203(k) Financing Daniel Dobbs

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203(k) FinancingDaniel Dobbs.Senior Loan
Officer American Commerce Mortgage(949)
250-3981 Dandobbs6_at_gmail.comOCBANKREPO.com
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Introduction

• Daniel Dobbs 24 years as a loan consultant
• Closed over 1,000 personal transactions
• Brokers Notary License
• AA from OCC .B.A in Comm from CSUF
• Published writer, photographer
• Formerly Licensed by the DRE for Continuing Ed
• Attended all the Googles work shops for SEO
• Have Produced 4 RE Videos
• Built 8 highly Google Ranked Websites

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Todays Agenda

• Introduction
• 20 minutes or less
• Featured Programs
• Standard FHA 203k (100k max)
• Streamlined FHA 203k ( 35K max)
• Eligible / Ineligible Properties
• Eligible / Ineligible Improvements

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Todays Agenda

• Qualifying
• Flow Process (who does what and when)
• Disbursement Process
• Making this Work
• FHA 203k Resources
• FHA Worksheets

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Why the 203(k)?

• FHA 203(k)
• Increase loan origination volume
• Sell more listings
• Work with more buyers
• Helps buyers buy the worst home in the best
  neighborhood (referrals)
• The good news.very few industry professionals
  know anything about

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Eligible Properties

• SFRs, PUDs Condos (Rehab limited only to unit
  interior)
• 2-4 unit properties..1 unit must be owner
  occupied
• Condos in FHA approved projects
• REOs, foreclosures, and short sales
• Rental properties in wrecked condition

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In-Eligible Properties

• Homes that have never been completed
• Log Homes
• Condotels
• Cooperatives
• New home never before occupied (1 yr)
• REOs, foreclosures, and short sales
• Rental properties in wrecked condition

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Eligible Improvements are

• Permanent part of the home adds value
• Architectural exhibits not required
• Additions to the structure (bed bath)
• Finish basement or attic patios, decks, roofing,
  landscaping or terraces
• Safety, energy efficiency electrical upgrades
  (solar panels)
• Handicapped accessibility improvements

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Eligible Improvements are

• Upgrade of existing HVAC systems
• Appliances
• Upgrade of plumbing electrical systems
• Flooring
• Minor remodeling (no structural repairs)
• Weatherization including storm windows/ doors,
  insulation, weather stripping, etc
• Purchase installation of new

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Ineligible Improvements are

• Luxury Items
• Pools / Hot Tubs(1500 can go to repair of
  present pool and spa)
• Tennis Courts. Gazebos
• Any improvement that will take longer than than 3
  months
• Amenity improvements
• New or foundation repairs

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Rehab House 1

• Appraised Value 525,000
• Net Sales Price 500,000
• Closing costs 25,000
• Up to 6 of the sales price
• No Cash BackNo Cash-Out

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Rehab House

• Appraised Value 525,000
• Net Sales Price 500,000
• Closing costs Seller pays 25,000

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Available Loan Programs

• 30 yr Owner Occupied Primary Res
• Jumbo loan amounts (to 625,000)
• Conforming loans (to 417,000)
• 1-yr adjustable-rate mortgages are for Conforming
  loan limits only (no jumbos)
• Temporary rate buy down (no permanent )
• No permanent buy downs
• Loan is fully assumable to qualified buyers with
  credit check

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FHA Eligible Closing Costs

• The buyer is limited to paying 1 point
  origination..originators can receive rebate
  pricing
• Buyer can pay discount pointsmust be a true cost
  and can not be charged by broker..only a mortgage
  banker or other direct lending instition
• Other Loan Costs
• Escrow Title Fees
• Appraisal
• Pre - Paids (prop taxes, insurance premiums.. Hoa
  dues)

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How to Qualify?

• US Citizens, Perm. Non-Resident aliens
• Owner- Occ, Primary Res, No 2nd homes
• UW may be automated or manual
• Standard FHA guidelines apply
• Non-Occupant Co-signers ok
• Move-up Buyers (75 equity in current home if
  that is being rented outverified by appraisal)

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How to Qualify?

• Self Employed ok avg. over 2 years
• 2 years Complete Fed. Tax Returns
• W-2s
• Beware of hidden expenses that are revealed on
  the 1040s (i.e. child care union dues, child
  support / alimony)
• 1 month Paystubs
• 2 mos. Bank Statements

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Marginal Credit OK (1)

• Chapter 7 BK allowed 24 mos after discharge date
  good credit has been re-established
• Less than 24 mos. (more than 12 mos) may be
  allowedprovided the reason for BK was due to
  extenuating circumstances and unlikely to re
  occur
• Chapter 13 BK allowed after 12 mo.

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Marginal Credit (2)

• Provided payment history has been satisfactory
  with court approval
• Foreclosures/deed-in-lieu OK after 3 yrs
• Court ordered judgments Tax liens may be
  included in the refinance
• All neg credit must be addressed by letters of
  explanation and documentation

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Down Payment

• Purchases/Refi 3.5 minimum required
• Checking, savings,401K or cash-on-hand
• Gift from relative, fiancé or domestic partner
• Can be from Non-Occupying on borrower
• Cash Reserves NOT REQUIRED on 1-2 unit
  properties.
• With that in mind..

