One World Realty in Jacksonville Florida
Charles Gaulden
904-859-1778904-859-1778

FHA 203k loans are there different qualifying standards than a typical FHA Loan

On FHA 203k loans are there different qualifying standards than a typical FHA Loan? No! credit qualifying is the same for any FHA loan with a Lenders. The only big qualifying difference is the Loan Amount as the buyer must qualify for a higher loan amount with a FHA 203k loan because of the additional repair/improvement monies. •What does it mean when a property is listed as HomePath Renovation eligible? Properties listed as HomePath or HomePath Renovation eligible are Fannie Mae foreclosures. Generally, we evaluate all of the renovation loans (and regular loans if the home is in good shape) and choose what is best for the buyer. Fannie Mae cannot make you use a particular product so please call if the agent is telling you that as sometimes it’s a matter of ensuring you are addressing the property concerns. To See if a property is HomePath or HomePath Renovation eligible visit www.HomePath.com. •What is the maximum amount of work that can be done with a HomePath Renovation loan? There is a $35,000 maximum for cost of renovation on a HomePath Renovation loan. However, both FHA 203(k) and Fannie Mae HomeStyles renovation loans do NOT have a hard Maximum Repair Amount. •Can you put in a pool with a FHA 203k or Conventional Renovation loan? Yes! With the standard conventional renovation loan you can purchase OR refinance and include the addition of a pool. You can also include fencing, pavers, summer kitchens, sidewalks etc. Pool repairs are also allowed with NO limits, as are dock and bulkhead repairs. NOTE – If your buyers are interested in new construction they can include the pool in their mortgage so the builder does not have to finance the project. CLICK HERE for more on POOLS!

The Best Choices for Kitchen Flooring. Kitchen Renovations

Kitchen Renovations

With so many options to choose from, it’s hard to know what’s best for kitchens. So we’ve narrowed down the choices for you.

We’ve taken out the guesswork and chosen four flooring types that make the most sense for kitchens, and we explain why they are ideal.
Hardwood Flooring is Ideal When:

  • You don’t want your kitchen to look dated over time.
  • You have an open floor plan.
  • You seek durability.

Hardwood flooring, with its unmatched warmth and visual appeal, is a great choice if you want to create a look that never really goes out of style, giving you a good return on investment if you ever sell your home.
Also, if you have an open floor plan, hardwood works well in both kitchens and living areas. It creates a warm and unified look.
Hardwood is also:

  • Highly durable. It can withstand decades of use.
  • Low-maintenance.
  • Moisture-resistant if you choose a prefinished type.

Hardwood flooring is made in two ways: solid wood strips or engineered wood planks.

Engineered wood is the better choice for kitchens. It has a veneer of real wood backed by layers of less expensive plywood. This construction provides dimensional stability that makes the flooring less susceptible to movement caused by changes in humidity and temperature — common in kitchens.

Cost: $3 to $12 per sq. ft. Installation: $5 to $12 per sq. ft., depending on the complexity of the job.

Vinyl Flooring is Ideal When:

  • You cook a lot.
  • You want the easiest-to-maintain floor.
  • You are on a tight budget.

Sheet vinyl belongs to a group of flooring products called resilient flooring, which is the softest flooring option. If you cook a lot, this cushiness makes it easier on your feet while easing muscle fatigue.
Also, sheet vinyl is much more forgiving if you (or someone in your family) is a bit of klutz who tends to drop things. You’ll have less breakage.
Plus, sheet vinyl flooring is a snap to clean up; it’s completely waterproof and stain-proof.
However, depending on the size and layout of your kitchen, you may have seams. Standard width for vinyl flooring is 12 feet. If your kitchen is wider than that, you’ll definitely have seams, which can let moisture into the subfloor and trap dirt if they aren’t tightly bonded.
On the upside, sheet vinyl requires no ongoing maintenance beyond sweeping and mopping.

