AUSTIN HEYWOOD
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Showing posts with label pre-foreclosure. Show all posts
Showing posts with label pre-foreclosure. Show all posts
As part of its plan to stimulate the U.S. housing market and address the economic challenges facing our nation, Congress has passed new legislation that:
Extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers until April 30, 2010.
Expands the credit to grant up to $6,500 credit to current home owners purchasing a new or existing home between November 7, 2009 and April 30, 2010.
Here is more information about how the Extended Home Buyer Tax Credit can help prospective home buyers become part of the American dream. If you have specific questions or need additional information, please contact a tax professional or the Internal Revenue Service at 800-829-1040.
First-time home buyers who purchase homes between November 7, 2009 and April 30, 2010.
Current home owners purchasing a home between November 7, 2009 and April 30, 2010, who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight.
To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.
The Extended Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.
How Much Is Available?
The maximum allowable credit for first-time home buyers is $8,000.
The maximum allowable credit for current homeowners is $6,500.
How is a Buyer's Credit Amount Determined?
Each home buyer’s tax credit is determined by two additional factors:
The price of the home.
The buyer's income.
Price
Under the Extended Home Buyer Tax Credit, credit may only be awarded on homes purchased for $800,000 or less.
Buyer Income
Under the Extended Home Buyer Tax Credit, which is effective on November 7, 2009, single buyers with incomes up to $125,000 and married couples with incomes up to $225,000—may receive the maximum tax credit.
These income limits have changed from the 2009 First-Time Home Buyer Tax Credit limits. If you or your client purchased a home between January 1, 2009 and November 6, 2009, please see 2009 First-Time Home Buyer Tax Credit.
If the Buyer(s)’ Income Exceeds These Limits, Can He/She Still Get a Credit?
Yes, some buyers may still be eligible for the credit.
The credit decreases for buyers who earn between $125,000 and $145,000 for single buyers and between $225,000 and $245,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income—over $145,000 for singles and over $245,000 for couples are not eligible for the credit.
Can a Buyer Still Qualify If He/She Closes After April 30, 2010?
Under the Extended Home Buyer Tax Credit, as long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close.
Will the Tax Credit Need to Be Repaid?
No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount credit will be recouped on the sale.
Homebuyers will now be able to search through more than 1 million foreclosed properties and access agents specializing in short sales and foreclosures, all in one location. RE/MAX International Inc. said it’s the first national real estate franchise to offer U.S. foreclosure listings on its Web site, www.remax.com.
Remax.com visitors can now access more than 1.3 million real estate owned (REO) properties in the U.S. through RealtyTrac.
“We strive to provide consumers with the most information, properties, videos, articles and resources to help them navigate today’s market,” said Kristi Graning, senior vice president, information technology and eBusiness for RE/MAX International. “Remax.com is now the perfect combination of resources on one Web site, where visitors can search for foreclosures and connect with a uniquely trained RE/MAX agent who specializes in short sales, REOs and foreclosures.”
Homebuyers across the country, including those looking to take advantage of the recently enhanced homebuyer tax credit, can search foreclosures by accessing the foreclosure tab in the featured property search box on remax.com.
Sourced by government agencies and national news media, RealtyTrac is the No. 1 foreclosure listing service. It collects extensive foreclosure data from more than 2,200 counties, covering more than 90 percent of U.S. households.
As part of the partnership, RE/MAX agents also have access to an advanced subscription of RealtyTrac’s service and foreclosure information which allows them to better serve clients. The comprehensive subscription offers agents more detailed information including properties in default and properties scheduled for public foreclosure auction, along with tax assessment information, comprehensive lien and loan history and neighborhood home sale trends.
“We are very pleased to be working with RE/MAX, one of the world’s leading real estate brands, and we’re excited to give consumers another way to access foreclosure data,” said Rick Sharga, senior vice president for RealtyTrac. “We believe we can have a positive impact on the national housing market by providing consumers with vital foreclosure information and giving homebuyers an opportunity to find the perfect home with the right agent.”
Many RE/MAX agents are qualified to manage foreclosures and distressed property. More RE/MAX associates have earned the Certified Distressed Property Expert (CDPE) designation than agents from any other national real estate network. The CDPE training, through the Distressed Property Institute, gives RE/MAX agents the expertise to assist buyers and sellers of REO and distressed properties.
For more information on RE/MAX International, or to search for property listings, visit http://www.remax.com. For more information on RealtyTrac, visit http://www.realtytrac.com.
Following are key points that prospective home buyers should be aware of when considering a home purchase under the tax credit program.
A tax credit of up to $8,000 is available for first-time home buyers purchasing on or after January 1, 2009 and on or before April 30, 2010. In cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.
A tax credit of up to $6,500 is available for repeat home buyers who have owned a home for five consecutive years out of the prior eight years. The repeat home buyer tax credit applies to houses sold after November 6, 2009 and on or before April 30, 2010. In cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.
