Easy as 203k

Your Dream Home in a Snap.Easy as 203k.

“ A home is more than just where you live…rebuild, renovate or refresh your home with this amazing loan. No really, if you want to buy a fi xer-upper or refi and remodel that old kitchen and bath – you can do it with the 203k.”

TY PENNINGTON Guaranteed Rate Spokesperson

Why an eBook on 203k loans?

The Federal Housing Authority (FHA) has been offering affordable mortgages to homebuyers since 19781, and FHA’s 203k mortgage loan is one of the most innovative financial tools available to help you rehabilitate or remodel your home. The 203k requires less rigid credit qualifications and a lower down-payment requirement than typical home loans.1 With many distressed homes available on the market you can not only find a home in your desired location, but you can create the home of your dreams without breaking the bank. The FHA 203k home renovation loan offers more than just a facelift for that distressed diamond in the rough, there are many options available from new windows to a complete rebuild from the foundation on up.1

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- The FHA 203k Mortgage Loan

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1 203k program information can be found at HUD.gov.

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/203k--df

203k Basics

What is a 203k loan?

FHA’s 203k loan program aims to revitalize neighborhoods by providing an affordable means to improve homes for a reasonable cost.1 203k loans offer reduced down payments and flexible credit score requirements that will allow you to: 1) purchase and rehabilitate a distressed home or 2) remodel your current home while staying within or below your budget.1 The catch is, this loan can only be used for your primary residence.1

How do I know which 203k loan I need?

There are two types of 203k mortgage loans and both can be used to purchase or refinance;1 the secret lies in being clear about your goals (i.e., new windows and appliances or a major rehabilitation). Once you’ve determined the type of improvements you want or need, deciding which loan you need is easy:

• Streamline 203k - Allows for smaller updates or improvements that do not require the use of plans but are limited to $35,000 in improvements (this dollar limit includes construction reserves and fees).1

• Full 203k - Allows for structural changes to your home with the use of architects plans.1

Which lenders offer 203k mortgages?

203k loans have more moving parts than your typical home loan1 and your mortgage professional should be well-versed in the 203k lending guidelines. You’ll find many large banks and some mortgage brokers have the knowledge and expertise to originate only the Streamline 203k and this can make finding a seasoned 203k mortgage professional challenging.1

By asking your potential 203k mortgage specialist a few short questions, you can quickly narrow down your options:

• How many years have you been originating 203k loans?

• How many full 203k loans have you closed? If you’ve not closed any full 203k loans, why?

• What local areas of the city are you most familiar with?

What do I need to apply for a 203k loan?

Applying for a 203k loan is not much different than applying for most other mortgages. You’ll need to be employed and provide documentation of your current income, assets and debts (this includes child support and alimony).1 In addition to the necessary documentation, you’ll need to have secured a down payment, typically a minimum of 3.5 percent of your total projected costs.1

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Can I use the 203k loan to buy or fi x-up an investment home or my second home?

No. The 203k loan is strictly for your primary residence.1

Do I have to live in the home as my primary residence until my loan is paid off ?

No. The FHA 203k requires you live in the home for one full year aft er the construction has been completed.1

What is the minimum credit score you need to qualify for a 203k loan?

A minimum credit score of 640 (as of September 2014) is required.1

Is there a limit to how much I can borrow with the 203k loan?

Yes. FHA loan limits will vary from county to county.1 When verifying your county limits the site can, at fi rst glance, appear complicated; however, you’ll only need to choose your state, enter your county then hit the send button at the bottom of the screen.1 To confi rm your county’s limit go to: https://entp.hud.gov/idapp/html/hicostlook.cfm

Will I still need to pay mortgage insurance?

Yes. Private mortgage insurance is required on all FHA loans regardless of the loan-to-value.1 All FHA loans require an up front mortgage insurance premium of 1.75 percent and monthly mortgage insurance to be built into your monthly mortgage payment.1

What are the down payment and loan-to-value requirements for a purchase and refi nance?