 If the softness of vinyl flooring appeals to you most, you might opt for cushioned vinyl flooring, which is backed with a layer of foam (standard sheet vinyl uses felt backing).
Sounds good, but that extra cushiness makes it hard to create seams that stay tightly bonded over time. You may end up with seams that come apart, letting in moisture and trapping dirt.

Sheet vinyl comes in many colors and patterns. Thicker vinyl can feature a textured surface, and some types do an excellent job of mimicking the appearance of ceramic tile and real stone. Textured vinyl is a wise choice because it provides traction. Vinyl can be dangerously slippery when wet.

Vinyl flooring also has a wear layer that helps resist scratches and scuff marks. But it does eventually wear off. The best brands offer guarantees on the wear layer of 10 to15 years, and good quality vinyl should last 20 years.

Cost: $1 to $5 per sq. ft. Installation: $1 to $2 per sq. ft.

Don’t confuse vinyl with linoleum. While linoleum is a similar product, it is not as durable, nor as soft. Its upside is its eco-friendliness.
Porcelain Tile is Ideal When:

  • You want the toughest flooring.
  • You like the look of stone.
  • You want low maintenance.

Porcelain flooring tile, a version of common ceramic tile, is the durability champ. It’s fired at high temperatures that produce an extremely hard, durable, stain-resistant tile that is impervious to moisture.
In fact, it’s so tough it can be used outdoors in virtually any climate. 

Like common ceramic tile, porcelain tile comes either unglazed or glazed. The unglazed versions take on the color of their clay mixture, so they have naturally earthy tones.

Glazed tiles have a glass-like coating that can be made in virtually any color, and can mimic the look and texture of real stone at a much lower cost than stone.

Make sure you choose porcelain tiles certified as slip-resistant by the Americans with Disabilities Act — the designation should be visible on product literature or packing materials.

Cost: $1 to $20 per sq. ft. Installation: $5 to $10 per sq. ft.

Cork Flooring is Ideal When:

  • You want an eco-friendly choice.
  • You want a softer floor than wood or tile.
  • You want slip-resistance.

Cork is made from tree bark that’s harvested every eight to 10 years; it’s a sustainable material, meaning the bark grows back and can be harvested repeatedly.
Countries that produce cork are careful to regulate harvesting to ensure future supplies.

Cork has a unique cellular structure that’s waterproof and compressible, which makes it a comfortable, moisture-resistant choice. It comes in 12-inch-by-12-inch tiles and 1-foot-by-3-foot planks, each with a unique grain pattern of swirls and speckles.
The surface is naturally textured, which makes it slip-resistant.

But unlike other flooring options mentioned, cork floors need to be resealed every three to four years to help guard against scratches and prevent moisture from entering the seams between tiles.

Both natural wax and polyurethane are good sealers for cork. Choose water-based polyurethane that’s non-toxic or has low volatile organic compound content to keep it green.

Cost: $2 to $6 per sq. ft. Installation: $5 to $10 per sq. ft.

Related:

Kitchen Remodeling Decisions You’ll Never Regret

White: Your Kitchen’s Best Friend (And Yours)

Funky Floors slideshow

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FHA 203k & FANNIE MAE RENOVATION LOAN Changes

What are the maximum loan amounts allowed on a FHA 203k or Fannie Mae renovation loan? The max loan amounts are the same as the corresponding loan after down payment?

