A representative in the draw center will be assigned to your account after your loan closes. Expect it to take about 1 week after closing for the first draw to be available. On a full 203k, that should not be an issue as work cannot begin until after closing and completing the first items and getting the inspection completed will generally take longer than a week. This is more relevant on a streamline where you are purchasing materials up front using draw money. Just understand that it takes time for the closing docs to get to the draw center and for your account to be fully set up.
In order for draws to be ordered on a Fannie Mae Homestyle or full 203k loan, the work must first be inspected by the HUD Consultant (on FHA) or the inspector (on Homestyle). Once the inspector signs off on the work, it will take 72 hours for the check to arrive. The check will be made out to both you and the contractor and you must sign it over to them.
On a streamline 203k, draw money is available up front for materials. If you have your own contractor, then up to 35% of the total is available for materials. When the work is completed, you will be the one to sign off that the work is satisfactory. Once you do, the draw will be made. Again, it is a 72 hour turn time from ordering the draw to receiving the check via overnight carrier.
This is one of the most common questions we run into on renovation loans. The short answer is: sometimes, but we don’t recommend it. Now for the long answer:
FHA 203k Streamline. On these loans, you can only do that work which is part of your trade. Example, if you are an electrician, then you can be allowed to do the electrical work on a project, but you would not be allowed to handle the carpentry.
Conventional Fannie Mae Homestyle. Again, only if you work in the construction industry.
Full 203k. This is the only option where we allow borrowers who are not in the construction industry to do work for themselves. The reason that it can be allowed under this program is that a HUD Consultant will be inspecting and signing off on all work, so in theory the work should be completed properly before you get paid for it.
With that out of the way, let me outline the reasons that I would discourage you from tackling the work yourself.
When choosing between an FHA 203k and a Fannie Mae Homestyle, often your situation will dictate which program you should go with. Here are a few cases where a clear winner emerges:
Quite often, a renovation loan could start out as a streamline 203k and then flip to a full 203k. Below is a list of the most common items which require us to move from a streamline to a full k.
Here are some resources which will provide you with some guidance in selecting a qualified contractor. The following sites are helpful when choosing a reputable company to handle your renovation.
If you are in the Atlanta area, I highly recommend Kudzu for finding a contractor. The site provides independent reviews from former customers. Because many of the companies on Kudzu rely on their Kudzu ratings for a large portion of their business, this does give you some leverage with the company owner should you have any problems during your project.
Note on selecting contractors: In Georgia, as of 2008 all residential contractors must be licensed by the state. I would suggest asking this question up front to avoid wasting your time with unlicensed contractors. See here for more details: http://sos.georgia.gov/plb/contractors/default.htm. For other states, you can look up licensing requirements here: http://contractors-license.org/
Selection of the contractor is the key piece in getting your renovation loan moving on the right track. If we delay the selection, it will delay everything else in the process and we could miss your closing date. Often, if you are purchasing a bank owned foreclosure, there is a penalty for missing the closing date. Therefore, we encourage you to be diligent in listing desired improvements, working with your HUD consultant to get an estimate (if this is a full 203k), and then selecting your contractor. Generally speaking, the contractor selection should be completed within 10 days of the final contract being signed in order to avoid delaying closing.
For determining which renovations provide the best return on your money, this site is a great resource: http://www.remodeling.hw.net/costvsvalue/index.html
Here is a quick checklist that we use to ensure that your project will qualify for the chosen renovation product.
How large (acreage) is the property?
On FHA loans, properties with less than an acre with a well and septic and properties with less than ½ acre with well OR septic are typically unacceptable. We do have the ability to request a waiver from HUD however this can take upwards of 30 days. If any repairs are needed to either the well or septic and the distance requirements cannot be met, HUD will not issue a waiver. By asking this question up front and the answers were yes, you could potentially restructure the loan to conventional or determine if the property could be connected to public water and sewer. If the property has a large amount of acreage, the appraiser must be able to find comparable properties with similar acreage.
Is the property a HUD foreclosure?
When calculating the loan amount on HUD foreclosure properties, the lesser of the “As Is” value or Bid price must be used. In the event the sales price is higher than the “As Is” value, creating an overbid situation, the borrower must bring in the additional funds to close.