Down payment and loan-to-value requirements will vary based on:

• The type of home you are purchasing or currently own.1

• Whether or not someone, who will not occupy the new home, will be on the loan.1 In the mortgage industry thisperson is considered a non-occupying co-borrower – someone who will help you qualify for the loan but will notlive in the home with you.1

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ 203k Basics

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When purchasing, the down payment requirements are:1

When purchasing, the total down payment is based on the total project cost and not the purchase price.1 The total projected costs include everything from the purchase price, rehabilitation costs, labor and fees associated with attaining the loan.1

Here’s an example:

Purchase Price: $200,000

Total Costs (per contractor’s bids): $30,000

Contingency (15% of total costs): $4,500 (for any unanticipated costs)

Fees Associated with Obtaining the Loan: $2,000

TOTAL PROJECT COST $236,500

3.5% Down Payment $8,277

TYPE OF HOMEOCCUPYINGCO-BORROWER

NON-OCCUPANTCO-BORROWER

Single Family Home 3.5% 3.5%

Condominium 3.5% 3.5%

Townhome 3.5% 3.5%

Planned Unit Development (PUD) 3.5% 3.5%

Multi-Family (2 Units) 3.5% 25%



------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ 203k Basics

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When refinancing, the lender will limit your loan-to-value (what you owe versus what your home is currently worth) to 97.5%.1 The loan-to-value limits for each property type are:1

Can my down payment come from a gift?

Yes. Gifts can be used for your down payment and closing costs.1 The gift can only be accepted from a family member or close family friend.1

Now that you know how to qualify, which loan suits your needs and how much equity or capitol you’ll need, let’s take a look at the details of each 203k loan.

TYPE OF HOMEMAXIMUM LOAN-TO-VALUE

Single Family Home 97.5%

Condominium 97.5%

Townhome 97.5%

Planned Unit Development (PUD) 97.5%

Multi-Family (2 Units) 97.5%



------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ 203k Basics




Full 203k Loan Qualifications

The Full 203k Loan can assist you with larger scale projects like the complete reconstruction of a home. To be eligible, repairs must exceed $5,000.1

What kinds of homes are eligible for a Full 203k Loan?1

• Single Family Homes

• Condominiums (restrictions apply)

• Townhomes (fee-simple)

• Multi-Family Homes (4 unit limit)

Ineligible properties include:1

• Homes that never have been completed

• Homes that are less than one (1) year old

• Co-operative units

• Non-owner occupied homes

• Homes to be used by non-profit companies

• Mixed-use (e.g., store front with an apartment above)How many full 203k loans have you closed?




http://www.investopedia.com/terms/h/habendum-clause.asp

What kind of home construction will the full 203k allow or not allow?

Full 203k allowable improvements include:1

While the 203k loan allows for a wide range of construction, there are improvements that are excluded, such as:1

• Barbecue pits

• Exterior hot tubs

• Saunas, spas and whirlpool baths

• Outdoor fi replaces or hearths

• Swimming pools

• Television antennas and satellite dishes

• Tennis courts

• Home additions

• Updating and/or remodeling of kitchens and bathrooms

• Elimination of health and safety hazards (e.g., lead based paint, asbestos, mold, well/septic)

• New exterior siding, windows and exterior/ interior door replacement

• Replacement or reconditioning of any systems including: heating, air, electrical and plumbing

• Connection to public water or sewer lines

• New flooring, tiling and carpeting

• Handicap accessibility

• Roofi ng, gutters and downspouts

• New appliances (used are not allowed)

• Construction or rehabilitation of a new garage

• Exterior and interior paint

• Basement waterproofi ng, fi nishing and remodeling

• Gut rehabilitation or remodeling such as the relocation of load-bearing walls

• Tear-down and rebuild of home with all of the foundation intact

• Landscape upgrades such as additions of exterior decks, patios and porches

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Full 203k Loan Qualifi cations




In addition to acceptable 203k construction improvements there are allowances, or limitations, for each property type:

Single Family Homes - You can convert a single family to multi-family. All zoning changes must be in place prior to the close of your 203k loan.1

Condominiums - No structural work is allowed, the building must be FHA approved and individual buildings within the condominium development must not contain more than four units. This means that while one condo building with 16 units is ineligible, 4 buildings with 4 units in each structure is acceptable.1

Multi-Family Homes - You can convert from a multi-family to a single family.1

How is FHA involved in the process?

Your lender will assign a 203k FHA consultant to your project.1 Your FHA consultant will walk through your home and write up a cost estimate for the FHA required repairs along with your wish list.1 Additionally, the consultant will complete all lender required paperwork to keep the loan process moving along.1 While your FHA consultant will assist with your project and answer any of your questions, the consultant’s main goal is to protect FHA’s collateral, your home.1

Do I hire the contractor or does my FHA consultant?

You hire your own contractors; however, your lender must approve each contractor.1 Here’s how it works:1

1. Your FHA consultant will complete a cost estimate which outlines the total cost of construction.

2. You call general contractors for bids.

3. Once you have all of your bids (get at least two) your consultant will present your complete construction plan to your lender for approval.

