credit repair consultant

Broker Capital Funding- Renovation Lending WEBINAR Presented by: Doug Jones Western Regional Sales Manager 408-438-6939 Cell / djones@brokercap.com Carrie Street Eastern Regional Sales Manager 734-578-8489 / carriestreet@brokercap.com Expand your Market by Utilizing the 203(k) Loan Program Watch your email for upcoming Free Webinars and Video Replay of future presentations. Part 1- The Basics of Renovation Lending- The 203K Go from this…………….to this With an FHA 203(k) Loan Renovation Industry = Opportunity You may be working with borrowers who : Want to get a bargain by purchasing a Short Sale, REO, Foreclosure or Fixer-Upper Are interested in purchasing a property that needs repairs Want to finance the purchase and include the cost of repairs May not qualify for a conventional loan & have lower to moderate income Have credit blemishes with low fico (minimum 580) Have limited cash down payment for closing costs or limited reserves Big Problem: Tightened Credit Markets Lending Guidelines have drastically tightened since credit crunch began last summer- It’s harder to qualify Credit scores even more important than ever Many loan programs don’t exist anymore- Helocs/CashOut harder to get for home improvement Lenders are changing guidelines frequently “Declining” market issues Lenders require major pest or repair work to be done prior to close of escrow Solution: FHA 203(k) Renovation Loan! Provide borrowers an affordable, stable financing solution that combines the purchase or refinance of the home along with the costs of the improvements into a single, low interest rate loan! Standard FHA guidelines apply Opportunity to borrow against the value of the home after improvements Low down payments of 3% Flexible Credit qualifying- higher ratios Owner occupied 1-4 unit properties, PUDs, Condos and REO Properties What is Renovation Lending? Renovation Lending is simply adding the cost of repairs and improvements into the mortgage to purchase or refinance a home. A Renovation Mortgage is a single, first lien position mortgage that is fully disbursed at closing. Construction period is a max of 6 months 6 months PITI payments can be rolled into loan – (Full 203K Only) 2 Types of 203K Renovation LoansStreamline and Full 203K 203K Streamline (203KS) Up to 35K in Renovation allowed Self DirectedHire contractors (up to 3 or hire a General Contractor) Do the work themselves (can’t charge for labor and must be qualified to do work) Excluded- Structural/Architectural & Landscaping 2 draws1 disbursed after closing (15 to 30 days) 1 after final inspection 2 Types of 203K Renovation LoansStreamline and Full 203K 203K (Full 203K) >35K in renovation. Structural/Architectural & Landscaping OK ($5,000 min) 6 months PITI can be included if property cannot be occupied during renovation. (discretion of consultant) Uses a 203K Consultant- Consultant works with all partiesBuyer/LO/Lender/Contractors to provide estimates, manage project & execute draws Up to 4 draws with a final. (cash flows best!) How the FHA 203(k) works Prequal your borrower on DU or send to BCF for pre-approval Homebuyer locates property Preliminary feasibility analysis with agent Execute Sales Contract and acceptance Open Escrow/Earnest Money Deposit (depending on your State) Work Write-Up and Cost Estimate prepared Appraiser establishes “as-is” & “subject to renovation” values. Submit file to BCF and loan closes Rehab begins within 30 days- 6 months to complete work Eligible Improvements Section 1 pest work, Health and Human Safety items Kitchen or bath remodels including appliances Replace windows and doors, skylights New flooring, tile, paint, wallpaper & more Upgrade HVAC and plumbing Upgrade Energy Efficiency and electrical Handicapped accessibility improvements Install, repair or replace well or septic systems Room or Garage additions Patios, decks, terraces Roofing Swimming pool repairs up to $1,500.00 Mandatory Repairs Corrections to Code Violations Health and Safety repairs Correcting Structural Deficiencies Smoke Detectors Luxury Items not allowed Exterior hot tub, sauna, spa Outdoor fireplace or BBQ pit New Swimming pool Additions or alterations for commercial use Satellite dish Tennis court Etc. Who, What, Where….? (review) Who can do the work? Owner or a contractor What is the minimum amount of work? Minimum of $5,000.00 Maximum of 110% of “After Improved Value” up to the loan limit- built in “cushion” to go over appraised value. Condos are 100% of after improved value. Where do the work estimates come from? Reasonable cost estimate from borrower to include both labor and material (Streamline 203KS) Contractor or 203(k) consultant Standards for Work Rehab construction must comply with HUD’s minimum requirements for existing units and local codes. Work must be done