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SAN DIEGO (MarketWatch) -- Home sales are expected to rise about 15% next year, as buyers take advantage of a home-buyer tax credit and housing prices stabilize, the National Association of Realtors' chief economist predicted on Friday at the group's annual conference in San Diego.
The industry group is forecasting 5.69 million existing home sales in 2010, up from an anticipated 5.01 million this year. About 549,000 new-home sales are projected for next year, up from an estimated 397,000 this year, he said.
"The fear factor will no longer be at play in 2010," said Lawrence Yun, NAR chief economist. Many consumers feared that home prices would continue to fall and decided to postpone their purchases until the values were finished declining, he said. But next year, those who remained on the sidelines will believe prices have hit bottom.
And they'll take action -- if they have a job, he said.
Yun said unemployment could remain about 10% during 2010, but it "will not deter those people with jobs from making home-purchase decisions."
Realtors are celebrating the extended and expanded home buyer tax credit at their annual conference. The industry group, along with others, lobbied for passage of the measure. Read more on the expanded credit.
With the credit, first-time buyers can qualify for up to $8,000; those who own a home may qualify for a credit of up to $6,500 for the purchase of a new principal residence. Realtors are optimistic that the "free money" being offered to home buyers will help generate sales during some of the softest months of the year: November, December and January, Yun said.
"By putting cash in the hands of financially healthy home buyers, the credit will continue to help draw down inventory and stabilize home prices to encourage a strong and sustainable housing recovery," said NAR President Charles McMillan in a news release.
To qualify for the credit, buyers have to have a binding contract on a property in place by April 30, and need to close on the sale by June 30. Yun said there is a strong sentiment in Washington that the credit won't be extended again. He also thinks that it might not be needed.
"By that time, the housing market will be back on track... and I believe that will be the situation as the tax credit comes to an end in the middle of next year," Yun said. By that time, he expects home values to be showing consistent -- and sustainable -- increases.
Yun is also taking into account the high level of foreclosures that will continue to pile up into next year. Yun expects foreclosures to peak in the first or second quarter, but said there is demand in the market to absorb the inventory quickly. Read more on the avalanche of mortgage modifications that need to be dealt with.
First-time buyers made up a record 47% share of home sales over the past year, up from 41% in 2008, according to NAR's Profile of Home Buyers and Sellers, scheduled to be released during the conference. In 2006, as home prices were near their peaks in many markets, first-time buyers made up 36% of sales.
The rise in people buying a first home is being attributed largely to the tax credit; Yun estimates that there were 2.3 million to 2.4 million first-time buyers this year.
First-time buyers also took advantage of lower home prices this year, as well as low mortgage rates. NAR is forecasting that the 30-year fixed-rate mortgage will average 5.3% in the fourth quarter, and will rise gradually to 5.8% by the end of next year.
Yun said that the jumbo mortgage market is showing signs of improving, which will help sales of more expensive homes; jumbo loans are those that exceed the conforming loan limit and thus are too large to be bought by Freddie Mac or Fannie Mae.
Amy Hoak is a MarketWatch reporter based in Chicago
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.
What is a HUD Home?
A HUD home is a 1 to 4 unit residential property acquired by HUD as a result of a foreclosure action on an FHA-insured mortgage. HUD becomes the property owner and offers it for sale to recover the loss on the foreclosure claim.
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Who can buy a HUD Home?
Almost anyone! If you have the cash or can qualify for a loan (subject to certain restrictions) you may buy a HUD Home. HUD Homes are initially offered to owner-occupant purchasers (people who are buying the home as their primary residence). Following the priority period for owner occupants, unsold properties are available to all buyers, including investors.
How are HUD Homes sold?
All properties available for purchase by the public are offered for sale at Internet listing sites maintained by management companies under contract to HUD. Any real estate broker registered with HUD may submit an offer and contract to purchase on your behalf. HUD pays the real estate broker's commission, if included in the contract.
Are there any special programs?
Properties in designated areas are available at a reduced sales price to law enforcement officers, teachers, firefighters, emergency medical technicians, nonprofits and local governments. Read more about these Good Neighbor Initiatives.
Should I get a home inspection?
We encourage you to get an inspection after your offer is accepted. All HUD Homes are sold AS-IS, without warranty. HUD will not make repairs nor pay to correct any problems.
What about financing?
Although HUD does not offer financing directly, some of our homes qualify for FHA-insured loans. Shop around for a lender to find the best loan terms. Find out how an FHA loan can help you.
