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!

How to Choose Stock Kitchen Cabinets

Buying stock cabinets for your kitchen remodel can definitely save you money. Here are some tips to help you make the right buying decision.

Stock cabinets save you time because you don’t have to wait for them to be built. And they save you money because you aren’t paying for customizations.
But that doesn’t mean you have to sacrifice quality. You just need to know what to look for.

What to Look For

  • Solid wood and plywood cabinets. They’ll give you better longevity and crisper details than pressed wood.
  • Walls at least ½-inch thick. They’re more sturdy.
  • Consistency of finish. Lesser quality cabinets often have irregular finishes and colors from one cabinet box to the next.
  • Full-extension hardware. It allows you to open drawers all the way and open doors almost 180 degrees to make access easier.
  • Dovetail joinery. Or a metal box. Drawer sides and backs that are stapled together won’t last as long.

Cost and Installation

The cost of quality stock cabinets for an average-sized kitchen generally runs $8,000 to $10,000. Semi-custom cabinets would cost about twice that. And full custom cabinets would cost even more.

There are some lower-cost stock alternatives, such as IKEA (as low as $2,500), but you’ll offset your savings with the hassle of difficult assembly — fine if you have the patience and skill.

But unless you’ve got professional building experience, actually installing kitchen cabinets isn’t a typical DIY job.

So carve out $100 to $300 per cabinet (depending on labor rates in your area) to have them professionally installed.

The Drawbacks of Stock Cabinets

  • Finish and color choices are limited. The most likely options are painted white, natural wood, or stained maple and cherry.
  • Stock cabinets are only 36 inches tall. If you want taller cabinets, you’ll have to go semi-custom, which can take you up to 42 inches.
  • You could lose potential storage space. Filler strips are used to cover gaps created when the stock sizes don’t quite fill the space — whereas custom cabinets can be measured to take advantage of all space.
  • Extra details such as crown molding aren’t included. Mitered corners and furniture-style sides aren’t included either. However, you can add crown molding yourself later if you choose.
  • Warranties are limited. The industry standard is about 5 years, and they only cover product failure, not wear and tear.

Note: You’ll also need to choose hardware. But that can be a fun project to really personalize your kitchen.
Get more tips on planning a kitchen remodel.
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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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7 Smart Strategies for Kitchen Remodeling

Follow these seven strategies to get the most financial gain on your kitchen remodel.

A significant portion of kitchen remodeling costs may be recovered by the value the project brings to your home. Kitchen remodels in the $50,000 to $60,000 range recoup about 74% of the initial project cost at the home’s resale, according to recent data from Remodeling Magazine’s Cost vs. Value Report.

A minor kitchen remodel of about $19,000 does even better, returning more than 82% of your investment.

To maximize your return on investment, follow these seven strategies to keep you on budget and help you make smart choices.
1. Plan, Plan, Plan

Planning your kitchen remodel should take more time than the actual construction. If you plan well, the amount of time you’re inconvenienced by construction mayhem will be minimized. Plus, you’re more likely to stay on budget.
How much time should you spend planning? The National Kitchen and Bath Association recommends at least six months. That way, you won’t be tempted to change your mind during construction and create change orders, which will inflate construction costs and hurt your return on investment.
Some tips on planning:
Study your existing kitchen: How wide is the doorway into your kitchen? It’s a common mistake many homeowners make: Buying the extra-large fridge only to find they can’t get it in the doorway. To avoid mistakes like this, create a drawing of your kitchen with measurements for doorways, walkways, counters, etc. And don’t forget height, too.

Think about traffic patterns: Work aisles should be a minimum of 42 inches wide and at least 48

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inches wide for households with multiple cooks.

Design with ergonomics in mind: Drawers or pull-out shelves in base cabinets; counter heights that can adjust up or down; a wall oven instead of a range: These are all features that make a kitchen accessible to everyone — and a pleasure to work in.

Related: Test Your Ergonomic Design Knowledge

Plan for the unforeseeable: Even if you’ve planned down to the number of nails you’ll need in your remodel, expect the unexpected. Build in a little leeway for completing the remodel. Want it done by Thanksgiving? Then plan to be done before Halloween.

Choose all your fixtures and materials before starting: Contractors will be able to make more accurate bids, and you’ll lessen the risk of delays because of back orders.