in a professional workman-like fashion What makes FHA such a versatile loan program in today’s markets? No Declining Market Issue LTV’s as high as 97.75% Lower (580 min.) or no Fico Seller concessions as high as 6% NO PEST REPORT required No cash reserve except 3-4 units Funds can be all gift Eligibility Types of mortgages: 30 year fixed rate mortgage Optional temporary 2:1 buy down No prepayment penalty Purchase or refinance of owner-occupied primary residence: Attached and detached SFR, approved condos, PUDs, 2-4 unit properties Existing Homes Complete for over 1 year REO/FC/Short Sale/HUD Homes OK! Borrowers: U.S. Citizens, permanent and non-permanent resident aliens Non-occupant co-borrowers on purchase only FHA and Credit 580 minimum credit score required 31/43 Ratios required for Manual Underwrite BK and Foreclosure leniency: Ch7 allowed after 24 mos provided the reason was due to extenuating circumstances Ch13 allowed after 12 mos provided performance has been satisfactory Consumer credit counseling allowed after 12 mos provided performance has been satisfactory Foreclosure allowed after 3 years provided the reason for FC or DeedIn-Lieu was due to extenuating circumstances FHA and Full Doc Income Miscellaneous income acceptable including child support, alimony or maintenance income and note income Must show 12 month history and evidence that income will continue for 3 years Self employment income must be stable with 2 year history Rental income OK with 2 year history and 1040. Higher qualifying debt to income ratios acceptable with strong compensating factors Non-Occupant Co-Borrower income (and debt) used FHA and Funds to Close 100% Gift funds from relative or domestic partner OK Can use cash-on-hand or mattress money Proceeds can come from 401k Seller can contribute up to 6% Cash reserves not required for 1-2 Units 3 mos PITI for 3-4 units Selling Points Differentiate yourself from other lenders/LO’s and create a highly profitable niche One time close Seller’s are no longer responsible for doing repairs, good for buyers b/c sellers will do as cheaply as possible Customers can create equity, fast! Use this loan to get into home and get remodeled, then refi into their new loan with better rates and payment. 2 loans for the price of 2! Selling Points (Agents) • • • • • Market an eye-sore as a Renovation Dream Home Add “Qualifies for Renovation Home Loan” to MLS List home for what it CAN be Buyers will look at homes for positives, knowing it can all be remodeled- neighborhood, schools, commute, etc. Agents can sell their “AS-IS”, “First-time homebuyer” & “Contractor Special” FASTER! Selling Points (Contractors) Contractor is guaranteed to be paid since the loan is closed before construction begins Joint marketing pieces with contractors for turn-key renovations Gives contractors someone to refer clients to when bids come in higher than owner thought Can market to specialized contractors: Kitchen and Bath Decking Siding & Windows EEM Additions/Expansion Marketing Did You Know?? More then 80% of the housing market is more then 15 Years Old? Opportunities Real Estate Agents Contractors/Remodelers 1st Time Home Buyers Clinics Home Shows Speaking Opportunites Press Coverage Real Estate Fliers for “Fixer Upper” Homes they have on the market More Sample Fliers Renovation Boards Section Two: 203K Maximum Mortgage Worksheet Basic Info Section Be sure to include FHA Case Number Section A: A1. Contract Sales Price or Existing Debt The contract sales price of the property should be filled in this box. If the mortgage is a refinance, then insert the existing debt on the property and the box for existing debt is checked. $___________________A1 Section A Cont. A2. “As-Is” Value This value will be derived from the sales price in most cases. If the DE Underwriter feels that an “As-Is” appraisal is necessary (HUD Homes), then that value will be entered here. This is the value of the property prior to any renovation being done. You must use the lesser of A2 or the Original Acquisition Cost plus Debts incurred for renovation since acquisition if the property has been owned less than a year on a refinance $___________________A2 After-Improved Value This value will come from the 203 (k) appraisal. This appraisal is the appraiser’s estimate of the property’s value after completing the proposed renovations. This value is determined by the use of comparisons in the immediate area around the subject property in similar condition to the condition anticipated for the improved property. $____________________A3 A3. Section A Cont. A4. 