Seven Unit Limitation HUD regulations and policies state that a real estate owner/entity should not be allowed to rapidly accumulate FHA insured properties that clearly and collectively constitute a multifamily project. In general, a borrower may not have an interest in more than seven rental units (FHA, VA, conventional or owned free and clear of any mortgage) in the same subdivision or contiguous area. For 203(k) purposes, HUD defines a contiguous area as within a two block radius.
The seven unit limitation does not apply if (1) the neighborhood has been targeted by a State or local government for redevelopment or revitalization; and (2) the State or local government has submitted a plan to HUD that defines the area, extent and type of commitment to redevelop the area. A restriction may still be imposed (by HUD) within a redevelopment area (or sub-area) in order to prevent undesirable concentrations of units under a single (or group) ownership. H U D will determine that the seven unit limit is inapplicable only if: (1) the real estate owner/entity will own no more than 10 percent of the housing units (regardless of financing type) in the designated redevelopment area or sub-area; and (2) the real estate owner/entity has no more than eight units on adjacent lots.
Interest Rate and Discount PointsThese are not regulated and are negotiable between the borrower and the lender. The amortization of the loan will be for 30 years; however, provisions of the Section 203(k) mortgage (described in Section 203.21 of the Regulations) are the same as prescribed under Section 203(b).
Discount Points on Repair Costs and Fees
Discount points the borrower pays on the rehabilitation portion of the mortgage proceeds are allowable rehabilitation costs.
Maximum Charges and FeesThe statutory requirements and administrative policies of Section 203(k) result in deviations from the maximum amount of charges and fees permitted under Section 203(b).
A. Supplemental Origination Fee. When the Section 203(k) mortgage involves insurance of advances, the lender may collect from the mortgagor a supplemental origination fee. This fee is calculated as one and one-half percent (1-1/2%) of the portion of the mortgage allocated to the rehabilitation or $350, whichever is greater. This supplemental origination fee is collected in addition to the one percent origination fee on the total mortgage amount. B. Independent Consultant Fee.A borrower can have an independent consultant prepare the required architectural exhibits. A borrower can also use a contractor to prepare the construction exhibits or prepare the exhibits themselves. The use of a consultant is not required; however, the borrower should consider using this service in order to expedite the processing of the 203(k) loan. When a consultant is used, HUD does not warrant the competence of the consultant or the quality of the work the consultant may perform for the borrower. The consultant must enter into a written agreement with the borrower that completely explains what services the consultant will perform for the borrower and the fee charged. The fee charged by the consultant can be included in the mortgage. A fee of $400 is acceptable for a property with repairs less than $7,500; $500 for repairs between $7,501 and $15,000; $600 for repairs between $ 15,001 and $ 30,000; and $ 700 for repairs between $30,001 and $50,000; $800 for repairs between $50,001 and $75,000; $900 for repairs between $75,001 and $100,000; and $ 1,000 for repairs over $100,000. An additional fee of $25 can be charged for each additional unit in the property under the same FHA case number. For this fee, the consultant would inspect the property and provide all the required architectural exhibits. State licensed architect or engineer fees are not restricted by this fee schedule. The architect and engineer fees must be customary and reasonable for the type of project.) C. Fee Consultant. Prior to the appraisal, a HUD-accepted fee consultant must visit the site to ensure compliance with program requirements. The utilities must be on for this site review to take place. The fee is as follows and may not be changed without HUD Headquarters approval:1) Initial review prior to appraisal: Cost of Repairs/Fee: <$15,000=$100.00, >$15,001 but less than or equal to<$30,000=$150.00, >$30,001=$200.00 2) Additional unit review (two to four units with same case number)-$50.00/unit. 3) Additional review (reinspection of the same unit)-$50.00. When travel distance exceeds 30 miles round trip from the reviewer's place of business, a mileage charge (established by HUD Field Office) may be applied to the above charges, including toll road and other charges where applicable.D. Appraisal Fee.The lender may charge a borrower no more than the actual amount the lender pays the appraiser, whether the appraiser is on the lender's staff, or external to the organization. The lender may include the appraisal fee in the closing costs. E. Inspection Fee (during the rehabilitation construction period). Established by the local HUD Field Office.(1) Fees for a maximum of five draw inspections will be allowed for inclusion in the cost of rehabilitation. If all inspections are not required, remaining funds will be applied to the principal after the Final Release Notice is issued. (2) If additional inspections are required by the lender to ensure satisfactory compliance with exhibits, the borrower or contractor will be responsible for payment; however, the lender has ultimate responsibility. F. Title Update Fee. To protect the validity of the mortgage position from mechanic's liens on the property, reasonable fees charged by a title company may be included as an allowable cost of rehabilitation. When the mortgage position is protected and is not in jeopardy, this fee may not apply Borrowers may wish to obtain lien protection, but the fees must be paid by the borrower where such lien protection is not required to ensure the validity of the security instrument. The allowable fee should not exceed $50.00 per draw release. If all draw inspections are not made, monies left in escrow must be applied to reduce the mortgage balance.