  • FHA 203K – The maximum loan amount for FHA loans in counties which make up Northeast Florida is now  $304,750 after down payment.
  • Fannie Mae Renovation loan – The maximum loan amount for a SFR is $417,000 after down payment. However, Fannie Mae loan limits are higher for multi-family properties. 2 units-$533,850; 3-units-$645,300; 4-units-$801,950
  • What are the benefits of HomePath mortgages? The biggest benefit has to do with condos since Fannie Mae HomePath condos do NOT require approval and there is NO appraisal.  For investors on HomePath the minimum down payment is just 10%, and for those buyers who want to perform all the repairs/improvements themselves, since there is no appraisal then can close and then start the work. NOTE – HomePath Renovation loans DO require appraisals and have different down payment requirements.
  • When writing a CONTRACT for an FHA 203k or Fannie Mae Conventional Renovation loan what additional information needs to be included? Generally, you will write the contract As-Is (not always for resales) for the sales price of the house. Just check “FHA” or “Conventional” like all transactions. Its best practice to note in “Other Terms & Conditions” that the “Buyer to use FHA 203k / Fannie Mae Homestyles Renovation loan to address property conditions”. There are times with a resale that you might write a clause involving value but not on REO or short sale properties.
  • When do your payments start on a FHA 203K or Fannie Mae renovation loan? Since in the end they are standard loans the first payment would be the same as every home loan. You close in December your first payment is February 1st. However, on projects where the house is not habitable or there is a larger scope of work, the buyer can finance up to 6 mortgage payments into the loan (or when the house is habitable).
  • “Special Financing” Signs for Listings – THEY WORK!

    If you have a less-than-perfect listing, outdated home for sale or Short Sale/REO listings, ask about our “Special Financing” signs. Combine the sign with the “Special Financing” flyers which alert potential buyers they can “Customize” or “Personalize” the home and traffic is guaranteed to increase.
    Example – I had an agent put a sign on a property Thursday afternoon. I had 3 calls by noon on Friday about the property which I re-routed to the agent.

FHA Changes on FHA 203k Renovations

FHA Changes – January 1, 2014 – Perhaps the most notable FHA change we have seen in years will occur Jan. 1, 2014. The maximum loan limit for FHA loans in Jacksonville, FL (and surrounding counties) will be lowered to $304,500. The counties include Duval, Clay, Saint Johns, Nassau and Baker. NOTE – This goes into effect with FHA case numbers assigned after Dec. 31, 2013 so anyone on the fence needs to make a decision in the next week.

When is the appraisal ordered on a FHA 203k or Fannie Mae Renovation loan? We do not order the appraisal until the detailed Scope of Work is completed and signed by the buyer and the contractor. The appraisal is performed Subject-To the After-Improved value. On FHA 203k you get up to 110% of the After-Improved value which means a 10% buffer. All repairs are done AFTER CLOSING.

How is the down payment calculated on a FHA 203k loan? The minimum 3.5% down payment is calculated off the sales price of the house plus the cost of rehabilitation or repairs. Example: $100,000 sales price + $15,000 repairs = $115,000 x 3.5% = $4,025. A buyer can certainly choose to have a larger down payment but these are the minimums.

While every renovation loan can present a different scenario for inspections, process etc. we receive many questions for the basic premise of the product. Here is a short, generic summary of a renovation loan on an “As-Is” property:

Home goes under contract “As-Is”

Buyer has home inspection, WDO inspection, etc.

Items are identified that MUST be addressed for the home to meet minimum property standards AND the buyer decides what improvements he/she WANTS to make on the home.

A general contractor provides a detailed Scope of Work with line items breaking out labor and materials for each item.

The appraisal is ordered – The Scope of Work is uploaded for the appraiser who includes it in the appraisal and assigns value based on the work being done. THE WORK IS NOT DONE UNTIL AFTER CLOSING.

  • The loan closes. The renovation monies are put in escrow with our draw center. Some FHA loans pay 50% of the costs right at closing.
  • When the work is complete, an inspection is ordered to ensure the work was done in workmanlike manner. In addition, a final title update is done to ensure there are no liens on the property before the contractor is paid the remaining funds.
  • Will Fannie Mae make repairs one of its REO HomePath properties?
    Yes and No. Typically, listings by Fannie Mae are As-Is properties which is why most often we use either a FHA 203K, Conventional renovation loan or a HomePath Renovation loan to address the property issues. However, there are isolated instances when Fannie Mae will address some major concerns that affect the health/safety/liveability of the home. The challenge is two fold: Fannie Mae must get at least 3 estimates before performing the work which generally leads to significant delays. Also, you are counting on the asset manager to decide who performs the repairs and thus the quality of the work – ie – Cheapest is Best. Solution – write the contract As-Is and let the buyer include ALL of the repairs/updates in his/her renovation loan.