110% After-Improved Value This is simply the After-Improved Value multiplied by 110%. $____________________A4 A5. Borrower’s Estimated Closing Costs These costs should include FHA Allowable Closing Costs such as the origination fee, credit report and appraisal fees, mortgage tax, title search and insurance premium, and the survey/re-certification fee. $____________________A5 Section A Cont. A6 Allowable Energy Improvements The Allowable Energy Improvements will be determined by the energy audit (HERS Report) and will consist of those items that will return a measurable savings in energy costs over the life of the improvements. Mortgagee Letters 93-13, 95-46 and 98-02 discuss the alternatives for testing and criteria for the improvements. $____________________A6 Section B: Rehabilitation and Other Allowable Costs B1. Total Cost of Repairs (Line 36, HUD-9746-A(8/95)) One a Standard 203 K, 0nce the signed Specification of Repairs has been reviewed or completed by the HUD Consultant, the Consultant signs a template Draw Request form (HUD-9746-A) which lists the agreed upon total of the Specification of Repairs. The total on the Draw Request form (Line 36) is entered on this line. Your borrower may not have met with the HUD Consultant yet, if that is the case, this will be a “best guess”. This form can be updated later in the transaction. $______________________B1 Section B Cont. B2. Contingency Reserve on Repair Costs This amount should be between 10% and 20% of the renovation amount, and is determined by the DE Underwriter after considering the recommendation of the consultant. The contingency reserve can be paid in cash. If the contingency reserve is paid in cash, enter a “0” on this line. Make a note in the remarks section that the contingency has been paid in cash and list the dollar amount paid. That amount must be placed in the repair escrow account at closing. If the contingency reserve comes from someone other than the borrower, document the file with the donor’s name. If the contingency reserve is not used in this case, the funds will be returned to the donor. $________________________B2 Section B Cont. B3. Inspection and Title Update Fees Inspection Fees Maximum fees for compliance inspection on completed work will continue to be set by each HUD Office. The number of inspections allowed on a project is case by case, and depends on the complexity of the work. The lender is responsible to ensure that payment is made to the inspector even though the fees are paid by the mortgagor so having the fees readily available in the escrow account is desirable. # Inspections x $ = $__________ Title Update Fees To protect the lenders first lien mortgage position from mechanics liens on the property, reasonable fees charged by a title company may be included as an allowable cost of rehabilitation. Where the mortgage position is protected and is not in jeopardy, this fee may not apply. # Title Updates x $ = $_________ Sum of Inspection Fees & Title Update Fees $__________________B3 Section B Cont. B4 Mortgage Payments The borrower is permitted to finance in the escrow account up to 6 months mortgage payments on a 203 (K). This is allowed ONLY when the property is uninhabitable. If the renovation is complete prior the 6 months, the remaining mortgage payments will be used to pay down the principal at the Final Release. They cannot be used to make mortgage payments while living in the subject property. PITI and monthly MIP payment are to be used in the calculation of the mortgage payment. #Mortgage Payment x $ = $______________B4 B5 Subtotal for Rehabilitation Escrow Account (Sum of B1 through B4) $____________________B5 Section B Cont. B6 Architectural and Engineering Fees The borrower may finance the fees charged by an architect to do the necessary drawings of the plans for the Appraiser to review. $____________________B6 Section B Cont. B7. HUD Consultant Fees Not necessary for 203 K Streamline but, in cases where the rehabilitation project is large, >$35,000 in total rehabilitation cost or there are structural changes, you must have an HUD Consultant. The most current schedule of maximum are listed below. An additional fee of $100 can be financed if the Borrower requests a feasibility study prior to submitting a sales contract to a seller. The amount entered here must also be contained in the written agreement between the consultant and borrower. $____________________B7 Allowable Consultant Fees Cost of Repairs Fee <$7,500.00 <$15,001.00 <$30,001.00 <$50,001.00 <$75,001.00 <$100,001.00 >$100,000.00 $400.00 $500.00 $600.00 $700.00 $800.00 $900.00 $1,000.00 Section B Cont. B8 Permits Building permits can be financed and should be shown on this line. Permits must be in place prior to the first release. $___________________B8 B9 Other Fees (explain in Remarks) Any other fee that may be necessary to complete renovation. (ie. Construction fee, Energy Audit Fee, Structural Certification Fee) $___________________B9 B10 Subtotal B5-B9 $___________________B10 Section B Cont. B11 Supplemental