Don’t be afraid to seek help: A professional designer can simplify your kitchen remodel. Pros help make style decisions, foresee potential problems, and schedule contractors. Expect fees around $50 to $150 per hour, or 5% to 15% of the total cost of the project.

More tips on planning a kitchen remodel:

Keep the same footprint Get real about appliances Don’t underestimate the power of lighting Be quality-conscious Add storage, not space Communicate clearly with your remodelers

2. Keep the Same Footprint

Nothing will drive up the cost of a remodel faster than changing the location of plumbing pipes and electrical outlets, and knocking down walls. This is usually where unforeseen problems occur.
So if possible, keep appliances, water fixtures, and walls in the same location. 

Not only will you save on demolition and reconstruction costs, you’ll cut the amount of dust and debris your project generates.

More tips on planning a kitchen remodel:

Plan, plan, plan Get real about appliances Don’t underestimate the power of lighting Be quality-conscious Add storage, not space Communicate clearly with your remodelers

3. Get Real About Appliances

It’s easy to get carried away when planning your new kitchen. A six-burner commercial-grade range and luxury-brand refrigerator may make eye-catching centerpieces, but they may not fit your cooking needs or lifestyle.
Appliances are essentially tools used to cook and store food. Your kitchen remodel shouldn’t be about the tools, but the design and functionality of the entire kitchen.
So unless you’re an exceptional cook who cooks a lot, concentrate your dollars on long-term features that add value, such as cabinets and flooring.
Then choose appliances made by trusted brands that have high marks in online reviews and Consumer Reports.

More tips on planning a kitchen remodel:

Plan, plan, plan Keep the same footprint Don’t underestimate the power of lighting Be quality-conscious Add storage, not space Communicate clearly with your remodelers

4. Don’t Underestimate the Power of Lighting

Lighting can make a world of difference in a kitchen. It can make it look larger and brighter. And it will help you work safely and efficiently. You should have two different types of lighting in your kitchen:   Task Lighting: Under-cabinet lighting should be on your must-do list, since cabinets create such dark work areas. And since you’re remodeling, there won’t be a better time to hard-wire your lights. (Here’s more about under-cabinet lights.) Plan for at least two fixtures per task area to eliminate shadows. Pendant lights are good for islands and other counters without low cabinets. Recessed lights and track lights work well over sinks and general prep areas with no cabinets overhead.

Ambient lighting: Flush-mounted ceiling fixtures, wall sconces, and track lights create overall lighting in your kitchen. Include dimmer switches to control intensity and mood.

Related: How to Choose the Best Bulb for the Job

More tips on planning a kitchen remodel:

Plan, plan, plan Keep the same footprint Get real about appliances Be quality-conscious Add storage, not space Communicate clearly with your remodelers

5. Be Quality-Conscious

Functionality and durability should be top priorities during kitchen remodeling. Resist low-quality bargains, and choose products that combine low maintenance with long warranty periods. Solid-surface countertops, for instance, may cost a little more, but with the proper care, they’ll look great for a long time.
And if you’re planning on moving soon, products with substantial warranties are a selling advantage.

Related:

Kitchen Remodeling Decisions You’ll Never Regret

White: The Savvy and Chic Kitchen Color Choice

More tips on planning a kitchen remodel:

Plan, plan, plan Keep the same footprint Get real about appliances Don’t underestimate the power of lighting Add storage, not space Communicate clearly with your remodelers

6. Add Storage, Not Space

Storage will never go out of style, but if you’re sticking with the same footprint, here are a couple of ideas to add more:
Install cabinets that reach the ceiling: They may cost more — and you might need a stepladder — but you’ll gain valuable storage space for Christmas platters and other once-a-year items. In addition, you won’t have to dust cabinet tops.
Hang it up: Mount small shelving units on unused wall areas and inside cabinet doors; hang stock pots and large skillets on a ceiling-mounted rack; and add hooks to the backs of closet doors for aprons, brooms, and mops.

Related: Storage Options that Pack More Space in Your Kitchen

More tips on planning a kitchen remodel:

Plan, plan, plan Keep the same footprint Get real about appliances Don’t underestimate the power of lighting Be quality-conscious Communicate clearly with your remodelers

7. Communicate Clearly With Your Remodelers

Establishing a good rapport with your project manager or construction team is essential for staying on budget. To keep the sweetness in your project:
Drop by the project during work hours: Your presence broadcasts your commitment to quality.