FHA 203k or Fannie Mae renovation loan

  • What are the maximum loan amounts allowed on a FHA 203k or Fannie Mae renovation loan? The max loan amounts are the same as the corresponding loan after down payment.
  • FHA 203K – The maximum loan amount for FHA loans in counties which make up Northeast Florida is $387,500 after down payment.
  • Fannie Mae Renovation loan – The maximum loan amount for a SFR is $417,000 after down payment. However, Fannie Mae loan limits are higher for multi-family properties. 2 units-$533,850; 3-units-$645,300; 4-units-$801,950
  • On a FHA 203k or Fannie Mae renovation loan what is the MAX amount you can spend on the repairs/improvements?
  • FHA 203k – There is No MAX Repair Amount except the max loan limit for the area – $387,500 and/or the appraised value.

    NOTE – On FHA 203k loans you get up to 110% of the After-Improved Value – 10% buffer.
  • Fannie Mae Renovation loan – The max amount allowed on repairs/improvements is 50% of the After-Improved value (appraisal) up to the conventional loan limits of $417,000 (SFR).
    • Example- $125,000 sales price + $150,000 Improvements = $275,000. Since the repairs are $150K the home must appraise for $300,000  
  • When do your payments start on a FHA 203K or Fannie Mae renovation loan?
    Since in the end they are standard loans the first payment would be the same as every home loan. You close in December your first payment is February 1st. However, on projects where the house is not habitable or there is a larger scope of work, the buyer can finance up to 6 mortgage payments into the loan (or when the house is habitable).
  • “Special Financing” Signs for Listings – THEY WORK!  If you have a less-than-perfect listing, outdated home for sale or Short Sale/REO listings, ask about our “Special Financing” signs. Combine the sign with the “Special Financing” flyers and traffic is guaranteed to increase.
  • Example – I had an agent put a sign on a property Thursday afternoon. I had 3 calls by noon on Friday about the property which I re-routed to the agent.

FHA 203k and Fannie Mae Renovation loans

  • When is the appraisal ordered on a FHA 203k and Fannie Mae Renovation loans? We do not order the appraisal until the detailed Scope of Work is completed and signed by the buyer and the contractor. The appraisal is performed Subject-To the After-Improved value. On FHA 203k you get up to 110% of the After-Improved value which means a 10% buffer. All repairs are done AFTER CLOSING.
  • What happens if the utilities CANNOT be turned on with a property because of leaks, extended vacancy, etc? With the renovation loan we would include the cost of any necessary repairs AND we will always keep at least 15% contingency money in the case there are additional repairs needed. Example – Cost of work = $10,000. Contingency would be at least $1,500. For homes that have been vacant for least 12 months – JEA will require an electrical inspection and city inspection prior to activating the power or water.
  • How is the down payment calculated on a FHA 203k loan? The minimum 3.5% down payment is calculated off the sales price of the house plus the cost of rehabilitation or repairs. Example: $100,000 sales price + $15,000 repairs = $115,000 x 3.5% = $4,025. A buyer can certainly choose to have a larger down payment but these are the minimums.
  • Are Renovation loans – FHA 203k and Fannie Mae Homestlyes – good for Refinances too? Yes. You can Refinance & Renovate which means not only lowering your interest rate, but also including the cost of improvements as well. 3 great advantages:
  • Appraisal is based on After-Improved Value
  • FHA 203k – you get up to 110% of the after-Improved Value.
  • Closing costs can be financed into the loan
  • On FHA 203k and Fannie Mae Renovation loans can the buyers act as their own contractor? While the guidelines on some versions of the loans allow for “Self Help”, both HUD and Fannie Mae discourage the practice because of the level of risk. The guidelines call for the buyers to be licensed/insured contractors AND there are NO upfront monies provided for materials. So, the buyers must prove the ability to perform the job in workmanlike manner AND have sufficient funds for both the loan and repairs. There are other guidelines that restrict the amount of work that can be done in a “Self Help” transaction.

FHA 203k Loan Renovations Project

  • On a HUD REO property, what does it mean when HUD allows an Escrow Holdback?
    HUD foreclosures generally are not financable As-Is. The HUD appraisal/property condition report will note the major items to be addressed and a very rough estimate of the costs. When HUD allows for an escrow holdback it simply means they will allow the buyer to escrow his/her OWN funds to address the necessary repairs in order to meet FHA minimum property standards. However, the majority of the time there are additional items to address after inspections AND the buyers are better off using either a FHA 203k or Fannie Mae renovation loan to address the property conditions. HUD properties are best addressed on a case-by-case basis to ensure the best solutions are being used.
  • On FHA 203k loans are there different qualifying standards than a typical FHA Loan? No! credit qualifying is the same for any FHA loan with REMN. The only big qualifying difference is the Loan Amount as the buyer must qualify for a higher loan amount with a FHA 203k loan because of the additional repair/improvement monies.
  • What is the maximum amount of work that can be done with a HomePath Renovation loan? There is a $35,000 maximum for cost of renovation on a HomePath Renovation loan. However, both FHA 203k and Fannie Mae Standard renovation loans do NOT have a hard Maximum Repair Amount.
  • If a buyer wants to use a VA loan but the home has WDO damage etc. is there any way to avoid a renovation loan? Yes! REMN offers the HomeFixer Program on ALL loans – including VA. If there are minor repairs items that no do NOT affect the health and safety of the property, the buyer can escrow up to $5,000 of their own funds to address the repairs within 14 days of closing. CLICK HERE for HomeFixer Details.
  • If a buyer wants to use a conventional loan and put 20% down, what happens if the home needs a new roof (ex) in order to obtain financing? We simply treat the transaction as Fannie Mae renovation loan but the buyer can choose to put additional money down. Ex – House is $200,000 but needs a new roof. Buyer gets an estimate for $10,000 for new roof. $210,000 x 20%  = $42,000. The buyer can always pay more down and not finance the repairs, but the Renovation Loan/Appraisal allows the transaction to close despite of the property condition.

FHA 203k or Fannie Mae conventional renovation loan

  • How much renovation can you do on a FHA 203k or Fannie Mae conventional renovation loan?  As far as the Scope of Work, you can literally take a home down to the foundation and build it back up from scratch. The only cap on the dollar amount of work has to do with appraised values, buyer qualifying and FHA county loan limits/Conventional loan limits.
  • Appraised Vale  – on FHA 203k you get up to 110% of the after-improved value. Conventional appraisals are standard with no buffer.
  • FHA loan limits – In Northeast FL the limit is $387,500 for SFR (after down payment).
  • Conventional loan limits – $417,000 (after down payment). Higher limits for 2-4 unit properties.
  • On Conventional Renovation loan what are some luxury items that are allowed? Swimming Pools, Summer Kitchens, Landscaping, work on Docks & Bulkheads, etc. Call for specific details or scenarios.
  • What are the benefits of HomePath mortgages? The biggest benefit has to do with condos since Fannie Mae HomePath condos do NOT require approval
    and there is NO appraisal.  For investors on HomePath the minimum down payment is just 10%, and for those buyers who want to perform all the repairs/improvements themselves, since there is no appraisal then can close and then start the work. NOTE – HomePath Renovation loans require appraisals and have different down payment requirements.
  • When writing a CONTRACT for an FHA 203k or Fannie Mae Conventional Renovation loan what additional information needs to be included? Generally, you will write the contract As-Is (not always for resales) for the sales price of the house. Just check “FHA” or “Conventional” like all transactions. Its best practice to note in “Other Terms & Conditions” that the “Buyer to use FHA 203k / Fannie Mae Homestyles Renovation loan to address property conditions”. There are times with a resale that you might write a clause involving value but not on REO or short sale properties.

