Mortgage programs can pay for home renovation
Saturday, September 10, 2011
By Polyana Da Costa, bankrate.com
Two little-known home renovation mortgage programs offer solutions for buyers and homeowners who want to renovate.
Fannie Mae and the Federal Housing Administration have home renovation mortgage programs that allow buyers to borrow based on what the house is expected to be worth after the home rehab is completed. Homeowners can also use both programs to refinance their existing mortgage, plus the renovation costs, into one loan.
FHA's 203(k) program and Fannie's HomeStyle Renovation Mortgage have been around for years.
"A couple years ago there wasn't as much demand for these loans," says Leesa Sandoval, a loan officer with PrimeLending in Dallas who specializes in renovation mortgages. "But now they are great to get some of this [housing] inventory sold and get these foreclosures out of the market."
The FHA insured 22,491 home renovation mortgages in the 2010 fiscal year -- more than six times the number it insured in 2007, according to the agency's latest report on 203(k) loans.
Dustan Shepherd, a loan officer and 203(k) specialist with BNC National Bank in Overland Park, Kan., says while demand for the rehab loans is up, many borrowers are not aware of the programs or think they are too complicated.
Unlike credit lines, these renovation loans require borrowers to show the money was spent on the house. In the standard FHA 203(k) program, the borrower hires a consultant to assess the construction plan and to perform an inspection before a "draw"-- when a portion of the money is disbursed to the contractor. Borrowers have up to six months and five draws to finish a project. The HomeStyle program does not require a consultant to monitor the work, only an initial and final inspection.
While rehab loans involve more work than traditional mortgages, they can help those who want to buy discounted homes that need repair.
Mr. Shepherd says he recently helped a couple that bought a foreclosed house in Kansas City, Mo., for $26,000 and borrowed $136,000 to renovate the property. An appraisal estimated the home would be worth about $135,000 after the work is completed. The couple was able to take out an FHA 203(k) mortgage totaling $144,000, which covered the price of the house, renovations, and loan costs, minus a down payment. "It's a great way to buy low and renovate to the buyer's specific style and taste," Ms. Sandoval said.
But how do you know which loan is better? It depends on the situation.
Those who don't have great credit should probably opt for an FHA 203(k). Most HomeStyle lenders require a credit score above 680. To get the best rate on a HomeStyle mortgage, borrowers need to have a minimum 740 credit score, Ms. Sandoval says.
For borrowers with credit scores lower than 740, it's best to compare estimates, Ms. Sandoval says. FHA does not set a minimum score requirement for 203(k) loans, but many lenders require a score of 640 or greater. There are a few exceptions and some lenders accept scores as low as 600, Mr. Shepherd says.
Under the FHA's 203(k) program, borrowers can get a mortgage with a down payment as little as 3.5 percent. HomeStyle requires a minimum 5 percent down payment.
The FHA 203(k) program is available only for owner-occupants. The HomeStyle program allows investors.
The 203(k) rehab mortgage must comply with FHA loan limits. The limit varies by county but is $271,050 in most places. In high-cost areas, the limit is as a high as $625,500 starting Oct. 1. The upper limit in highest-cost areas is $729,750 through September.
With a 203(k) loan, borrowers can get up to 110 percent of the home's appraised value, compared to 95 percent with a HomeStyle loan. Both appraisals are based on what the house is expected to be worth after repairs.
For more information call Dustan Shepherd at: 1-800-689-6001 or email him a question at: info@203kkc.com
Also published at:
Pittsburgh Post Gazette
Detroit News
Fidelity.com
Fox Business News
Wednesday, September 14, 2011
Wednesday, May 11, 2011
Keeping Your Homeowners Insurance Up To Date
Home insurance, also commonly called hazard insurance or homeowners insurance (often abbreviated in the real estate industry as HOI), is the type of property insurance that covers private homes. All lenders require an HOI policy that meets or exceeds the loan amount at the time of closing. Although most homeowners have a current policy (83% per a recent study), many have not been reviewed annually, thus the cost replacement value has not kept up with the increase in the cost to rebuild the home. As devastating storms have recently torn through the southeastern United States, many homeowners are finding that their current policy does not cover all of their rebuilding costs or that many policies did not cover certain storm damage from natural disasters like flooding or tornados.
Your homework for the coming week is to pull out your HOI policy and call your agent for a review.
If you are interested in using a FHA 203k mortgage in a storm-ravaged area feel free to call me at 1-800-689-6001 or e-mail me at info@203kkc.com to discuss your particular situation.
Your homework for the coming week is to pull out your HOI policy and call your agent for a review.
If you are interested in using a FHA 203k mortgage in a storm-ravaged area feel free to call me at 1-800-689-6001 or e-mail me at info@203kkc.com to discuss your particular situation.
Friday, March 25, 2011
FHA 203k Loans Volume Continue To Increase In 2010
The FHA 203k is a valuable tool for financing homes in today’s residential real estate market. Take the time to learn the basics and find a 203k lender who can assist you in identifying a team of 203k professionals that can help you realize your dream of homeownership.
email me with your 203k questions at: dshepherd@bncnationalbank.com or call at: 1-800-689-6001
Friday, February 25, 2011
FHA Loans Do Not Have A Prepayment Penalty
Just a quick reminder that FHA loans do not have a prepayment penalty. You can payoff the loan early or make periodic payments toward principal reduction without any a negative recourse.
The annual mortgage insurance (paid monthly) is in place for a minimum of 60 monthly payments and then can be removed once the loan-to-value reaches 78%.
Effective with mortgages endorsed for insurance on or after December 8, 2004, the refund schedule for those borrowers who refinance to another FHA-insured mortgage is modified to a three-year time period. A refund for loans not refinancing to another FHA - insured mortgage is eliminated.