Establish a communication routine: Hang a message board on site where you and the project manager can leave daily communiqués. Give your email address and cell phone number to subs and team leaders.

Set house rules: Be clear about smoking, boom box noise levels, available bathrooms, and appropriate parking.

Be kind: Offer refreshments (a little hospitality can go a long way), give praise when warranted, and resist pestering them with conversation, jokes, and questions when they are working. They’ll work better when refreshed and allowed to concentrate on work.

More tips on planning a kitchen remodel:

Plan, plan, plan Keep the same footprint Get real about appliances Don’t underestimate the power of lighting Be quality-conscious Add storage, not space
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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.

HomePath Renovation & FHA 203k mortgage

What is the minimum down payment on a HomePath Renovation loan? There have been changes to HomePath loans when it comes to the minimum investment. These are all for SFR as multi-units have different guidelines.

    • HomePath – 95% for owner occupied; 90% for second homes and 90% for investment properties.
    • HomePath Renovation – 95% for owner occupied; 90% for second homes and 85% for investment properties.
    • Homestyles (Conventional Renovation) 95% for owner occupied; 90% for second homes and 80% for investment properties.
  • Can HomePath Renovation be used on any REO property? NO. HomePath and HomePath Renovation financing only apply to Fannie Mae foreclosures. To find out if a property is eligible, simple visit www.homepath.com/

to see if the corresponding logo is attached to the property. NOTE – just because a property is listed as “HomePath Renovation” eligible, it does NOT mean that it’s the best product for the home. We evaluate each property and buyer to apply the most suitable finance options since we have 5 different Renovation Loans.

  • Can you do structural work when using a FHA 203k mortgage? YES. FHA 203k loans allow for almost any permanent repair or improvement on the home, including razing the home and building a new home from the foundation up. While there are still antiquated guidelines with FHA which limit certain repairs, we generally have a solution for a necessary repair/improvement.

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 Streamline loan, FHA 203k Standard loan, Fannie Mae HomePath Renovation / Homestyle Renovation loan

    • On FHA 203k or Fannie HomePath Renovation loans, what happens to the money for repairs after closing?
      Depending on the version of the loan there are different scenarios.
      • FHA 203k Streamline loan  – 50% of the repair money is paid at closing with a 2-party check to the contractor and homeowner. The remaining funds are held in escrow by our concierge draw team. When the work is completed, there is a final inspection to ensure the job was completed in workmanlike manner AND there is a final title update to ensure there are NO liens from the contractor before issuing the final 50% check.
      • FHA 203k Standard loan – There are NO upfront monies. After closing, the funds are held by our concierge draw team. The contractor can have up to 5 draws on the repair funds. There is an inspection for each draw and there is also a 10% holdback on each draw until the final title update is clear upon completion of the job.
      • Fannie Mae HomePath Renovation / Homestyle Renovation loan – There are NO upfront monies. After closing, the funds are held by our concierge draw team. The contractor can have up to 5 draws on the repair funds. There is an inspection for each draw and there is also a 10% holdback on each draw until the final title update is clear upon completion of the job.
    • While every renovation loan can present a different scenario for inspections, process etc., we receive many questions for the basic structure of the product. Here is a short, generic summary of a renovation loan on an “As-Is” property:
      1. Home goes under contract “As-Is”
      2. Buyer has home inspection, WDO inspection, feasibility inspection, etc.
      3. 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.
      4. A general contractor provides a Detailed Scope of Work with line items breaking out labor and materials for each item.
      5. 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.
        NO WORK IS DONE UNTIL AFTER CLOSING.
      6. 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.
      7. 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.
    • How much additional out-of-pocket cost is there on a FHA 203k loan vs. a traditional FHA or conventional loan? Minimal. The “Cost of Renovation” including inspections, title updates, etc. is financed into the loan with the work. Therefore, the only real additional hard costs are – Slightly higher appraisal fee, increased lenders title insurance premiums and transfer tax adjustments per loan amount.
ex: On a $150,000 home the total difference in out-of-pocket cost might be $260.

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.