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The loan-to-value (LTV) is based on

• Lesser of sales price or
• "as is" appraised value
• -------------------------------------
• PLUS repair costs
• -------------------------------------
• MINUS sales Concessions (carpet/paint)
• 110 of as completed appraised value

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For Example
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Available on Hud.gov
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Time Line 3-7 Working Days
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Time Line ..Days??
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Making it Work

• Borrower puts together as many of these team
  members as soon as possible
• Lender and Loan Officer that is FHA 203K approved
  and experienced
• Motivated RE Agent
• Contractors
• Building material suppliers
• FHA Cost Consultant (CC) (HUD.gov)

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Time Line 3-7 Working Days

• Borrower finds homesubmits offer as a simple FHA
  loan (not 203k)
• Lender then accepts the offer and the 30 day
  clock starts ticking
• The offer should be recognized as for 30 days
  from date of final acceptance NOT when offer was
  initially written
• Once borrower has verbal approval of the offer
  schedule have the CC ready for inspection.

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Making it Work (1)

• Borrower meets at property w/ Cost Consultant
  (400) to discuss repairs best way maximize
  future increased value
• Agent is present to open/close property
• CC prepares estimates for borrower
• Borrower shops contractors (by fax if possible)
• Borrower meets contractor (s) at property w/ RE
  agent to open /close home for final bids
• Borrower cant be compensated for their labor.

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Making it Work (2)

• Loan officer receives application and processes
  the loan
• Investor
• Underwrites
• Closes
• Sets up Escrow Repair Account
• Handles all Draws
• Certifies inspections which aredone by the
  original appraiser)

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Streamline Draw Process (1)

• For borrowers doing the work themselves, a
  self-help agreement is required before funds are
  disbursed - the check is payable to the borrower
• For borrowers working with a contractor, a W-9
  must be provided to establish the contractor as
  approved
• Shortly after the close of escrow before any work
  is commenced two-party check made payable to the
  borrower the contractor.

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Streamline Draw Process (2)

• The check is then sent to the borrower who
  signs the check over to contractor.
• The bank place a hold on the funds until the
  check clear (10 days) and this may slow the start
  date.

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Streamline Draw Process (3)

• Included with the disbursement is an instruction
  letter that explains how the final disbursement
  works
• Balance disbursed upon completion of all work
• If the cost of the renovation is over 15,000 (of
  course it is) an inspection by orig.appraiser is
  required (signs off) and sent to lender
• Final Check is disbursed within 10 days

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203K Standard Draw Process (1)

• After the loan is funded set up in system
• Welcome package and Draw Request Guide is sent to
  the borrower
• Signed W-9 is required from contractor before
  funds can be drawn
• Disbursements are made as each phase of the
  project is completed based on the draw paperwork
  provided by the cost consultant
• 20 days to START the DISBURSEMENTS

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203K Standard Draw Process (2)

• 20 days to START the DISBURSEMENTS
• Exception are for the cost of flooring, roofing,
  cabinets, and windows -
• 50 of the cost of these items can be disbursed
  upfront as part of a normal draw
• Inspections are required prior to each
  disbursement

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203K Standard Draw Process (3)

• Inspections are required prior to each
  disbursement (max. of five draws are allowed)
• Draw amounts can vary and are based on the work
  performed
• Up to 6 months of house payments can be included
  in the loan IF home is not occupied during
  construction
• Borrower may not be compensated for his/her labor
  only actual costs (i.e materials)

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Borrower vs. Contractor

• Work can be completed by EITHER
• Borrower must be qualified approved to do work
  before loan funds sign Self-Help agreement
• Example Borrower is a licensed plumber or
  electrician etc.
• Rehab must begin within 30 days of closing and
  finish in 3 months
• Borrower may not be compensated for his/her labor.

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Contractor Requirements

• Credentials verifying requirements for licensing,
  bonding insurance
• Contractors provide estimates that clearly state
  nature type of repair and the cost for
  completion of the work

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Trouble Shooting

• Loan must not exceed actual cost of construction,
  (purchase) or refinance of an existing lien,
  reasonable closing costs .
• In other words If a borrower submits cost
  estimates to the lender that does not increase m
  the propertys value DOLLAR FOR DOLLAR the loan
  amount will be reduced and the borrower will need
  to fund the difference with their own money

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Trouble Shooting

• Unused loan proceeds not advanced must be
  applied back to principal
• Their payments are not lowered..just the
  principal
• Contractors no showing for estimates is a real
  problem.
• W-9s not signed and submitted with first draw
  request.

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Trouble Shooting

• Please consult the Calif. State Contractors Board
  for violations or consumer complaints
• http//www.cslb.ca.gov/
• Borrower choosing a lender that is not local or
  hands onor is FHA Direct Endorsement
  approved then the loan is a 60 day nightmare
• For a list of eligible lenders in your area visit
  HUD.gov

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FHA 203(k) Forms
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FHA 203(k) Resources
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In Closing

• If you would like to be on my mailing list .
  please call or send me an email or visit my
  website OCBANKREPO.com
• Id like to know your thoughts about the webinar
  any suggestions to make it better
• And thank you I know your time is valuable this
  market is driving all of us to work harder and
  smarter..and I hope you feel the time we spent
  together was worthwhile.
• Thank you good luck