Income limits of $125,000 for individuals and $225,000 for married couples filing jointly apply to all sales occurring after Nov. 6, 2009.
The income limits for sales occurring on or after January 1, 2009 and on or before November 6, 2009 are $75,000 for individual taxpayers and $150,000 for married couples filing jointly.
Homes priced above $800,000 are not eligible for either the first-time home buyer tax credit or the repeat home buyer tax credit.
Home purchases in 2010 may be claimed on an amended 2009 income tax return.
Persons who are claimed as dependents by a taxpayer or who are under age 18 do not qualify for a tax credit.
Home purchases from relatives of the taxpayer or the taxpayer’s spouse do not qualify for the tax credit. The IRS defines relatives as ancestors (parent, grandparent, etc.), lineal descendants (child, grandchildren, etc.) and spouses.
Married couples are not eligible to claim the first-time home buyer tax credit if either spouse has previously owned a home. They may, however, qualify for the repeat home buyer tax credit.
Neither the first-time home buyer tax credit nor the repeat home buyer tax credit have to be repaid unless the home is sold or ceases to be used as the buyer’s principal residence within three years after the initial purchase.
Taxpayers must submit a copy of the HUD-1 settlement statement and IRS Form 5405 to claim either the first-time home buyer tax credit or the repeat home buyer tax credit.
The U.S. Treasury Department's long-awaited guidelines to streamline Short Sales, announced Monday, will have a significant impact on families facing foreclosure, according to RE/MAX International Chairman and Co-Founder Dave Liniger.
The Home Affordable Foreclosure Alternatives Program (HAFA), part of the Home Affordable Modification Program (HAMP), provides financial incentives and simplifies Short Sales procedures by setting limits on the time it takes lenders to respond, freeing borrowers from debt and capping claims of subordinate lenders.
The Treasury's announcement comes on the heels of more than a year's work by RE/MAX leadership to persuade federal lawmakers to address the need for a simpler Short Sale process.
"While the plan doesn't include all of our suggestions, we feel it's a big step in the right direction," Liniger says. "These new policies will make Short Sales much more attractive to our clients and much easier for us to complete."
With unemployment over 10 percent and millions of adjustable-rate mortgages primed to reset next year, a "tsunami" of distressed properties could be on the horizon, Liniger says. The new guidelines, as well as a growing acceptance by lenders and second-lien holders, give homeowners a better chance of closing a Short Sale rather than losing their house to foreclosure.
Lenders must respond to Short Sale requests within 10 business days of receipt of the offer package.
The seller will be released from all liability for repayment of the mortgage debt.
Subsequently, the seller is entitled to a relocation incentive of $1,500, which will be deducted from the gross sale proceeds at closing.
The lender will be paid $1,000 to cover administrative and processing costs for a Short Sale or a deed-in-lieu.
The property must be listed with a licensed real estate professional who does regular business in the community where the property is located.
The lender is prohibited from requiring, as a condition of approving the Short Sale, a reduction in the agreed-upon real estate commission.
The investor will be paid a maximum of $1,000 for allowing a total of up to $3,000 in Short Sale proceeds to be distributed to subordinate lien holders, or for allowing payment of up to $3,000 to subordinate lien holders.
RE/MAX leaders have been advocating Short Sale improvements for quite some time. In September, Liniger met with Housing and Urban Development Secretary Shaun Donovan and other U.S. housing officials to discuss the need for prompt action. A meeting with Sen. Harry Reid (D-Nev.) also moved the process along.
For their part, RE/MAX Associates have embraced training in Short Sales and REOs. The network accounts for nearly 60 percent Certified Distressed Property Expert designees. That education will continue to play a vital role in order for Associates to successfully handle Short Sale transactions and establish themselves as the leading experts in their markets, Liniger says.
"Associates should become familiar with the new guidelines and put the details into their presentations," Liniger said.
Editor's note: The official effective date is April 5, 2010, but participating mortgage servicers can begin operating under terms of the new program prior to that date if they are ready to meet all reporting requirements. The guidelines released in November 2009 do not specifically apply to loans owned or backed by Fannie Mae or Freddie Mac (representing about half of all U.S. mortgage debt). But those organizations are working with the Treasury to finalize applicable servicing guides, which are expected soon.
The further behind you become, the harder it will be to reinstate your loan and the more likely that you will lose your house.
2. Contact your lender as soon as you realize that you have a problem.
Lenders do not want your house. They have options to help borrowers through difficult financial times.
3. Open and respond to all mail from your lender.
The first notices you receive will offer good information about foreclosure prevention options that can help you weather financial problems. Later mail may include important notice of pending legal action. Your failure to open the mail will not be an excuse in foreclosure court.
4. Know your mortgage rights.
Find your loan documents and read them so you know what your lender may do if you can't make your payments. Learn about the foreclosure laws and timeframes in your state (as every state is different) by contacting the State Government Housing Office.
5. Understand foreclosure prevention options.
Valuable information about foreclosure prevention (also called loss mitigation) options can be found online.
