standard Rehabilitation Loan Program
Preliminary Feasibility Analysis
• Purpose –Prevent wasted time & finances–$100 financeable fee–Optional
203(k) – Standard Rehabilitation Loan Program
Participants & Responsibilities• Borrower• Lender• 203k Consultant• Contractor• Real Estate Appraiser
• Best practice: borrower, consultant & appraiser all meet at the property to discuss repairs
203(k) – Standard Rehabilitation Loan Program
203k Consultant• HUD Approved
–3 years experience as general contractor, remodeling contractor, or home inspector
–State licensed architect or engineer–On FHA 203k Consultant Roster–Selected by lender (ML 00-25)
203(k) – Standard Rehabilitation Loan Program
Consultant Responsibilities
• Complete a home inspection• Obtain & review Architectural Exhibits• Prepare Write Up & Cost Estimate• Provide line item unit-cost breakdown• Duties listed in ML 95-40
203(k) – Standard Rehabilitation Loan Program
Consultant• Can’t be the contractor or appraiser, but can be the
energy rater• Work write up clearly indicate the required items vs.
“wish list” items – If using EEM, the work write-up must include
Energy Package
203(k) – Standard Rehabilitation Loan Program
Work Write Up• Specifications of Repairs Form
– 35 categories (HUD HB 4240.4 Rev-2, Appendix 1) – Detail work to be completed– Break down labor & materials– All health & safety issues must be addressed first (and part
of the first $5,000 minimum threshold) • Consultant & Buyer agreement signed by both parties
– (ML 95-40)
203(k) – Standard Rehabilitation Loan Program
Forms & Exhibits • Property report (existing)• Termite/Well/Septic Report(s)• EEM Rating or Analysis• Proposed Plot Plan (new additions)• Proposed Floor Plan (wall changes) • Other reports as necessary• Work write up – description of work • Cost estimates - detailed
203(k) – Standard Rehabilitation Loan Program
Contractor Selection• Lender must ensure
– acceptable contractor is hired• Contractor credentials, • work experience, • licensing information/bonding or insuring, • type of work performed and client references
– execution of Homeowner/Contractor Agreement• ML 00-25, 98-11, 94-11
203(k) – Standard Rehabilitation Loan Program
Who Does the Work?
• Experienced general or specialized contractor• No self-help
203(k) – Standard Rehabilitation Loan Program
Appraiser Responsibilities• Appraisal made “subject to completion per
plans & specifications”• Appraisal must contain copy of plans, specs,
work write up and other conditions upon which value is based –4150.2 & HOC Reference Guide
203(k) – Standard Rehabilitation Loan Program
• 203k mortgage must be based on the lowest sales price in the last year–ML 00-25
203(k) – Standard Rehabilitation Loan Program
• Release of Funds • Consultant performs inspection on behalf of
lender • Maximum 4 draws plus final draw • 10% holdback on every intermediate draw• Funds cannot be released for incomplete work
203(k) – Streamline Loan Program
203(k) – Streamline Loan ProgramAcquisition and up to $35,000
The Streamlined (k) program is intended to facilitate uncomplicated rehabilitation and/or improvements to a home.
The Streamlined (k) program includes the discretionary improvements and/or repairs shown below:
Repair/Replacement of roofs, gutters and downspouts Repair/Replacement/upgrade of existing HVAC systems Repair/Replacement/upgrade of plumbing and electrical
systemsRepair/Replacement of flooring
36
203(K) Streamline Continued
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
203(k) – Streamline Continued
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
203(k) – Streamline Continued
• Ineligible Work Items • Major Rehab• New Construction (including room
additions)• Repair of structural damage• Repairs requiring detailed architectural
exhibits, drawings, etc.
203(k) – Streamline Continued
Ineligible Work Continued…• Landscaping or similar site improvements• Repairs requiring a work schedule longer than
6 months• Repairs arising form the appraisal not on the
list of eligible work items• Repairs causing borrower to be displaced more
than 30 days
203(k) – Streamline Continued
Required Exhibits for Eligible Work
• Pre-purchase home inspection (if performed)• Borrower’s planned repairs• Appraisal report indicating list of proposed
repairs and costs
203(k) – Streamline Continued
Who Does the Work
• Specialized Contractor/Contractors• Self-help
203(k) – Streamline Continued
Underwriting
• Considerations–Supplemental Origination Fee–Customary Charges
203(k) – Streamline Continued
203k Worksheet (HUD92700)• Mortgage Amount
–Maximum – statutory limit for the area or 110% of “after-improved” value
• Case Number• ADP Code• Repair Escrow Amount • 203k Consultant ID Field
203(k) – Streamline Continued
Documentation • Drawings & Specifications• Rehabilitation Cost Estimate• Contractor’s Cost Estimate(s)• Homeowner/Consultant Agreement(s)• 203k Loan Agreement• 203k Rider• Borrower Acknowledgement
203(k) – Streamline Continued
Process Overview • Borrower’s application • Consultant• Order Case Number• Order Appraisal• Processor Responsibilities• Property & Credit Package
203(k) – Streamline Continued
Process Overview • Direct endorsement underwriter’s
responsibilities• Conditions• Loan Closes• Repair Escrow Account • Repairs/Inspections/Draws
203(k) – Streamline Continued
Completion & Payments • Number of payments• First Payment• Permit Fees• Final Payment• Payment Schedule• Issuance of Payments• Lender’s Compensation• Inspections• Final Release
INFORMATION SOURCE: WWW.HUD.GOV, ML 2005-21, ML 2009-18
Roxanne Campanella, Account Liaison
Federal Housing Administration
Sacramento, CA
Questions