Deanna Valeo
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203K's Loans they are for more than foreclosures... January 16, 2011

FHA 203K loans are often thought of as a way to fix a dilapidated home and make it livable. While this is a good way to use the FHA’s rehabilitation loan there are many other uses that are available.

FHA does offer streamline 203K loans these offer an easier way to use a 203K loan to do up to $29,400 of bid repairs (with another $4400 in reserve contingency funds which can be put to use on additional items). Think of it this way the kitchen needs updating on a property that is simply put an “ugly” home. The kitchen update (along with a bathroom overhaul, painting, new carpet and hardwood floor refurbishing) can be done for $29,400 after the repairs are completed the reserve funds of $4,400 (15%) can used to buy new appliances or another other cost of improvement. The other option is to apply the money to a principle reduction (however the monthly payment does not drop).

Another great feature of the 203K loan is the lendable value; it is the lesser of the purchase price + the repair costs (including reserve funds + re-inspection fees) or 110% of the after repaired value. As you can imagine having an excellent General Contractor partner and Realtor partner are a key part of making a 203K loan hum. The cool thing is we can lend up to 110% of the after repaired value as determined by an FHA appraiser. Example – if we purchased a home for $200,000 and did $35,000 worth of FHA improvements then the least amount the property could appraise for would be $213,636 and still qualify for a new FHA loan of $226,775 (96.5% of $235,000).

Of course the best news is that Deanna and I can now do 203K loans via New American Mortgage – closing them within 30-days for Streamlines. We also can do full blow 203K loans these are used when the costs exceed $29,400 or there are structural issues (see below).

The following outlines what 203K loans can and cannot be used for:

What can be done?

· Repair/replacement of roofs, gutters and downspouts
· Repair/replacement/upgrade existing HVAC systems
· Repair/replacement/upgrade plumbing and electrical systems
· Repair/replacement flooring
· Minor remodeling, such as kitchens, which does not involve structural repairs
· Painting, exterior and/or interior
· Weatherization, including storm windows and doors, insulations, weather stripping, etc.
· Purchase and installation of appliances, including free-standing ranges, refrigerators, washer/dryers, dishwashers and microwave ovens.
· Accessibility improvements for person with disabilities
· Septic system and/or well repair and/or replacement
· Other minor remodeling

What can't be done? (with a streamline 203K Loan)

· Major rehabilitation or major remodeling, such as the relocation of a wall
· New construction
· Repair of structural damage
· Repairs requiring detailed drawings, plans or architectural exhibits
· Landscaping
· Pool improvements/repair
· Anything taking longer than 3 months to complete

Who and how?

· All repairs/work must be completed within 3 months of closing
· Repairs must be completed by a contractor
· The repairs must be reasonable

How much more does it cost?

· Normal FHA rates and fees apply with the following exception:
· $150 final appraiser inspection fee
· Additional appraisal charges will apply
· Additional title charges will apply
· Origination fee will be normal 1% plus .5% (minimum $350) on repair amount

Bottom line a 203K loan can be used to buy an “ugly home” in a great neighborhood and fix the part of the home that just isn’t quite right for our buyers.

Other information:

· Must have 3.5% down payment – not eligible for Down Payment Assistance programs
· Does qualify for the $100 down HUD foreclosure purchase program
· Does qualify for the good neighbor next door program
· The total loan limit is limited to the FHA loan limit of $303,750 (Charlotte MSA) or the county limit of $271,050 for Lancaster, Lincoln and Iredell.
· If a full blown 203K loan is used then a FHA consultant must be involved and work with a licensed general contractor to set the scope and cost of work on a project.

See  http://www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm for more at the HUD website about 203K loans and keep in mind we are here to help.

In line with the new government restrictions on rate quotes** we will be providing a link to http://www.mortgagenewsdaily.com/mortgage_rates/ and their rate guide.

**Please note the rates quoted are at the absolute best loan amount, the highest credit score and lowest LTVs allowed with a 1% origination fee and indicate the absolute lowest rate possible. You should use this list as a guideline and trend indicator and get a specific quote for your project (often it may be slightly higher).
 

 

@ The Valeo-Croy Team, we are here for you.

 

The Valeo-Croy Team -  (704) 366-7711

Todd Croy - NMLO license #91428
Deanna Valeo - NMLO license #91421

Accessible | Program Expertise | On-Time Closings                              
 
Facebook link: http://www.facebook.com/valeocroyteam?v=app_4949752878

The Valeo-Croy Team and New American Mortgage Bankers are Equal Housing Lenders.This information is for illustration only. It does not constitute an application for a loan or an offer or commitment for New American Mortgage to make a loan on these terms. Interest rates are subject to change until an application is completed and you lock in your interest rate. The figures noted are estimates and may vary depending on discount points, taxes and insurance. Programs, terms and conditions are subject to change without notice. Mortgage loans are subject to credit qualifications. Normal credit standards apply.   Date: 1/16/2010


Which loan to get?; an FHA loan at 4.875% or Conventional loan at 5.5%? January 24, 2011

 So let’s say, you (or your client) have a credit score below 680 last Friday you could have gotten an FHA loan at 4.875% or a conventional loan at 5.5% (this conventional rate would have been 4.875% with a 740+ FICO) with 20% down payment, which loan do you do?

In this case the real question is how long are you going to be in the house?

This actually was the question for a client of Deanna’s buying a $300,000 home with 20% down payment – the borrower had a 670 credit score. While the FHA program had a lower principle and interest payment by $79.89; the FHA loan’s PMI of $171.70 per month made the total payment higher by $91.81 per month.

FHA loans require PMI for all borrowers using an FHA loan for a minimum of 60 payments (5 years) no matter what the loan to value ratio is. The higher FHA loan payment of $91.81 per month would add up to $5508 over the five years. The buyer would need over 11 years to make the FHA loan breakeven with the higher rate conventional loan which is at a .625% higher interest rate.

Please note if the loan was higher than 80% LTV then FHA is the only choice with a credit score below 680; PMI companies set that standard. Even those who do offer PMI down to 680 cannot match the value of FHA loans as the PMI rate is simply too high.

As in my earlier blog about Lender Paid Mortgage Insurance (LPMI – 2/16/2010) sometimes a higher interest rate is actually the better choice, a knowledgeable lender can make all the difference in getting your client the best overall value.

Rate Watch:

In line with the new government restrictions on rate quotes** we will be providing a link to http://www.mortgagenewsdaily.com/mortgage_rates/ and their rate guide.

**Please note the rates quoted are at the absolute best loan amount, the highest credit score and lowest LTVs allowed with a 1% origination fee and indicate the absolute lowest rate possible. You should use this list as a guideline and trend indicator and get a specific quote for your project (often it may be slightly higher).
 
@ The Valeo-Croy Team, we are here for you.
 The Valeo-Croy Team -  (704) 488-1421
 
Todd Croy - NMLO license #91428
Deanna Valeo - NMLO license #91421

Accessible | Program Expertise | On-Time Closings                           
 
Facebook link:
http://www.facebook.com/valeocroyteam?v=app_4949752878

The Valeo-Croy Team and New American Mortgage Bankers are Equal Housing Lenders.This information is for illustration only. It does not constitute an application for a loan or an offer or commitment for New American Mortgage to make a loan on these terms. Interest rates are subject to change until an application is completed and you lock in your interest rate. The figures noted are estimates and may vary depending on discount points, taxes and insurance. Programs, terms and conditions are subject to change without notice. Mortgage loans are subject to credit qualifications. Normal credit standards apply.   Date: 1/24/2010