One World Realty in Jacksonville Florida
Charles Gaulden

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 •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!

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.