6. Contact a HUD-approved housing counselor.
The U.S. Department of Housing and Urban Development (HUD) funds free or very low cost housing counseling nationwide. Housing counselors can help you understand the law and your options, organize your finances and represent you in negotiations with your lender if you need this assistance. Find a HUD-approved housing counselor near you or call (800) 569-4287 or TTY (800) 877-8339.
7. Prioritize your spending.
After healthcare, keeping your house should be your first priority. Review your finances and see where you can cut spending in order to make your mortgage payment. Look for optional expenses-cable TV, memberships, entertainment-that you can eliminate. Delay payments on credit cards and other "unsecured" debt until you have paid your mortgage.
8. Use your assets.
Do you have assets-a second car, jewelry, a whole life insurance policy-that you can sell for cash to help reinstate your loan? Can anyone in your household get an extra job to bring in additional income? Even if these efforts don't significantly increase your available cash or your income, they demonstrate to your lender that you are willing to make sacrifices to keep your home.
9. Avoid foreclosure prevention companies.
You don't need to pay fees for foreclosure prevention help-use that money to pay the mortgage instead. Many for-profit companies will contact you promising to negotiate with your lender. While these may be legitimate businesses, they will charge you a hefty fee (often two or three month's mortgage payment) for information and services your lender or a HUD approved housing counselor will provide free if you contact them.
10. Don't lose your house to foreclosure recovery scams!
If any firm claims they can stop your foreclosure immediately if you sign a document appointing them to act on your behalf, you may well be signing over the title to your property and becoming a renter in your own home! Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional, or a HUD approved housing counselor.
***If you find that you can't save your home. Call us and we can help you do a short sale to avoid foreclosure. We average about 100 listings per month and are able to close most of them! Call Austin Heywood at 801-572-6161 or email max2@listingyourhome.com ***
What Is A Short-Sale?
The simplest definition of a short-sale is that a home is sold, with the lender's approval, for less than the current owner owes to the lender. A short-sale may not always be the best option for the owner, and there are consequences to executing a short-sale, so make sure the owner carefully considers their options before choosing this route.
Is a Short-Sale the Homeowner’s Best Option?
There are times when a homeowner doesn't have much of a choice in determining when they need to sell. For example, they may be having a financial hardship and simply can't afford the home any more, they could be going through a divorce, or they may need to move for work. Whatever the reason, when a homeowner finds themselves in a situation where they need to sell their home, and they owe more on the home than it is currently worth, they may be a candidate for a short-sale.
In many cases, if the homeowner’s situation is temporary financial hardship, he or she may be able to negotiate with the bank to forego or forebear one or more payments or even adjust the interest rate until the financial situation improves. While it may eliminate or delay the ability of the agent to list a particular home, it is important that the homeowner be aware of this option. In today’s market, you never know what a lender may be willing to negotiate. If the homeowner is unable to make an arrangement with the lender, then the short-sale may be the best option.
The Agent's Role
Once the homeowner has exhausted the other options, and decides a short-sale may be the best option, it's time for the Realtor to get involved. At this stage, a good agent will take an active role in working with the lender as well as the homeowner. The agent lists the home, making sure to follow these rules:
If the home is a Short Sale, it MUST be identified as such in the listing. Make sure to select one of the short sale fields in the listing input screen. Failure to do so will result in a fine.
If the lender has already approved the sale price the home is listed for, then the listing should be classified in the MLS as "Short Sale, price previously approved" If the listing price has NOT been pre-approved by the lender, the property should be listed as "Short Sale,price subject to 3rd party approval."
When the listing is complete, the homeowner will need to authorize the agent to speak to the lender on their behalf. The agent needs to know exactly what the lender requires, and help the homeowner get this in place. It doesn't help you or your client to get a solid offer and then find out the lender won't negotiate or even talk with you. From this point on, the agent should coordinate with the lender with respect to the real estate transaction. However, the agent should be careful NOT to attempt to provide tax, accounting, or other advice to the homeowner.
Once the listing is placed, potential buyers will begin finding the home. It is important for the agent to continue to represent the home fairly for the homeowner. In almost all cases, the short-sale will appear on the homeowner's credit report, so it is still important to get a purchase price near market value to lessen the impact as much as possible. However, it is also important to the homeowner to sell the home as quickly as possible, so be aggressive and strike a good balance, but don't go to the bank with an unfairly low offer. If the purchase price is too low, the lender is unlikely to approve the sale, which results in frustration and wasted time for all parties involved.
Working With the Lender
When there is a valid offer from a buyer, the agent then helps the homeowner collect all the appropriate data the lender needs, sends it to the lender and awaits a decision. There is a great deal of information that the lender will require, and it is very important to be extremely diligent in collecting ALL of the information the lender requests. Once the agent has all the documentation and submits it, this offer is just like any other offer made on a property, and the agent should review the listing status. If the owner wishes to continue marketing the property while the offer is being considered, then the listing can continue with an "Active" status. If the owner does not wish to consider other offers, the status should be changed to "Under Contract." In either case, the status should also be changed to reflect a status of "Offer Under 3rd Party Review" on the MLS.