Mortgagee Letter 2005-03
The annual mortgage insurance (paid monthly) is in place for a minimum of 60 monthly payments and then can be removed once the loan-to-value reaches 78%.
Effective with mortgages endorsed for insurance on or after December 8, 2004, the refund schedule for those borrowers who refinance to another FHA-insured mortgage is modified to a three-year time period. A refund for loans not refinancing to another FHA - insured mortgage is eliminated.
Mortgagee Letter 2005-03
Tuesday, February 15, 2011
FHA Annual Mortgage Insurance Premium To Rise Quarter Of A Point
HUD this afternoon released the attached Mortgagee Letter 11-10 notifying lenders that with case numbers assigned on and after April 18, 2011 the annual premium will increase 25 basis points. The one-time upfront fee will stay at 1%. With loans in excess of 95% LTV the annual premium will move from 90 basis points to 115 basis points.
Wednesday, February 9, 2011
How Is A 203k Renovation Loan Different?
Most mortgage financing plans provide only permanent financing. That is, the lender will not usually close the loan and release the mortgage proceeds unless the condition and value of the property provide adequate loan security. When rehabilitation is involved, this means that a lender typically requires the home improvements to be finished before a long-term mortgage is made.
When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203k program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work.
How the Program Can Be Used
This program can be used to accomplish rehabilitation and/or improvement of an existing one-to-four unit dwelling in one of three ways:
To purchase a dwelling and the land on which the dwelling is located and rehabilitate it.
To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.
To refinance existing liens secured against the subject property and rehabilitate such a dwelling.
How long does it take to process and close a 203k loan? After the loan application is taken the borrower and BNC will work together to complete a renovation loan package for the home. A home inspection of the property (we require the use of a 203k consultant for all 203k loans including streamlines), gathering bids from various vendors, developing the draw structure and agreeing upon the length of time to complete construction are all issues that have to be accomplished during this time. The renovation package can take one week to two months to complete depending upon your renovation needs. The total time to process and close a 203k will vary depending upon the time needed to process your credit and the time required to complete the renovation package. 203k loans with a renovation loan package that takes less than four weeks to complete should be in a position to close within 60 days from application (remember all renovation takes place after closing).
When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203k program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work.
How the Program Can Be Used
This program can be used to accomplish rehabilitation and/or improvement of an existing one-to-four unit dwelling in one of three ways:
To purchase a dwelling and the land on which the dwelling is located and rehabilitate it.
To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.
To refinance existing liens secured against the subject property and rehabilitate such a dwelling.
How long does it take to process and close a 203k loan? After the loan application is taken the borrower and BNC will work together to complete a renovation loan package for the home. A home inspection of the property (we require the use of a 203k consultant for all 203k loans including streamlines), gathering bids from various vendors, developing the draw structure and agreeing upon the length of time to complete construction are all issues that have to be accomplished during this time. The renovation package can take one week to two months to complete depending upon your renovation needs. The total time to process and close a 203k will vary depending upon the time needed to process your credit and the time required to complete the renovation package. 203k loans with a renovation loan package that takes less than four weeks to complete should be in a position to close within 60 days from application (remember all renovation takes place after closing).
Tuesday, January 11, 2011
First Time Home Buyer Tax Credit Still Available For Some Veterans
In the fall of this year, all eyes were on our industry and the last push to close loans under the First-Time Homebuyer Tax Credit (extension deadline: September 30, 2010). Like many of you, I took a deep breath after my last closing and moved forward.
However, I let the provision for veterans and other federal employees fall by the wayside, and only last night while searching the Internet for mortgage data did I have my moment of clarity and realize that I had dropped the ball in marketing to my veteran clients. When Congress took action in November 2009 to extend the date for the First-Time Homebuyer Credit to April 2010, they also added additional language for our country's military veterans and other federal employees. The guideline reads as follows:
Members of the military and certain other federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and qualify for the credit. Thus, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2011. If a binding contract is entered into by that date, the taxpayer has until June 30, 2011, to close on the purchase. Members of the uniformed services, members of the Foreign Service and employees of the intelligence community are eligible for this special rule. It applies to any individual (and, if married, the individual's spouse) who serves on qualified official extended duty service outside of the United States for at least 90 days during the period beginning after Dec. 31, 2008, and ending before May 1, 2010.
More First-Time Homebuyer Tax Credit information can be obtained from the IRS website. Remember this is a tax credit and can be used on any loan program that best represents the veteran's needs, including VA, FHA (including the 203k), USDA and conventional.
However, I let the provision for veterans and other federal employees fall by the wayside, and only last night while searching the Internet for mortgage data did I have my moment of clarity and realize that I had dropped the ball in marketing to my veteran clients. When Congress took action in November 2009 to extend the date for the First-Time Homebuyer Credit to April 2010, they also added additional language for our country's military veterans and other federal employees. The guideline reads as follows:
Members of the military and certain other federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and qualify for the credit. Thus, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2011. If a binding contract is entered into by that date, the taxpayer has until June 30, 2011, to close on the purchase. Members of the uniformed services, members of the Foreign Service and employees of the intelligence community are eligible for this special rule. It applies to any individual (and, if married, the individual's spouse) who serves on qualified official extended duty service outside of the United States for at least 90 days during the period beginning after Dec. 31, 2008, and ending before May 1, 2010.
More First-Time Homebuyer Tax Credit information can be obtained from the IRS website. Remember this is a tax credit and can be used on any loan program that best represents the veteran's needs, including VA, FHA (including the 203k), USDA and conventional.
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