FHA 203(k) vs FNMA Homestyle – Info You Should Know

contractorThe FHA 203(k) Standard Rehab Loan, the FHA Streamline 203(k) and the FNMA Homestyle Renovation Mortgage are single-close mortgage that enables borrowers to purchase a home that needs repairs, or refinance the mortgage on their existing home and include the necessary funds for renovation in the loan balance. The loan amount is based on the “as-completed” value of the home not the present value
Here’is an overview of what you should know about each program.

FHA 203(k) Standard
•  All FHA(203k) loans require a FHA Approved Consultant who acts as a “construction manager” to oversee and inspect the rehabilitation project from start to finish. Consultant works with the borrower’s contractor to write-up a cost estimate and work plan  for the project
•  Used for the purchase or refinance of properties needing major structural repairs. Any repair is acceptable; however – health and safety items and building code violations must be addressed first.
•  Minimum $5,000 requirement for repair cost. The loan amount including purchase price and rehab cost cannot exceed the FHA maximum loan amount for the county.
•  Cost of rehab includes: energy package and lead paint abatement costs, consultant fees, architectural and engineering fees, contingency reserves, inspections and up to 6 months PITI if homeowner can’t live in property during the rehab.
•  Maximum repair amount is 110% of the after-improved value
•  Maximum LTV 96.5%
•  Eligible Properties include:
◊  1-4 unit owner-occupied properties
◊  Owner-occupied FHA approved condos in a 1-4 unit structure are eligible when   the funds are being used only to renovate the interior space of the subject unit.
◊  Mixed-use owner-occupied properties are eligible when the rehab funds are used only on the residential sections and access areas leading to it
•  Project must begin within 30 days of loan closing and must be completed within 6 months. Rehab projects lasting more than 6 months are not eligible.

FHA (203k) Streamline
Used for the purchase or refinance of properties needing minor repairs or upgrading
No Minimum Repair cost. Maximum repair cost of up to $35,000 for non-structural repairs only
•  Eligible Properties include:
◊  1-4 unit owner-occupied properties
◊  Owner-occupied FHA approved condos in a 1-4 unit structure are eligible when   the funds are being used only to renovate the interior space of the subject unit.
◊  Mixed-use owner-occupied properties are eligible when the rehab funds are used only on the residential sections and access areas leading to it
A 203(k) Consultant is not required in most cases
Maximum LTV is 96.5%.
Contractor must be licensed and bonded. Borrower is allowed to choose their own contractor as long as they meet FHA guidelines. Contractor provides written work plan and cost estimates.

FNMA Homestyle
•  FNMA Homestyle is the only rehab loan product that allows for a relationship between the borrower and the contractor.
•  FNMA Homestyle is an ideal product for borrowers who have loan amounts which exceed FHA county limits or have an LTV of less than 80%.
•  Any type of structural and non-structural repair is eligible as long as it is permanently affixed to the property and adds value.
•  Eligible properties include: 1-4 unit principal residences; one-unit second homes; one unit investor properties including condos, co-ops and PUDS.
•  Renovations must be completed within a 12 month period.
•  Maximum Repair amount is 50% of after improved value.
•  Maximum LTV is 95% for one-unit principal residence; 85% for 2 unit principal residence; 75% for 3-4 unit residence and 90% for second homes.
•  All renovation work must be performed by a licensed contractor. The borrower must choose his or her own contractor to perform the needed renovation, subject to the lender’s determination that the contractor is qualified and experienced
•  Under Fannie Mae’s “Do It Yourself” repair option, which is available for one-unit properties only, the borrower may complete repairs that the lender reviews and approves in advance.

Many of the existing homes that are listed for sale in today’s markets are functionally obsolete because they are older and don’t have the amenities today’s buyers are looking for in a home.

The answer is you can get a mortgage to buy a house and fix it up at the same time using the same loan Renovation financing otherwise known as FHA 203K and FannieMae HomeStyle loans; provide solutions for this stalled market segment. The renovation financing revolution is in full bloom as home buyers are taking properties in need of attention and turning them into dream homes with help from the FHA and Fannie Mae.prequal-vs-preapproval

Call  Rick Cignoli @ 860.945.9284 to discuss the right mortgage option for your family and to take advantage of my FREE Mortgage “Jump Start” Pre-Approval service

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https://www.forbes.com/sites/markgreene/2016/01/19/203k-and-homestyle-mortgage-loans-the-renovation-revolution/#6f027b71e1a8

 

 

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The FHA 203(k) Loan–Turning “Fixer-Uppers”into Dream Homes

The purchase of a house that needs repair is often a catch-22 situation. The bank won’t lend the money to buy the house until the repairs are complete, and the repairs can’t be done until the house has been purchased.