FHA 203k loan or Fannie Mae renovation loans

On FHA 203k loan or Fannie Mae renovation loans, what happens if there are more repairs than expected after completing the inspections? There are several options depending on the seller of the property:
  • If it’s an REO/short sale thus an As-Is property, you can simply back out of the contract based on the inspection contingency.
  • You can also continue with the REO transaction and request the seller reduce the sales price based on the property conditions. However, you must assume the bank will NOT make an changes since the property is being sold As-is. If the repairs affect the health & safety of the property you might see some relief.
  • At times,  you can ask the REO bank to make certain repairs that affect the livability of the home. This can be time consuming since they will require several estimates. In addition, Fannie Mae often has a contractual clause that allows them to raise the sales price to address the repairs. This is NOT needed if you simply use a renovation loan.
  • If the buyer is past the inspection period per contract and still needs to back out of the contract based on property conditions, we can use the Financing Contingency to cancel the transaction and get the Binder Deposit returned.
  • If its a traditional resale then the seller could either make the repairs, reduce the sale price or cancel the transaction based on the proeprty conditions.
  • Why would someone NOT get approved for a HomePath or HomePath Renovation loan? HomePath loans are conventional loans thus much more restrictive when it comes to qualifying. Here are some of the factors that can be restrictive and also require additional monies down:
  • Credit – you must have stronger and deeper credit. at least 660-680 to start (without 20% down).
  • Property type – Condos are much stricter/riskier and thus the automated underwriting  (DU) will often not approve buyers for condos unless they have strong credit and/or larger down payments.
  • Down payment – If the buyer is putting 3-5% down it is going to be much stricter than if they are putting 20% down. It’s a simple layer of risk issue.
  • Debt-to-income ratio – Fannie Mae loans are much stricter than FHA and generally cannot exceed 45% DTI regardless of the buyer’s overall profile.
  • Rates – HomePath loans have numerous additional overlays when it comes to pricing rates which often leads to higher interest rates and a higher costs to even get a rate.
  • Does using a FHA 203k or Fannie Mae renovation loan help with getting lower insurance rates? YES! Not only can it make the difference of even getting insurance on certain properties, it allows the buyer to get better insurance rates based on the after-improved condition of the property. For more details on this please contact me via phone or email.

FHA 203k and Fannie Mae renovation loans

  • How do you know the amount of money to include for repairs in a FHA 203k or Fannie Mae conventional loan? For the sake of getting an initial loan approval we either make an educated guess on repair costs or submit a loan to qualify for the MAXIMUM loan amount. However, when the Scope of Repairs (SOR) if finalized we simply edit the loan to match and update all numbers for the buyer. They key is getting that initial credit approval without waiting on the Scope of Repairs to be finalized.
    • ex: $150,000 sales price + $20,000 repairs = $170,000 loan for approval.
    • Final SOR comes in at $17,000 we adjust the loan to $167,000 prior to final approval and closing.
  • What happens if we Fannie Mae accepts our offer using a Homepath Renovation loan but it turns out FHA 203k was a better loan choice for the buyer? Simple edit. We can amend the contract to indicate buyer is using a FHA 203k loan. As long as Fannie Mae knows you are using the correct type of loan to get the property closed (renovation) they will allow you to edit the contract. Ideally, we will pre-approve the buyers prior to the offer so the initial contract is correct from the start.
  • What are the differences with when Fannie Mae or Freddie Mac is the seller on a REO property? Since they are officially government-backed agencies, both Freddie and Fannie are exempt from paying Deed Stamp Taxes unless specifically addressed on the REO contract addendum. In addition, much like a typical REO property, the seller will not pay the settlement fee ($450-$850) or survey ($350). NOTE – If the contract is written correctly, Fannie Mae will often pay up to 6% of buyers closing costs/prepaids (on owner occupied) and Freddie Mac will pay up to 3% of buyer’s closing costs/prepaids. Each property/asset manager can dictate what the bank will pay on behalf of the buyer.