Some have wondered why a lender would accept a short-sale rather than just foreclosing on the home and then selling it themselves. First, most lenders are not in the business of owning residential real-estate. Their success depends on the money flowing THROUGH their business, not sitting static in a home they have to manage. Second, the foreclosure process is a LONG process, typically taking 6 to 12 months, during which time the bank isn't receiving payments, and can't use the money tied up in the home. Third, according to the Joint Economic Committee of Congress, a foreclosure typically costs the lender at least $50,000. Finally, after a foreclosure, the lender can still only sell the home for market value (after they spend some money getting it ready to sell). This is why it makes sense for the lender to accept a short-sale at market value now, rather than accepting the same market value after having foreclosed on the home.
That said, some lenders have a policy of simply never accepting a short-sale. Other lenders have some very specific criteria for a short-sale. The better relationship an agent develops with the lender and the more knowledge the agent has about the lender's criteria, the better the agent will understand how to perform his or her duties for the homeowner.
One other thing the agent needs to keep in mind during this process is that it is an extremely difficult process for the homeowner. In addition to whatever problems are forcing the sale of the home, there may be significant financial consequences to the homeowner that will extend far into the future. There may also be other problems such as divorce, illness or bankruptcy involved. Understand that the homeowner may be emotional, irritable or worse as the agent works with them through the sale.
After The Offer
Hopefully, if the agent has done their job well, there will be an offer on the home relatively soon. Of course, the agent will have already spoken with the lender, and will already have a list of information that the homeowner needs to prepare. That list will typically include things like tax returns, a letter explaining the hardship, checking and savings account information, complete expense information, all appropriate documents relating to the offer and the value of the home, and potentially much more. The agent should have the homeowner start working on their part of this information right away, and make sure they understand the things they will need to provide to the title company, MLS and others.
As soon as all the documents are ready (time is of the essence), the agent should forward those to the lender, preferably using a method that can provide delivery confirmation. The agent should also call the lender to personally confirm receipt the following day. Once the lender has the documents, it may take some time before the offers get assigned to a representative. The current national financial situation has significantly increased their workload. Many agents make it a practice to call the lender around once per week just to check in, get a status and see if there is any additional information the lender needs. They seem to feel they get faster results than if they just wait for the lender to call. It is probably also a good idea to document the dates and details of all the discussions with the lender. It is unusual for a decision to be made within a week or two. According to most reports, a decision will typically be made in 30-60 days. Typically, the lender will first assign the case to a representative, then order some form of appraisal, and then the representative will call the agent to begin final negotiations.
Final Considerations
As soon as the negotiations are complete and the final agreement has been made, it then goes into the escrow process. At the end of the escrow process, the sale is complete and the agent has completed their responsibilities. However, the homeowner should still consult with their CPA at least, and possibly an attorney to understand the consequences for their taxes, credit and any specific issues unique to their circumstances such as divorce decrees.
A.Insurance of Advances. This refers to insurance of the 203(k) mortgage prior to the rehabilitation period. A mortgage that is a first lien on the property is eligible to be endorsed for insurance following mortgage loan closing, disbursement of the mortgage proceeds, and establishment of the Rehabilitation Escrow Account. The mortgage amount may include funds for the purchase of the property or the refinance of existing indebtedness, the costs incidental to closing the transaction, and the completion of the proposed rehabilitation. The mortgage proceeds allocated for the rehabilitation will be escrowed at closing in a Rehabilitation Escrow Account. B.Rehabilitation Escrow Account. When the loan is closed, the proceeds designated for the rehabilitation or improvement, including the contingency reserve, are to be placed in an interest bearing escrow account insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). This account is not an escrow for the paying of real estate taxes, insurance premiums, delinquent notes, ground rents or assessments, and is not to be treated as such. The net income earned by the Rehabilitation Escrow Account must be paid to the mortgagor. The method of such payment is subject to agreement between mortgagor and mortgagee. The lender (or its agent) will release escrowed funds upon completion of the proposed rehabilitation in accordance with the Work Write-Up and the Draw Request (Form HUD-9746,A). C. Inspections.Performed by HUD-approved consultants/inspectors or HUD-accepted staff of the DE lender. The consultant is to use the architectural exhibits in order to make a determination of compliance or non-compliance. When the inspection is scheduled with a payment, the inspector is to indicate whether or not the work has been completed. Also, the inspector is to use the Draw Request form (Form HUD-9746-A). The first draw must not be scheduled until the lender has determined that the applicable building permits have been issued.