203k 2The FHA 203(k) Rehab Loan Program can help you with this dilemma. It allows you to purchase a property plus include in the loan the cost of making the repairs and improvements with a single mortgage. It is available to persons wanting to purchase or who own a 1-4 family owner-occupied property.

The total amount of your mortgage will be based on the projected value of your home after the renovation is complete, taking into account the cost of the work to be done. A portion of the loan is used to buy the new home, or in the case of a refinance, to pay-off any existing debt. The remainder of the loan proceeds are placed in an account for your benefit and released in stages as the rehabilitation work is completed.

Here are the Steps to a Successful Closing of a FHA 203(k) Loan:

• A potential homebuyer locates a fixer-upper and executes a sales contract after doing a feasibility analysis of the property with their Realtor. The contract should state that the buyer is seeking a 203(k) loan and that the contract is contingent on loan approval based on additional required repairs by the FHA or the lender.
• Within 7 to 10 days of signing the purchase agreement. the buyer should obtain an inspection of the property by a professional Home Inspector, a termite company and a well/septic inspector (when applicable) to make sure there are no unseen problems with the property.
• The buyer is also required to work with an  FHA Approved Consultant who will inspect the property along with the borrower to determine what repairs are needed to meet minimum FHA requirements. The borrower will also indicate any additional work they wish to have done to the property.
The Consultant will provide the buyer with a Work Write-up/Specification of Repairs which includes the Consultant’s cost estimate for completion of the project.
• The buyer will then select a contractor to perform the work. All rehab work must be performed by an experienced, licensed contractor and satisfy all lender requirements. All subcontractors must be licensed as well. FHA does not allow borrowers to use relatives as their contractor. “Self-Help” is not allowed either.
• A Homeowner/Contractor Agreement is executed between the borrowers and the contractor to ensure that a contractor is in place who will be able to complete the work for the loan amount.
The Homeowner/Contractor Agreement will include a detailed proposal (Plans and Specs) from the contractor showing the scope of the work to be done and including a detailed cost estimate on each repair of improvement of the project. This estimate must ultimately match $ for $ with the Consultant’s Work Write-up/Specification of Repairs. All work must be completed within 6 months of closing the loan.
• The Buyer is then ready to submit a formal application to the lender. The loan amount will include the agreed on purchase price for the property plus the estimated cost to rehab the property. The amount of the loan could also include a contingency reserve of 10% to 20% of the total remodeling costs and would be used to cover any extra work not included in the original proposal. It can also include up to 6 months of mortgage payments if the borrower is not going to live in the property during construction.
♦ The total loan cannot exceed FHA’s maximum mortgage limit for the        area.
♦  The 203k loan requires a minimum 3.5% down payment based on    the total amount of the home’s purchase price plus the cost of repairs.
• An “After Improved” Appraisal is ordered to determine the value of the property after the project is completed as compared to similar properties in the neighborhood.
• When the borrower passes the lender’s credit-worthiness test and the project meets FHA Guidelines, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the allowable closing costs.
• At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.
• The mortgage payments and remodeling begin after the loan closes. The borrower can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it is estimated to complete the rehab.
• Escrowed funds are released to the contractor during construction through a series of draw requests for completed work. To ensure completion of the job, 10% of each draw is held back; this money is paid after the lender determines there will be no liens on the property.

ELIGIBLE 203K IMPROVEMENTS
FHA 203k loans are offered only on 1-4 family owner-occupied properties. A full FHA 203k allows for complete renovations and rehabs of properties where the improvement cost exceeds $35,000. A Streamline FHA 203k may be used when the cost of the project ranges from $5,000 to $35,000.
The types of Improvements that borrowers may make using full FHA 203k financing include:

• Structural alterations and reconstruction
• Repair or replacing well and/or septic system
• Roofing, siding and gutters
• Major Landscape work and site improvements
• Enhancing accessibility for a disabled person
• Additions
• Kitchen and Bathroom renovations home repair 2
• Replace/Upgrade existing HVAC systems
• Replacement windows and doors
• Finish Basements and Waterproofing
• Plumbing and Electrical upgrade
• Appliances, Floor and Wall covering
• Elimination of health and safety hazards
Luxury Items that do not become permanent Part of the property are not eligible for improvements include; swimming pools, tennis/basketball courts, and hot tubs.