Application ProcessThis describes a typical step-by-step application/mortgage origination process for a transaction involving the purchase and rehabilitation of a property. It explains the role of HUD, the mortgage lender, the contractor, the borrower, consultant, the plan reviewer, appraiser and the inspector.
A. Homebuyer Locates the Property.
B. Preliminary Feasibility Analysis.After the property is located, the homebuyer and their real estate professional should make a marketability analysis prior to signing the sales contract. The following should be determined:
1) The extent of the rehabilitation work required; 2) Rough cost estimate of the work; and 3) The expected market value of the property after completion of the work. Note: The borrower does not want to spend money for appraisals and repair specifications (plans), then discover that the value of the property will be less than the purchase price (or existing indebtedness), plus the cost of improvements.
C. Sales Contract is Executed. A provision should be included in the sales contract that the buyer has applied for Section 203(k) financing, and that the contract is contingent upon loan approval and buyer's acceptance of additional required improvements as determined by HUD or the lender.
D. Homebuyer Selects Mortgage Lender. Call HUD Field Office for a list of lenders.
E. Homebuyer Prepares Work Write-up and Cost Estimate. A consultant can help the buyer prepare the exhibits to speed up the loan process.
F. Lender Requests HUD Case Number. Upon acceptance of the architectural exhibits, the lender requests the assignment of a HUD case number, the plan reviewer, appraiser, and the inspector.
G. Fee Consultant Visits Property.The homebuyer and contractor (where applicable) meet with the fee consultant to ensure that the architectural exhibits are acceptable and that all program requirements have been properly shown on the exhibits.
H. Appraiser Performs the Appraisal.
I. Lender Reviews the ApplicationThe appraisal is reviewed to determine the maximum insurable mortgage amount for the property
J. Issuance of Conditional Commitment/Statement of Appraised Value.This is issued by the lender and establishes the maximum insurable mortgage amount for the property.
K. Lender Prepares Firm Commitment Application.The borrower provides information for the lender to request a credit report, verifications of employment and deposits, and any other source documents needed to establish the ability of the borrower to repay the mortgage.
L. Lender Issues Firm Commitment. If the application is found acceptable, the firm commitment is issued to the borrower. It states the maximum mortgage amount that HUD will insure for the borrower and the property.
M. Mortgage Loan Closing.After issuance of the firm commitment, the lender prepares for the closing of the mortgage. This includes the preparation of the Rehabilitation Loan Agreement. The Agreement is executed by the borrower and the lender in order to establish the conditions under which the lender will release funds from the Rehabilitation Escrow Account. Following closing, the borrower is required to begin making mortgage payments on the entire principal amount for the mortgage, including the amount in the Rehabilitation Escrow Account that has not yet been disbursed.
N. Mortgage Insurance Endorsement. Following loan closing, the lender submits copies of the mortgage documents to the HUD office for mortgage insurance endorsement. HUD reviews the submission and, if found acceptable, issues a Mortgage Insurance Certificate to the lender.
O. Rehabilitation Construction Begins.At loan closing, the mortgage proceeds will be disbursed to pay off the seller of the existing property and the Rehabilitation Escrow Account will be established. Construction may begin. The homeowner has up to six (6) months to complete the work depending on the extent of work to be completed. (Lenders may require less than six months.)
P. Releases from Rehabilitation Escrow Account.As construction progresses, funds are released after the work is inspected by a HUD-approved inspector. A maximum of four draw inspections plus a final inspection are allowed. The inspector reviews the Draw Request (form HUD-9746-A) that is prepared by the borrower and contractor. If the cost of rehabilitation exceeds $10,000, additional draw inspections are authorized provided the lender and borrower agree in writing and the number of draw inspections is shown on form HUD-92700, 203(k) Maximum Mortgage Worksheet.
Q. Completion of Work/Final Inspection. When all work is complete according to the approved architectural exhibits and change orders, the borrower provides a letter indicating that all work is satisfactorily complete and ready for final inspection. If the HUD-approved inspector agrees, the final draw may be released, minus the required 10 percent holdback. If there is unused contingency funds or mortgage payment reserves in the Account, the lender must apply the funds to prepay the mortgage principal.
Don't ignore the letters from your lender