D. Holdback. A ten (10) percent holdback is required on each release from the Rehabilitation Escrow Account. The total of all holdbacks may be released only after a final inspection of the rehabilitation and issuance of the Final Release Notice. The lender (or its agent) may retain the holdback for a maximum of 35 calendar days, or the time period required by law to file a lien, whichever is longer, to ensure that no liens are placed on the property. E. Contingency Reserve.At the discretion of the HUD Field Office, the cost estimate may include a contingency reserve if the existing construction is less than 30 years old, or the nature of the work is complex or extensive. For properties older than 30 years, the cost estimate must include a contingency reserve of a minimum of ten (10) percent of the cost of rehabilitation; however, the contingency reserve may not exceed twenty (20) percent where major remodeling is contemplated. If the utilities were not turned on for inspection, a minimum fifteen (15) percent is required. If the scope of work is well defined and uncomplicated, and the rehabilitation cost is less then $7500, the lender may waive the requirement for a contingency reserve. The contingency reserve account can be used by the borrower to make additional improvements to the dwelling. A Request for Change Letter must be submitted with the applicable cost estimates. However, the change can only be accepted when the lender determines: (1) It is unlikely that any deficiency that may affect the health and safety of the property will be discovered; and (2) the mortgage will not exceed the appraised value of the property less the statutory investment requirement. If the mortgage exceeds the appraised value less the statutory investment, then the contingency reserve must be paid down on the mortgage principal. If a borrower feels that the contingency reserve will not be used and he wishes to avoid having the reserve applied to reduce the mortgage balance after issuance of the Final Release Notice, the borrower may place his own funds into the contingency reserve account. In this case, if monies are remaining in the account after the Final Release Notice is issued, the monies may be released back to the borrower. If the mortgage is at the maximum mortgage limit for the area or for the particular type of transaction, but a contingency reserve is necessary, the contingency reserve must be placed into an escrow account from other funds of the borrower at closing. Under these circumstances, if the contingency reserve is not used, the remaining funds in the escrow account will be released to the borrower after the Final Release Notice has been issued.
F. Mortgage Payment Reserve. Funds not to exceed the amount of six (6) mortgage payments (including the mortgage insurance premium) can be included in the cost of rehabilitation to assist a mortgagor when the property is not habitable during rehabilitation. The number of mortgage payments cannot exceed the completion time frame required in the Rehabilitation Loan Agreement. The lender must make the monthly mortgage payments directly from the interest bearing reserve account. Monies remaining in the reserve account after the Final Release Notice must be applied to the mortgage principal. G. Approval of Non-Profit Agencies. A non-profit agency, before it can be approved as an eligible mortgagor and obtain the same mortgage amount as available to owner-occupants on Section 203(k) mortgages, must demonstrate its experience as a housing provider to HUD and meet all other requirements described in HUD Handbook 4155.1 REV-4, paragraphs 1-5. It must also be able to provide satisfactory evidence that it has the financial capacity to purchase the properties.
Maximum Mortgage AmountThe mortgage amount, when added to any other existing indebtedness against the property, cannot exceed the applicable loan-to-value ratio and maximum dollar amount limitations prescribed for similar properties under Section 203(b). The down payment requirements are the same as under the Section 203(b) program. The Mortgage Payment Reserve is considered a part of the cost of rehabilitation for determining the maximum mortgage amount. Also refer to the requirements for incentives to acquire HUD-owned properties.
The form HUD-92700 (Maximum Mortgage Worksheet) must be used to determine the maximum mortgage amount.
A. Maximum Mortgage CalculationREFINANCE: Based on the lesser of:1) The existing debt on the property before rehabilitation, plus the estimated cost of rehabilitation and allowable closing costs or 2) The lesser of the As-Is value plus rehabilitation costs or 110 percent of the After-Improved value multiplied by the appropriate LTV factor. NOTE:If the property was owned less than one year, the acquisition cost plus the documented rehabilitation costs must be used. PURCHASE:The maximum mortgage amount is based on the lesser of 1) or 2) of the below multiplied by the appropriate LTV factor. 1) The As-is value or the purchase price of the property before rehabilitation, whichever is less, plus the estimated cost of rehabilitation or 2) 110 percent of the After-Improved value of the property. Check out our listings!
