FHA Programs: Rehabilitation Loan, EEM, & Solar and Weatherization

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Company

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U.S. Department of Housing And Urban Development

December 2010

FHA Specialty Programs

Today’s Agenda

FHA Rehabilitation Loan Programs (203k’s) Regular Rehabilitation Loan203(k)

Streamline Rehabilitation LoanStreamlined 203(k)

Energy Efficient Mortgage EEM

Solar and Weatherization Programs

Two Rehabilitation Programs

Regular Rehabilitation Also known as 203(k)

Streamline Rehabilitation Also known as Streamlined 203(k) Announced in 2005Mortgagee Letter 2005 – 50

Both available for purchase or refinance

Two Rehabilitation Programs (Cont.)

Both allow for repairs to be financed One loan Repair costs funded at time loan

closes Sale proceeds disbursed at closing

Lender or escrow holds repair funds Funds disbursed as work completedMay require FHA inspections and/or

lender inspections

How It Works

Borrower required to meet FHA’s minimum cash investment Based on total combined purchase price or

appraised value plus rehabilitation costs Minimum 3.5% Downpayment if purchase

More if sales price exceeds appraised value

Equity if refinance

How It Works – Continued

Loan amount determined based on “110% of After Improved Value” or “As Is Value plus cost of repairs Whichever is less

Both programs require work to be complete Within six (6) months of closing

Landscaping and “luxury items” not allowed under either program

How It Works – Continued

Maximum 96.5% loan-to-value (LTV)Determined based on purchase price or

appraised value (whichever is less)Purchase or refinance if owned < 12

monthsAppraised value if refinance and owned >12

months Excluding upfront mortgage insurance

premiums

Example:Purchase Price/Appraised Value $300,000.00Rehabilitation Cost $ 14,700.00Total Needed Financing Repairs $314,700.00Required Investment (3.5%) 11,014.50Base Loan Amount $303,685.00

*Note: Required investment only $514 more with rehabilitation loan

*Note: Upfront Mortgage Insurance added to base loan amount

Rehabilitation Program Comparisons

All features on Regular Rehab not available on Streamlined Rehab Streamline Rehab intended to facilitate

uncomplicated repairs Both are great tools for “Real Estate

Owned” properties Both are great tools for “First Time

Homebuyers” Easier transition from renter to homeowner

Rehabilitation Program Comparisons

Streamline Rehab No minimum required

repair threshold Maximum limit on

repairs = $35,000 No general contractor or

architectural drawings required

Allows for two payments per contractor

Regular Rehab $5,000 minimum

repair cost threshold No maximum limit on

repairs General contractor and

normal architectural drawings required

Maximum five payments total to general contractor

Rehabilitation Program ComparisonsStreamline Rehab No special FHA

required inspections Under $15,000

Must use licensed/bonded contractor Self-help

discouraged

Regular Rehab FHA Inspector

required for all repairs All loan amounts

Must use licensed/bonded contractor Self-help

discouraged

Rehabilitation Program Comparisons

Accessibility improvements Persons with

disabilities No contingency

reserve required Lender may require

Accessibility improvements Persons with

disabilities 10% contingency reserve

required Lender may require more

Streamline Rehab Regular Rehab

Streamlined Rehab Eligible Repair Items

Repair/Replace Roofs, gutters, downspouts Heating, ventilation, and A/C systems Plumbing and electrical systems Flooring Windows, doors, exterior siding Well; septic systems

Streamline Rehab Eligible Repairs (Continued)

Minor remodeling Not structural

Painting Exterior/Interior

Lead based paint abatement Free standing appliances

Range, refrigerator, washer/dryer, etc.

*NOTE: This list is not all-inclusive

Ineligible Work Items Under theStreamlined Rehab

Major rehabilitation Relocation of load bearing wall Room additions New construction

Repairs requiring detailed drawings or architectural exhibitsRepair of structural damage

Regular Rehabilitation Eligible Repairs (203 (k))

Same items as in Streamlined Rehabilitation (Streamlined Rehab 203(k) loan) See previous list (not all inclusive)Structural changes Room additionsAdditional living units (if allowed by city)For more information on the 203(k) program

please visit:http://www.hud.gov/offices/hsg/sfh/203k/203k--df.cfm

Final Notes On Rehab Programs Repair funds not used

Not given to borrower Applied as principal reduction to mortgage No change of terms of mortgage

Repair funds insufficient to complete work Borrower must pay out of own funds or may

reapply for another rehabilitation loan if eligible Regular Rehabilitation program can finance up

to six months of mortgage payments Not available on Streamline Rehabilitation

Energy Efficient Mortgage (A.K.A. EEM)

May be used with other FHA mortgages

No special underwriting or appraisal requirements

May be able to finance 100% of the energy improvement Based on lesser of three calculations

Energy Efficient Mortgage (A.K.A. EEM) – Continued

Lesser of three calculations used to determine amount of maximum financed energy improvement 5% of the property value 115% of the median area price 150% of the Freddie Mac conforming loan limit

Energy Efficient Mortgage (A.K.A. EEM) – Example

Appraised Value/Sales Price $300,000 Energy improvement costs $10,000

5% of value $300,000 x .05 = $15,000115% of $265,250 median price = $305,000 150% of GSE is $417,000 = $625,500

The maximum allowable financing for EEM funding would be 115% calculation or $5,000 Lesser of the three

Would have to adjust energy improvements to fit within limits or borrower pays difference

“Other” Repairs & Improvements Repairs & Improvements required by appraiser as

essential for property eligibility and to be paid by the borrower May be added to sales price before calculating

mortgage amount Sales contract must identify borrower as responsible

for paying or completing repairs Amount added is lesser of three calculations

Amount the value of the property exceeds sales price Appraiser’s estimate of repairs and improvements Amount of contractor’s bid (if available)

Energy – Related Weatherization Mortgage amount may be increased for cost of

items by $2,000 without a separate value determination or Up to $3,500 if supported by a value determination

by FHA approved appraiser or DE underwriter or More than $3,500 subject to value determination

by FHA approved appraiser or DE underwriter and a separate site inspection

Items include Thermostats, insulation, storm windows/doors,

weather stripping, caulking, etc.

Solar Energy Systems The cost of both active and passive solar

energy systems may be added directly to the mortgage amount Before adding the Up Front Mortgage Insurance

Premium (UFMIP) After applying applicable Loan-to-value limits Statutory mortgage limit may be exceeded by 20% to

accommodate the cost of the system

Limited to the lesser of Solar energy systems replacement cost It’s effect on the property’s market value

Where to Get More Information 1 – 800 – CALL – FHA (1 – 800 – 225 – 5342)

A source for all FHA questions Industry partners and Consumers

www.hud.gov On-line resource for info about FHA and FHA

programs On-line source for all other HUD programs, grants,

forms, press releases, etc. User friendly

www.fhaoutreach.gov/FHAFAQ On-line resource to frequently asked questions

www.hud.gov

www.hud.gov

www.fhaoutreach.gov/FHAFAQ

The U.S. Department of Housing and Urban Development

would like to thank the California Association of Mortgage Professionals

AndOregon Association of Mortgage Professionals

for your interest in FHA and FHA programs