Origination Fee 1 ½ % of the rehabilitation amount or $350, which ever is greater. This fee goes to the lender. $___________________B11 Section B Cont. B12. Discount Points on the Repair Costs and Fees The discount points on the portion of the mortgage amount allotted to rehabilitation can be financed on a 203 (K). This is based off of multiplying the discount by Line B10 and the product should be shown on this line. The borrower can chose not to finance this portion. The number of discount points being financed on the rehabilitation costs cannot exceed those being charged on the total mortgage amount and is a portion of the total discount charged, not in addition to. The total discount should be shown on the Firm Commitment. The cash discount should be shown on the Mortgage Credit Analysis Worksheet, MCAW. The financed discount should be shown on Line B12 of the Maximum Mortgage Worksheet, MMWS. $___________________B12 Section B Cont. B13. Subtotal for Release at Closing The costs financed in items on lines B6 through B9 and B11 and B12 may be released at closing provided that paid receipts or contractual agreements requiring payment are obtained. (Sum of B6 through B9) _____________ (Sum of B11 and B12)+ _____________ =$___________________B13 Section B Cont. B14. Total Rehabilitation Cost The numbers in B14 are carried forward to the mortgage calculation. **** You must remember to subtract A6, the EEM amount. $_____________________ Sub-Total (B1->B4) +$_____________________ Sub-Total (B6->B9 + B11 + B12) - $_____________________ Allowable Energy Improvements =$_____________________ B14 Section C: Mortgage Calculation for Purchase Transactions C1. The Lesser of the Sales Price (A1) or As-Is Value (A2) $____________________C1 C2. Total Rehabilitation Cost (B14) $____________________C2 Section C Cont. C3. The Lesser of the sum of (C1+C2) or 110% of the after improved value (A4) $_____________________ Lesser of Sales price or As-Is Value (C1) +$_____________________ Total Rehab Cost (C2) =$_____________________ Total OR $_____________________ 110% of the After-Improved Value (A4) (whichever is less) $____________________C3 Section C Cont. C4. Mortgage Amount This is the sum of C3 +/- Required Adjustments (ie, sales concession in excess of 6% of the sales price or HUD incentives). You then multiply that by the LTV Factor or Less Allowable down payment/HUD-Owned Properties. From time to time HUD has sales incentives which allows borrowers to purchase a home with a minimum down payment of $100 instead of 3%. $_____________________C4 C5. Statutory Investment Required Take the value from C3 and multiply by 3%. If this is the HUD $100 Down Payment Incentive program, then $100. $_____________________C5 Section C Cont. C6. Actual Cash Investment Required To calculate the actual cash investment the borrower has contributed, you must take the sum of C3 and A5, then subtract C4 ($ ). This figure must be equal to or greater than C5. If this is less, then you must make an adjustment to C4 to make sure the borrower has a 3% investment. C7. Adjusted Maximum Mortgage Amount (if required in C6) Section D is not needed on a Purchase transaction Section E: Calculation for Energy Efficient Mortgage E1. Energy Efficient Mortgage Amount Take the Maximum Mortgage Amount from Section C (either C4 or C7) and add in A6. The Maximum County Limit be exceeded by A6, up to $8,000. Mortgagee Letters 93-13, 95-46 and 98-02 discuss the alternatives for testing and criteria for the improvements. $____________________E1 Remarks Section It is in the remarks section that you will make notations about Cash Contingency Reserves and Other Fees. Note: UFMIP is added in this section. Also, It is recommended that the 203 K MMWS is signed prior to submission. Many lenders require it. Completed Maximum Mortgage Worksheet HUD 92700 Fees on GFE Good Faith Estimate – The below fees are disclosed on the GFE and marked as POC. If they aren’t marked POC, they will increase the borrower’s cash to close. These fees are listed on the Maximum Mortgage Worksheet. * Contingency Reserve – required for FHA 203 K. * Inspection and Title Update Fees. * Consultant Fee – required for FHA 203 K. * Architectural & Engineering Fee – required for FHA 203 K. * Don’t forget to include the lenders fee here too. Forms, Forms, Forms 203 K MMWS Homeowner/Contractor Agreement or Self-Help Agreement 203 k Borrower’s Acknowledgment Identity of Interest Certification Set Yourself Apart Now since you have the knowledge and tools, you can set yourself apart in a competitive market! Thank you for attending! Doug Jones Western Regional Sales Manager 408-438-6939 Cell djones@brokercap.com Carrie Street Eastern Regional Sales Manager 734-578-8489 carriestreet@brokercap.com Go from this…………….to this With an FHA 203(k) Loan