Principal Residence (Owner-Occupant) & HUD Approved Non-Profit Organization. For purchases with 203(k) financing: the maximum mortgage amount is to be based upon the HUD estimate of value in 1) or 2) above, less the statutory investment requirement. For refinances under the 203(k) program: the maximum mortgage amount is to be based upon 97/95/90 percent of the HUD estimate of value in 1) or 2) above. B. Cost of Rehabilitation. Expenses eligible to be included in the cost of rehabilitation are materials, labor, contingency reserve, overhead and construction profit, up to six (6) months of mortgage payments, plus expenses related to the rehabilitation such as permits, fees, inspection fees by a qualified home inspector, licenses and consultant and/or architectural/engineering fees. The cost of rehabilitation may also include the supplemental origination fee which the mortgagor is permitted to pay when the mortgage involves insurance of advances, and the discounts which the mortgagor will pay on that portion of the mortgage proceeds allocated to the rehabilitation. C. Exemption of the Market Value Limitation. The 203(k) regulations allow for a waiver request of the market value limitation, which allows the appraiser to go outside the targeted area to obtain the value of comparable properties. Such requests must be forwarded to the Assistant Secretary of Housing-Federal Housing Commissioner at the HUD Headquarters. Requests must include documentation that the following conditions are present:1) The property is located within an area which is subject to a community sponsored program of concentrated redevelopment or revitalization (See 24 CFR Part 220). 2) The market value loan limitation prevents the use of the program to accomplish rehabilitation in the subject area. 3) The interests of the borrower and the Secretary of HUD are adequately protected.D. Solar Energy Increase. The mortgage is eligible for an increase of up to 20 percent in the maximum insurable mortgage amount if such an increase is necessary for the installation of solar energy equipment. The solar energy system's contribution to value will be limited by its replacement cost or by its effect on the value of the dwelling. E. Energy Efficient Mortgage Program.Under the FHA EEM Program, a borrower can finance into the mortgage 100 percent of the cost of eligible energy efficient improvements, subject to certain dollar limitations, without an appraisal of the energy improvements and without further credit qualification of the borrower. To be eligible for inclusion into the mortgage, the energy efficient improvements must be "cost effective," i.e., the total cost of the improvements (including maintenance costs) must be less than the total present value of the energy saved over the useful life of the improvements. The cost of any improvement to the property that will increase the property's energy efficiency and that is determined to be "cost effective" is eligible for financing into the mortgage and its cost may be added to the mortgage amount up to the greater of:1) 5 percent of the property's value (not to exceed $8000) or, 2)$4000. "Cost effective" means that the total cost of the improvements, including any maintenance costs, is less than the total present value of the energy saved over the useful life of the energy improvement. The FHA maximum loan limit for the area may be exceeded by the cost of the energy efficient improvements. However, the entire mortgage cannot exceed 110 percent of the value of the property The cost of the energy improvements and the estimate of the energy savings must be determined based upon a physical inspection of the property by a home energy rating system (HERS) or energy consultant. For a 203(k) loan, the entire cost of the HERS or the energy consultant can be included in the mortgage. On new construction (an addition or new building on an existing foundation), the energy improvement must be over and above those required for compliance with the current FHA energy conservation standards for new construction. The estimate of the energy savings in new construction must be based upon a comparison of plans and specification of the house with the additional energy saving improvements to those of the basic house which complies with the current FHA energy conservation standards. Presently, these standards are those of the 1992 CABO Model Energy Code (MEC). The energy inspection of the property must be performed prior to completion of the work writeup and cost estimate to assure there is no duplication of work items in the mortgage. After the completion of the appraisal, the cost of the energy improvements are calculated by the lender to determine how much can be added to the mortgage amount.
The Department also permits Section 203(k) mortgages to be used for individual units in condominium projects that have been approved by FHA, the Department of Veterans Affairs, or are acceptable to FNMA under the guidelines listed below. The 203(k) program was not intended to be a project mortgage insurance program, as large scale development has considerably more risk than individual single-family mortgage insurance. Therefore, condominium rehabilitation is subject to the following conditions: Owner/occupant and qualified non-profit borrowers only; no investors; Rehabilitation is limited only to the interior of the unit. Mortgage proceeds are not to be used for the rehabilitation of exteriors or other areas which are the responsibility of the condominium association, except for the installation of firewalls in the attic for the unit; Only the lesser of five units per condominium association, or 25 percent of the total number of units, can be undergoing rehabilitation at any one time; The maximum mortgage amount cannot exceed 100 percent of after-improved value. After rehabilitation is complete, the individual buildings within the condominium must not contain more than four units. By law, Section 203(k) can only be used to rehabilitate units in one-to-four unit structures. However, this does not mean that the condominium project, as a whole, can only have four units or that all individual structures must be detached. Example: A project might consist of six buildings each containing four units, for a total of 24 units in the project and, thus, be eligible for Section 203(k). Likewise, a project could contain a row of more than four attached townhouses and be eligible for Section 203(k) because HUD considers each townhouse as one structure, provided each unit is separated by a 1 1/2 hour firewall (from foundation up to the roof). Similar to a project with a condominium unit with a mortgage insured under Section 234(c) of the National Housing Act, the condominium project must be approved by HUD prior to the closing of any individual mortgages on the condominium units.
How the Program Can Be Used This program can be used to accomplish rehabilitation and/or improvement of an existing one-to-four unit dwelling in one of three ways: To purchase a dwelling and the land on which the dwelling is located and rehabilitate it. To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it. To refinance existing liens secured against the subject property and rehabilitate such a dwelling. To purchase a dwelling and the land on which the dwelling is located and rehabilitate it, and to refinance existing indebtedness and rehabilitate such a dwelling, the mortgage must be a first lien on the property and the loan proceeds (other than rehabilitation funds) must be available before the rehabilitation begins. To purchase a dwelling on another site, move it onto a new foundation and rehabilitate it, the mortgage must be a first lien on the property; however, loan proceeds for the moving of the house cannot be made available until the unit is attached to the new foundation.
