One World Realty in Jacksonville Florida
Charles Gaulden

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.

FHA 203k & Conventional Renovation

  • With FHA 203k or conventional renovation, if a WDO inspection indicates a house has Live Termites does the seller/bank have to treat the house before closing? NO. As long as the treatment is listed on the Scope of Repairs it will be done AFTER CLOSING like everything on a FHA 203k or Conventional renovation loan.
  • If a home is partially rehabbed but still needs wall, plumbing, electrical etc., can that be finished with a FHA 203k or Conventional renovation loan? YES. As long as the home was existing and was originally issued a certificate of occupancy (1 year for FHA) you can complete the work in your loan. However, on Conventional Renovation loans you CAN complete a new home that was never finished or issued a certificate of occupancy (or add a pool).
  • Can someone purchase and renovate a 4-unit property with an FHA 203k loan? YES. You can do up to 4 units as long as you live in one of the units as your primary home. NOTE – The buyer can use projected rental income from the other 3 units to help qualify for the loan.  
  • What is the minimum credit score for a Fannie Mae HomePath or HomePath Renovation loan?
  • HomePath -LTV greater than 80% –  660 and auto approve in desktop underwriting (DU); LTV less than 80% determined by DU but generally 620.
  • HomePath Renovation – LTV greater than 80% –  660 and auto approve in desktop underwriting (DU); LTV less than 80% determined by DU but generally 620.

Jacksonville Homes For Sale 203k Renovation Loans

WASHINGTON – June 5, 2012 – Sometimes the ideal house needs a little bit of work, and private lenders don’t like doling out more money than a home is worth. Unknown to many buyers, however, is an FHA program that allows them to add up to $35,000 onto their first mortgage with the extra money earmarked for immediate repairs.

The FHA 203(k) loan is available from approved FHA mortgage lenders nationwide, providing the borrower plans to live in the home. The downpayment is approximately 3.5 percent of the total loan amount including repairs.

The Department of Housing and Urban Development lists the following steps to secure an FHA 203(k) loan:

• The first step for a potential homebuyer is to find an appropriate fixer-upper and execute a sales contract. Before bidding however, a buyer should a do a feasibility analysis of the property. The contract should then state that the buyer is seeking a 203(k) loan, and that the contract is contingent on loan approval based on the additional required repairs.

• The homebuyer selects an FHA-approved 203(k) lender and submits a detailed proposal on the work that will be done, along with a cost estimate for each repair or improvement.

• An appraisal will determine the value of the property after the planned renovation.

• Once a borrower passes a lender’s credit-worthiness test, the loan closes for an amount that covers the purchase (or refinance) cost of the property, remodeling costs and allowable closing costs. The loan includes a contingency reserve of 10 percent to 20 percent of the remodeling portion of the loan to cover any unplanned extra work.

• While the seller gets paid at closing, the extra repair funds go into an escrow account. As projects are completed, the new homeowner submits draw requests to pay the vendors who did the work.

If the borrower chooses to do so, he can also have up to six monthly mortgage payments added to the cost of rehabilitation if the home won’t be occupied for a while.

For a list of lenders offering the 203(k) Rehabilitation Program, check the 203(k) Lenders List on HUD’s website.

© 2012 Florida Realtors®
Jacksonville Homes For Sale 203k Renovation Loans