If you want to buy a home that needs repairs, FHA’s 203(k) may be a good option for you.Get Pre-Approved
Reach out to me with any questions or concerns you may have about the program and to take advantage of my FREE Jump Start Mortgage Pre-Approval

 

 

 

FHA to Stop Penalizing Homeowners Who Pay Off Their FHA Mortgage Early

penaltyCan You Believe It! The CFPB does something right!
For years now, FHA has assessed a “Pre-Payment Penalty” on homeowners who pay-off their FHA Mortgage early. They don’t call it that, but that’s what it is!

Here’s how it works: No matter what date in a month a FHA mortgage is paid off via sale or refinance, FHA charges that homeowner interest until the end of the month. Let’s say the closing takes place on the 2nd of the month. The loan is paid-in-full, yet FHA charges the borrower for “unearned interest” through the last day of that month. That’s a Pre-Payment Penalty in my book!

fha logoNot a big deal you say! A delay in closing a FHA mortgage past the 30th of the month means higher closing costs for those wanting to refinance and less proceeds from those selling their home. Why is this allowed to happen? Because FHA said so, that’s why. Just another way to increase their bottom line

Unfortunately, they don’t have to make the change right away.
FHA has until 1/14/15 to halt this usurious practice. In the meantime, it is business as usual.

I’m blown away!  The Consumer Finance Protection Bureau (CFPB ) is making FHA stop this rip off that has been going on for years

FHA Too Expensive for Home Buyers. There Are Other Options.

FHA says they should have done less business in the past and (to pay for their sins) they should do less business in the future. To help that process along, they drastically increased the Up Front Mortgage Insurance Premium (UFMIP), doubled the cost of the Monthly Insurance Premium (MIP), and will require the MIP to be paid for the life of the loan.

FHA MIGuess what? Their wish is coming true!  The Government Agency created in 1934 to “assist in providing housing opportunities” for American families saw their application volume drop by 50% in June. At a time when mortgage rates were near all time lows, FHA priced them self out of the market. Great help they are!

Many features of a FHA Mortgage make it an attractive mortgage option for First Home Buyers. However, the cost of the mortgage insurance makes the monthly obligation too expensive. I’m working on two transactions now. Each has challenges that could have been addressed with a FHA loan in the past.  One will be done as a conventional mortgage with a higher rate but lower MI for a savings of $60/month; the other, luckily, as a USDA Loan with a similar rate and MI that is 1/3 the cost of FHA premiums.

I don’t think I’ll recommend a FHA Insured Mortgage to my clients unless that’s the only way to get them in a new home.

NAR Supports Obama’s Housing Finance Reform Policy

National Association of RealtorsHere are excepts from a National Association of REALTOR® statement  on President Obama’s recent housing policy speech.

“NAR believes the principles of comprehensive housing finance reform outlined by President Obama will contribute to the long-term stability of our nation’s housing market and provide consumers with access to affordable mortgage credit, even during economic downturns.

“Realtors® remain steadfast in our efforts to preserve the government guarantee in any restructured secondary mortgage market to ensure the continued availability of safe, reliable mortgages.”

“Realtors® urge continued support for the Federal Housing Administration’s mortgage insurance programsFirst Home Buyer. Many First Home Buyers rely on FHA-insured loans to purchase a home. It is important that we preserve access to FHA for all qualified middle class families.

“NAR is ready and willing to work with President Obama and Congress to develop policies that ensure mortgage credit is always available at reasonable costs so that everyone who is willing and able to afford a home can do so.”

http://www.realtor.org/news-releases/2013/08/statement-from-nar-president-gary-thomas-on-president-obamas-housing-finance-reform-speech

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FHA Mortgage Monthly Insurance Premiums Are Increasing April 1, 2013

FHA Mortgage Monthly Insurance Premiums Are Increasing April 1, 2013

FHA has confirmed that the Monthly Mortgage Insurance Premiums (MIP) Are Increasing for the home loans it insures effective April1, 2013.

If you are sitting on the fence deciding whether to buy a new home this spring,
Now Is the Time to Buy. It’s going to get more expensive as the year progresses.