Eligible Improvements Luxury items and improvements are not eligible as a cost rehabilitation. However, the homeowner can use the 203(k) program to finance such items as painting, room additions, decks and other items even if the home does not need any other improvements. All health, safety and energy conservation items must be addressed prior to completing general home improvements.
Required Improvements All rehabilitation construction and/or additions financed with Section 203(k) mortgage proceeds must comply with the following: A. Cost Effective Energy Conservation Standards (1) Addition to existing structure. New construction must conform with local codes and HUD Minimum Property Standards in 24 CFR 200.926d. (2) Rehabilitation of Existing Structure. To improve the thermal efficiency of the dwelling, the following are required: a) Weatherstrip all doors and windows to reduce infiltration of air when existing weatherstripping is inadequate or nonexistent. b) Caulk or seal all openings, cracks or joints in the building envelope to reduce air infiltration. c) Insulate all openings in exterior walls where the cavity has been exposed as a result of the rehabilitation. Insulate ceiling areas where necessary d) Adequately ventilate attic and crawl space areas. For additional information and requirements, refer to 24 CFR Part 39.
(3) Replacement Systems. a) Heating, ventilating, and air conditioning system supply and return pipes and ducts must be insulated whenever they run through unconditioned spaces. b) Heating systems, burners, and air conditioning systems must be carefully sized to be no greater than 15 percent oversized for the critical design, heating or cooling, except to satisfy the manufacturer's next closest nominal size.
B. Smoke Detectors. Each sleeping area must be provided with a minimum of one (1) approved, listed and labeled smoke detector installed adjacent to the sleeping area.
Determining Upon One or Two Appraisal Reports The appraiser must provide an opinion of the After-Improved value of the subject property, and in some cases, may be directed by the lender to provide the As-is value. In those cases for which both As-is and After-improved values are required, the valuation analysis may consist of either one or two separate appraisal reports.
The number of appraisals depends on the complexity, scope and lender review of the proposed rehabilitation and nature of the work.
A. As-is Value. A separate appraisal (Uniform Residential Appraisal Report) may be required to determine the as-is value. However, the lender may determine that an as-is appraisal is not feasible or necessary. In this instance, the lender may use the contract sales price on a purchase transaction, or the existing debt on a refinance transaction, as the as-is value, when this does not exceed a reasonable estimate of value.
Further, on a refinance transaction, when a large amount of existing debt (i.e., first and second mortgages) suggests that the borrower has little or no equity in the property, the lender must obtain a current as-is appraisal on which to base the estimated as-is value.
On a refinance, the borrower may have substantial equity in the property to assure that no further down payment is required on the new loan amount. In some cases, the borrower will not have an existing mortgage on the property. In this case, the lender should obtain some comparables from a real estate agent/ broker to estimate an approximate as-is value of the property.
Another way of establishing the as-is value is to obtain a copy of the local jurisdiction tax valuation on the property. B. Value After Rehabilitation. The expected market value of the property is determined upon completion of the proposed rehabilitation and/or improvements.
For a HUD-owned property an as-is appraisal is not required and a DE lender may request the HUD Field Office to release the outstanding HUD Property Disposition appraisal on the property to the lender to establish the maximum mortgage for the property. The HUD appraisal will be considered acceptable for use by the lender if. (1) it is not over one year old prior to bid acceptance from HUD; and (2) the sales contract price plus the cost of rehabilitation does not exceed 110 percent of the "As Repaired Value" shown on the HUD appraisal. If the HUD appraisal is insufficient, the DE Lender may order another appraisal to assure the market value of the property will be adequate to make the purchase of the property feasible. For a HUD-property, down payment for an owner-occupant or non-profit organization is 3.5% of the accepted bid price of the property and 100 percent financing on all other costs.
Recently Acquired Properties Homebuyers who purchase a property with cash can refinance the property using 203(k) within six (6) months of purchase, the same as if the buyer purchased the property with a 203(k) insured loan to begin with. Evidence of interim financing is not required; the mortgage calculations will be done the same as a purchase transaction. Cash back will be allowed to the borrower in this situation less any down payment and closing cost requirement for the 203(k) loan. A copy of the Sales Contract and the HUD-1 Settlement Statement must be submitted to verify the accepted bid price (as-is value) of the property and the closing date.
Architectural Exhibits The improvements must comply with HUD's Minimum Property Standards (24 CFR 200.926d and/or HUD Handbook 4905.1) and all local codes and ordinances. The homebuyer may decide to employ an architect or a consultant to prepare the proposal. The homebuyer must provide the lender with the appropriate architectural exhibits that clearly show the scope of work to be accomplished. The following list of exhibits are recom mended, but may be modified by the local HUD Field Office as required.
A. A Plot Plan of the Site is required only if a new addition is being made to the existing structure. Show the location of the structure(s), walks, drives, streets, and other relevant details. Include finished grade elevations at the property corners and building corners. Show the required flood elevation.
