FHA 203k Renovation Loan The Silver Lining in the Perfect Storm By Ernie Espinoza
The Perfect Storm…
Declining properties values Continued declining values projected Spike in REO inventories Aged housing stock Liquidity crisis in mortgage market Limited supply of mortgage products Equity diminished in existing housing stock Pent up demand for entry level home buyers FHA loans nearing 60% of all properties financed
The Silver Lining
The FHA 203(k) was designed to revitalize the nations housing stock and create homeownership opportunities It will finance any property in any condition and close “As-Is” HUD Insures these loans up to 110% of the “As completed” value FHA = credit liquidity; In this mortgage crisis.
Marketing options in an REO driven market… Fix
the property and sell to owner occupant buyers
As-Is to investors
As-Is to owner occupant buyers
Are you marketing homes that look like this?
Are you fixing up the properties before they are listed?
Fix the property and sell to an owner occupant buyer If you have 8,000 propertiesâ€Ś And you spentâ€Ś on each property $5,000 ea. = $40,000,000 $10,000 ea. = $80,000,000 $15,000 ea. = $120,000,000 How much time does it take to manage a rehab?
Sell “As-Is” to an Investor Investors want a discount… 20% - 40% 8,000 Properties @ $130,000 avg. Price
20% = <$208,000,000> 30% = <$312,000,000> 40% = <$416,000,000> What happens to the comps?
Sell “As-Is” to an owner occupant
Most home buyers don’t have 10% or 20% down for a conventional loan. FHA is becoming the financing option for most owner occupant home buyers FHA will not close on a property that is not habitable according to the FHA appraiser How do you avoid the 11th hour call?
Benefits of FHA 203(k) Renovation Financing
The property will close “As-Is” in any condition No repairs needed to close. No Termite completion… OK No Kitchen… OK No Bathroom… OK Cracked Slab… OK Fire Damaged…OK “BTOR” (Blue Tarp on Roof)…OK Well & Septic work needed… OK
All Repairs are financed into the buyers new loan…
An Inspection of all major systems is completed by a HUD approved consultant (Standard Renovation Loan) List of repairs, i.e. “Work Write Up” is given to the Appraiser The house is appraised as if the work has already been completed. “Future Value Appraisal”
Cost of repairs 10% Contingency reserve Up to 6 months PITI (Standard Only) Consultant fee (Standard Only) Inspection fees Title update fee Architectural, permit & inspection fees Supplemental origination
Sample Transaction Purchase price: Renovation acct.: Acquisition cost: Down payment (3.5%): Closing costs: Base loan amount:
$120,000 $ 30,000 $150,000 $ 5,250 $ 6,100 (Can be paid by the seller) $144,750
FHA will lend up to 110% of â€œAs-Repairedâ€? Value. (The appraisal could come in at $137,000)
Streamline FHA 203(k)
Same as the standard 203(k) but easier… Designed for less complicated repairs cosmetic in nature (paint, carpet, termite, roofing, appliances, kitchen or bath remodel, HVAC) Not for structural improvements HUD consultant not required Cannot finance any mortgage payments into loan Maximum repair budget $35,000 (Including soft costs. $31,000 bid)
Investor Renovation Loans Conventional “HomeStyle” renovation loans Same concept and process as FHA 203(k) Full doc Max LTV 80% One unit only No pre-payment penalties OK to fix & flip or hold as a rental
Benefits to the Seller Faster marketing Sell to more owner occupant buyers Sell properties “as-is” – no work required to close escrow: We supply marketing flyers Seller is perceived as socially conscience by helping improve the community
Benefits to the Seller cont…
Buyers do all work on the property after the close of escrow No out of pocket expense to repair the property Save time coordinating rehab work. Property is appraised at repaired value FHA will lend 110% of the appraised “repaired value” Reduces liability. No implied warranties
Benefits to the Buyers
Ability to customize and modernize the home to their tastes. Finance up to 6 mos. mortgage payments while the house is being remodeled (standard renovation loan) Easier FHA qualifying guidelines. Equal to 2 loans in 1. Saves time and expense of getting 2 loans Ability to purchase multi-units with a small down payment. (owner occupied)
Most home buyer’s close broke
Where do they get the money… To
fix the water heater when it breaks? When they need new carpet? When the roof needs replaced?
Home Depot credit cards are about 22% Credit card payment on $8,000 is $200 How much is a mortgage payment on $30,000 at 7%?
Millions of Families in the US
Are living in homes with… Leaky
roofs Broken floor boards Worn Carpet Old Unsafe Electrical Systems Non working Heating Systems Faulty Plumbing…Leaky faucets Non-Working Water Heaters Inadequate Energy Efficiencies
Millions of Families in the US…
Are living in homes that are… Cold
in the Winter Hot in the Summer Infested with Insects and Rodents Flaking lead based paint Unsafe and Unclean.
When a Dad comes home from a hard day at workâ€Ś
To a house that looks like thisâ€Ś
Or like thisâ€Ś
How is he going to treat his wife and kids? Kids don’t want to come home to a place like that They are on the streets joining gangs and taking drugs… This is an epidemic Home IS where the Heart is… We have an opportunity to make a difference
We can help our Customers turn thisâ€Ś.
With Renovation Financing we can turn thisâ€Ś
We remove the barriers to reduce buyer fall-out
How others operate Complicated
contractor registration process
Credit Report required for all contractors General Liability Insurance required Workers Comp required Several additional disclosures required to be signed by the contractor not required by HUD
How we operate Easy
contractor registration process
No Credit Report required for contractor General Liability Ins not requierd Workers Comp only if they have employees No additional disclosures required to be signed by the contractor
How do we assure on-time closings and happy customers? We educate the borrowers and their agents on the process and set the proper expectations on what they need to do to close in 30 days or less Education via on-line classes PowerPoint PDF emailed to the borrowers and their agents (available upon request)
Most people can’t visualize what the house can be once it is fixed up…
So we do it for them…
Government Renovation Financing Available on this property.
This photo was digitally enhanced to assist the buyer in visualizing what the property could look like with renovation financing. Dreaming of a new home? We provide the financing to help you make your dreams come true. Buy this property and get $ 5,000; $10,000; $20,000 or more built into your loan to construct your dream home. Make no payments for 6 months*
Unique Marketing We help the buyers visualize what the home could look like after it is all fixed up Marketing flyers or post cards can be delivered to the property or to the listing agent to distribute to the community Digitally enhanced before and after photos can be used on the MLS to show what the house “could” look like after a remodel
Marketing Flyers and Post Cards will be available for each property.
You can create a win-win-win and make a difference in the communities we lend in
Win for the Seller - They can market and close their REO “as-is” to an owner occupant buyer for a greater net price than to an investor Win for the Buyer – they get to buy a distressed home at a discount and finance all the repairs to create a dream home Win for the Community – The community benefits by people buying homes and improving the neighborhoods
Steps for Success Master the Maximum Mortgage Worksheet Communicate with the buyer & their agent Get a home inspection fast Get a bid from a contractor fast Get Contractor profile fast Master FHA guidelines
Contact me for more Info on 203K loans and other programs. Ernie Espinoza 626.278.1415 firstname.lastname@example.org