1.   Beginning April 1, 2013, FHA Monthly Mortgage Insurance Premiums Are Increasing by .10%
         •   For loans with down payment of between 3.5  and 5.0%, the MIP will increase
              from 1.25%  to 1.35%
         •   On loans with a down payment of more than 5.0%, the MIP will increase from
              1.20% to 1.30% 
            ◊   The increase will add about $13 a month to the payment on a $150,000 loan.
                  Not a lot … But it will affect buyers Debt-to-income (DTI) ratios and could
                  prevent some  buyers from qualifying for mortgages they might have
                  qualified for prior to the change

2.    FHA will also eliminate the cancellation of these premiums when the loan is paid down to 78% of the original appraised value.
         •   For loans with less than a 10% down payment, the MIP will be required to be paid for the entire 30 year term of the mortgage.
            ◊   The new monthly MI premium on a $150,000 FHA mortgage will be about $160.00 per month. Buyers with just a 3.5% down payment – even those putting 10% down – will pay this premium for the entire term of the loan … without regard to the value of the home and the decreasing balance on the loan in years to come.
            ◊   Do the math … that’s an additional $38,400 a home owner will have to pay in insurance premiums over a 30 year period

Remember, this is the 2nd FHA Monthly Mortgage Insurance Premium Increase  in 12 months. Last year’s 0.10% increase was mandated by the Temporary Payroll Tax Cut Act signed by President Obama in 2011. The Act has expired, but the premiums continue. This time the increase is needed to shore up FHA’s capital reserves which are in jeopardy of default.

Personally I think that FHA’s Monthly Mortgage Insurance Premiums Increase is a step backwards for the Real Estate Market.  
HUD and FHA claim their mission is to create a strong, sustainable housing market that will bolster the economy and protect the consumers. First Home Buyers will feel the impact of these changes and present a barrier to home ownership.  That’s ironic because the new administration claims to be an advocate of medium income households. Strange way to show support?

Bottom Line: The housing market is beginning to see an increase in home sale. This will beDon't sit on fence tempered by an increase in home prices and the expected increase in mortgage rates. Now is the time to consider conventional financing as a viable mortgage option and a take a hard look at other mortgage programs with lower down payment requirements and cheaper MI

Call Me @ 860.945.9284 to discuss the right mortgage option for your family and to take advantage of my FREE Mortgage Pre-Approval service. We’re licensed in all 6 New England states; NY and FL too. I’m here to help.

FHA Mortgage Insurance Premiums Are Not Cheap

With FHA-insured mortgage rates being quoted at about 0.750% lower than comparable conventional loan rates, home buyers often expect a significant savings on their monthly payment by choosing a FHA mortgage to finance the purchase of their new home.
This is not always the case. FHA imposes an Up-Front Mortgage Insurance Premium (UFMIP) of 1.75% to all its borrowers. This UFMIP is usually added to the base loan amount increasing the borrowers’ total loan amount and essentially cutting the equity created by their small down payment in half. In addition, FHA charges an annual Mortgage Insurance Premium (MIP) of 1.25% that is divided by 12 and added to the monthly mortgage payment.

Here’s an example:   A First Home Buyer purchases a single-family house for $155,000 and makes the minimum 3.5% ($5,425) down payment. Their base loan amount is $149,575. The UFMIP of $2618 is added to this base increasing the total loan amount to $152,193. The monthly principal and interest payment is calculated on this total loan amount. Using a 3.25% interest rate, the monthly mortgage payment is $662.04. Added to this payment is 1/12 of the annual MIP ($155.81) increasing the total monthly mortgage obligation $817.84. If taxes are $250 per month and Homeowners insurance (HOI)is $60 per month, the First Home Buyer’s total monthly obligation…Mortgage Principal and Interest + MIP + Taxes + Insurance…would be about $1,128 each month.
By comparison, and without going into much detail, payments on a 4.00% rate conventional mortgage with a 5.00% down payment could be about $820.00 per month including MI (plus taxes and HOI).

Why So Expensive?   Overall, Mortgage Insurance premiums on a FHA-insured mortgage are much higher than a comparable conventional loan. And this is from a government agency supposedly committed to making it easier and less expensive for First Home Buyers to get into the housing market.
Why?  This is because the FHA had a whole lot of loan defaults between 2008 and 2011 and its reserve funds are way below what is required by law. In order to remain solvent, FHA has increase mortgage insurance rates 4 times in the last 4 years. Yes, new home buyers are paying for the sins of the past. Plus, it is expected that premiums will increase again in 2013…we just don’t know how soon.

The Good News!   When FHA does increase their premiums,  all existing FHA-insured borrowers will still pay their current interest rate and MIP premium. So if you are looking to buy your First Home and take advantage of an FHA-insured mortgage the sooner the better…really!

 
Call Me
to review you mortgage options and take advantage of my FREE Mortgage Pre-Approval service. I’m here to help.