Will my consultant inspect my home during the construction period?

Yes. Your consultant will inspect your home, generally no more than five times, to certify that the construction is moving along and being completed to HUD and local municipal code standards.1

Will I be charged for FHA’s consultant?

Yes. The consultant’s fee will depend on the total cost of your repairs and must be paid up front.1 To learn more about fees, you can find a local consultant at https://entp.hud.gov/idapp/html/f17cnsltdata.cfm – simply search for a consultant in your area and inquire about regional and project fees.

How long do I have to complete the construction?

FHA requires that:1

• Work must be started 30 days from the closing of your purchase or refinance

• There must be no lapses of work for more than 30 days once the work has begun

• Any construction must be completed within 6 months (FHA may allow for exceptions)

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Full 203k Loan Qualifications




Streamline 203k Loan Qualifications

The Streamline 203k Loan is a limited repair loan, with no minimum repair requirement, which allows you to repair and/or improve your home without depleting your savings.1 The program allows for up to $35,000 in repairs and does not allow the use of plans, engineers and/or architects.1

What kinds of homes are eligible for a Streamline 203k Loan?1

What kind of home construction will the Streamline 203k allow or not allow?

Improvements allowed by the streamline 203k include:1

The Streamline 203k prohibits:1

• Single Family Homes

• Condominiums (restrictions apply)

Ineligible properties include:1

• Homes that never have been completed

• Homes that are less than one (1) year old

• Townhomes (fee-simple)

• Multi-Family Homes (4 unit limit)

• Non-owner occupied homes

• Co-operative units

• Updating and/or remodeling of kitchens and bathrooms

• Elimination of health and safety hazards (e.g., lead based paint, asbestos, mold, well/septic)

• Connection to public water or sewer lines

• Painting (interior & exterior)

• Replacement or reconditioning of any systems including: heating, air, electrical and plumbing

• New exterior siding, windows and exterior/ interior door replacement

• Plumbing (copper replacement)

• Major rehab or remodeling (including structural work of any kind)

• Any type of new construction - this includes room additions

• Repairs requiring detailed drawings or architectural exhibits

• Any repairs/improvements requiring a work schedule longer than 6 months

• Repairs/improvements that would not allow you to live in a property within 30 days

• Landscaping or similar site improvements




http://www.investopedia.com/terms/h/habendum-clause.asp

How is FHA involved in the process?

Your lender will assign an FHA consultant for the initial cost write-up of repairs – beyond that, an appraiser will complete any inspections.1

Do I hire the contractor or does my FHA consultant?

You are responsible for hiring your own contractors.1

Will my consultant inspect my home during the construction period?

No. Your appraiser will conduct all inspections during the construction period to ensure all updates are up to HUD and local municipal code standards.1

Will I be charged for FHA’s consultant?

Yes. The consultant’s fee will depend on the total cost of your repairs; however, the typical fee is approximately $500, but it can vary.1

How long do I have to complete the construction?

FHA requires:1

• Work to be started 30 days from the closing of your purchase or refinance

• There must be no lapses of work for more than 30 days

• Any construction must be completed within 6 months (FHA may allow for exceptions)

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Streamline 203k Loan Qualifications




General 203k Tips

As with any mortgage purchase or refinance, there are some tips (a dos and don’ts list of-sorts) that will ensure a favorable experience: 1. Continue with your current employment. A job change is the midst of your loan being processed can result in your loan being denied.

2. Continue to pay all of your bills on time. Your lender will pull your credit prior to your closing and late payments can lower your credit score resulting in a higher interest rate or loan denial.

3. Do not accumulate new debt. New debt after you’ve been qualified for a mortgage will force the lender to recalculate your monthly obligations with your new debt. The result can be a lower approved loan amount or a loan denial.

4. Do not apply for any credit during the mortgage process. Credit inquiries can negatively impact your credit scores by five points each inquiry. Lower credit scores can result in a higher interest rate or loan denial. As with any mortgage financing tool you should always speak with your mortgage professional about all the details that apply to your situation.

Recommended Resources

u Find local HUD-approved inspectors

u Find local HUD-approved consultants

u Streamline 203k PowerSaver Pilot Program

Any questions?

Contact us via: Email: [email protected] Facebook: facebook.com/guaranteedrate Twitter: twitter.com/guaranteedrate

Ebook author: Selene Garcia All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Guaranteed Rate, Inc. does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Guaranteed Rate, Inc. Guaranteed Rate, Inc. its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.

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