B. Proposed Interior Plan of the Dwelling. Show where structural or planning changes are contemplated, including an addition to the dwelling. (An existing plan is no longer required.)
C. Work Write-up and Cost Estimate. Any format may be used for these documents, however, quantity and the cost of each item must be shown. Also include a complete description of the work for each item (where necessary). The Rehabilitation Checklist in Appendix 1 of Handbook 4240.4 REV-2 should be used to ensure all work items are considered. Transfer the costs to the Draw Request (form HUD-9746-A).
Cost estimates must include labor and materials sufficient to complete the work by a contractor. Homebuyers doing their own work cannot eliminate the cost estimate for labor, because if they cannot complete the work there must be sufficient money in the escrow account to get a subcontractor to do the work. The Work Write-up does not need to reflect the color or specific model numbers of appliances, bathroom fixtures, carpeting, etc., unless they are nonstandard units.
The consultant who prepares the work write-up and cost estimate (or an architect, engineering or home inspection service) needs to inspect the property to assure: (1) there are no rodents, dryrot, termites and other infestation; (2) there are no defects that will affect the health and safety of the occupants; (3) the adequacy of the existing structural, heating, plumbing, electrical and roofing systems; and (4) the upgrading of thermal protection (where necessary).
Rehab a Home w/HUD's 203(k)The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD), administers various single family mortgage insurance programs. These programs operate through FHA-approved lending institutions which submit applications to have the property appraised and have the buyer's credit approved. These lenders fund the mortgage loans which the Department insures. HUD does not make direct loans to help people buy homes.
The Section 203(k) program is the Department's primary program for the rehabilitation and repair of single family properties. As such, it is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities. Since these are the primary goals of HUD, the Department believes that Section 203(k) is an important program and we intend to continue to strongly support the program and the lenders that participate in it.
Many lenders have successfully used the Section 203(k) program in partnership with state and local housing agencies and nonprofit organizations to rehabilitate properties. These lenders, along with state and local government agencies, have found ways to combine Section 203(k) with other financial resources, such as HUD's HOME, HOPE, and Community Development Block Grant Programs, to assist borrowers. Several state housing finance agencies have designed programs, specifically for use with Section 203(k) and some lenders have also used the expertise of local housing agencies and nonprofit organizations to help manage the rehabilitation processing.
The Department also believes that the Section 203(k) program is an excellent means for lenders to demonstrate their commitment to lending in lower income communities and to help meet their responsibilities under the Community Reinvestment Act (CRA). HUD is committed to increasing homeownership opportunities for families in these communities and Section 203(k) is an excellent product for use with CRA-type lending programs.
If you have questions about the 203(k) program or are interested in getting a 203(k) insured mortgage loan, we suggest that you get in touch with an FHA-approved lender in your area or the Homeownership Center in your area.
Introduction Section 10 1 (c) (1) of the Housing and Community Development Amendments of 1978 (Public Law 95557) amends Section 203(k) of the National Housing Act (NHA). The objective of the revision is to enable HUD to promote and facilitate the restoration and preservation of the Nation's existing housing stock. The provisions of Section 203(k) are located in Chapter II of Title 24 of the Code of Federal Regulations under Section 203.50 and Sections 203.440 through 203.494. Program instructions are in HUD Handbook 4240-4. HUD Handbooks may be ordered online from The HUD Compendium or from HUDCLIPS.
203(k) - How It Is Different Most mortgage financing plans provide only permanent financing. That is, the lender will not usually close the loan and release the mortgage proceeds unless the condition and value of the property provide adequate loan security. When rehabilitation is involved, this means that a lender typically requires the improvements to be finished before a long-term mortgage is made.
When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203(k) program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work. To minimize the risk to the mortgage lender, the mortgage loan (the maximum allowable amount) is eligible for endorsement by HUD as soon as the mortgage proceeds are disbursed and a rehabilitation escrow account is established. At this point the lender has a fully-insured mortgage loan.
Eligible Property
To be eligible, the property must be a one- to four-family dwelling that has been completed for at least one year. The number of units on the site must be acceptable according to the provisions of local zoning requirements. All newly constructed units must be attached to the existing dwelling. Cooperative units are not eligible.
Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place.
In addition to typical home rehabilitation projects, this program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling. An existing multi-unit dwelling could be decreased to a one- to four-family unit.
An existing house (or modular unit) on another site can be moved onto the mortgaged property; however, release of loan proceeds for the existing structure on the non-mortgaged property is not allowed until the new foundation has been properly inspected and the dwelling has been properly placed and secured to the new foundation.
A 203(k) mortgage may be originated on a "mixed use" residential property provided: (1) The property has no greater than 25 percent (for a one story building); 33 percent (for a three story building); and 49 percent (for a two story building) of its floor area used for commercial (storefront) purposes; (2) the commercial use will not affect the health and safety of the occupants of the residential property; and (3) the rehabilitation funds will only be used for the residential functions of the dwelling and areas used to access the residential part of the property.
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