What type of property is the borrower purchasing or refinancing?
Has the property been sold in the last 12 months?
What type of improvements is the borrower doing?
Is the property owner occupied or investment?
On owner occupied FHA loans, the borrower can only have 1 owner occupied FHA loan. On Investment properties the borrower must have 6 months cash reserves in addition to any mortgage payment reserves and may be limited in the number of properties allowed.
If this is an FHA loan, is the property at least 1 year old?
Required on FHA, no requirement on conventional except property must be “substantially” complete.
If FHA, does the borrower have another FHA loan?
Only 1 FHA loan is allowed unless borrower is moving more than 50 miles (apx) from old residence.
Contingency Reserve Requirement - This is a percentage of the total renovation budget and is used for unforseen issues that arise.
Conventional = 10%.
FHA Full 203k = 10% to 20%. The HUD Consultant will recommend the amount of the contingency reserve on the Work Write Up. (WWU)
FHA Streamline 203k - typically not needed on streamlines under $20k in repairs. Above $20k, use 10% as a rule of thumb.
We currently offer 4 flavors of our renovation products. This is a quick guide which will hopefully help you understand the differences and advantages of each.
FHA 203k Streamline
Our standard 203k streamline product provides you the flexibility of using a contractor of your choice. We will have to validate your contractor and that process does take a bit of time to complete. 203k Streamlines are limited to $35,000 in repairs and cannot involve any structural work. However, most projects will fit under with the FHA 203k Streamline.
Full FHA 203k
A full 203k loan is extremely flexible. This product allows you to go above the $35k limit of the streamline and the sky is pretty much the limit. Most any type of work is allowed on the full k as long as it’s not considered a luxury item such as a pool, spa, etc. Keep in mind that on any of the FHA options that the property must have a certificate of occupancy that was issued at least 1 year prior to the contract date.
A full 203k does have an added requirement that you work with a HUD consultant on your project. The HUD consultant will help guide you through the process and will be responsible for signing off on inspections for draw requests.
Conventional Fannie Mae Homestyle
While all of our 203k products are limited to primary residences, the Homestyle allows for 2nd homes and investment properties. Additionally, luxury items are allowed and loan limits are generally higher for the conventional option. Like the full 203k, there will be an inspection company hired to monitor the renovation and to sign off on draw requests and inspections. Another key feature of the Homestyle is that it can be used on new construction properties that are not yet completed such as builder foreclosures. The structure must be “substantially complete” which typically means that it has sheet rock installed.
Not technically a renovation product, a construction loan can be used as a renovation loan. We would use this in instances when none of the above options fit. Typically this would be for loan amounts above the FHA and conforming limits or for properties that are not yet “substantially complete”. Construction loans are far more complex and difficult to deal with, so we try to use a renovation product whenever possible.
Call us today to discuss which of these options is right for you!
The real estate and mortgage markets have changed tremendously over the past few years. With the huge glut of foreclosures and the tightening of credit markets, a tremendous need for renovation financing has emerged. Here are some key reasons renovation financing is so popular right now.
The renovation financing process is slightly more complicated than a traditional loan. We need to take the same steps we would take in a traditional loan to qualify the borrower, however, we must also take a closer look at the property and validate that the contractor(s) who are going to be working on the property are properly licensed and have positive references.
From Pre-approval To First Draw - An overview of the process
Thank you for your interest in financing your renovation through mortgage203k.com. Over the next several weeks, we would like to provide you with some helpful information which will hopefully give you a better understanding of the product and the process.
First, what is renovation financing and how is it different than a traditional mortgage?
Renovation financing is unique in that in most cases we are lending you money based on the completed value of your home. This allows you to borrow more money because you are not only tapping into the equity you currently have in your home, you can also gain access to the equity the house will have when finished. This is most helpful when you are planning larger scale improvements like additions that add square footage to your home or adding a second story to a ranch style home. Many people also find it helpful to know what the value will be after the work is completed.
What can a renovation loan be used for?
The possibilities of what you can fix, repair or create with a renovation loan are endless but here are some examples of what our clients have used renovation financing for:
You can use renovation financing for the: