FHA 203K & Streamlined 203K

Nature of Program

Purchase or refinance of a one to four family dwelling to be rehabilitated or improved. Monies needed to cover the cost of rehabilitation are included in the mortgage. The 203K program enables the borrower to close on the loan before starting any rehabilitation. The rehabilitation money is placed in an interest bearing escrow account at the time of closing. Escrowed money may be released in draws as work is completed (the applicable maximum mortgage amount, mortgage term, and down payment are similar to section 203b).

Contractor

A general contractor is recommended to be utilized for 203K; however for “Streamlined 203K” it is required to have fixed price contracts from subcontractors for all work items.

Eligible Mortgage

Occupant (96.5% maximum mortgage) based on total acquisition

Eligible Property

1. One to four unit dwelling

2. Conversion of property from multi-units to single and visa versa

3. Existing house on another site can be moved onto the mortgaged property

4. HUD property disposition (foreclosures)

MIP

Collected monthly, and one time up front.

Maximum Mortgage Limits

FHA Central Ohio Counties (Delaware, Fairfield, Franklin, Licking, Madison, Morrow, Pickaway, Union)

1 unit $341,250

2 unit(s) $436,850

3 unit(s) $528,050

4 unit(s) $656,250

Application Fees – Paid Up Front

Credit Report $55.00

Appraisal $350-$450

Each Additional Unit $15.00

Regular 203K Schedules of Fees

Borrower may have the specifications prepared and a plan review done, or may hire a consultant/plan reviewer to prepare the specs and do the required plan review in one step. See attached schedule of fees.

Consultant/Plan Review Fees

Consultation fees are paid by the borrower directly to the consultant.

Plan Review fees will vary between $250 - $500 depending upon the scope of the work.

Feasibility Study

Basically, the consultant will do a quick home inspection of the property, with a “rough estimate” of work being described to the borrower. A fee between $75 and $125 may be included in the mortgage. Should a full blown consultation be requested, the feasibility funds may be used toward the consultation fee.

Inspection Fees

The inspection fee for each draw is $75 per unit.

HUD Approved Consultants

The following people have been approved by HUD to act as consultants for the 203K program:

Thomas Jacobs 614-889-5655

Reggie Spencer 614-394-1021

James Bitonte 614-736-8717

Christopher Jacobs 614-519-5000 (cell)

Streamlined 203K

Borrower selects contractor(s) and submits bids itemizing work to be completed that are signed & executed by borrower and contractor. Licensing, bonding, and/or review of contractor(s) to be provided.

Streamlined 203K Work Items

Eligible Improvements

• Repair/Replacement roofs, gutters and downspouts
• Repair/Replacement/upgrade of existing HVAC systems
• Repair/Replacement/upgrade of plumbing and electrical systems
• Repairs/Replacement of existing flooring
• Minor remodeling, such as kitchens, which does not involve structural repairs
• Exterior and interior painting
• Weatherization: including storm windows and doors, insulation, weather stripping, etc.
• Purchase and installation of appliances may include free-standing ranges, refrigerators, washers/dryers, dishwashers and microwaves
• Improvements for accessibility for persons with disabilities
• Lead based paint stabilization or abatement
• Repair/replace/add exterior decks, patios, porches
• Basement finishing and remodeling not involving structural repairs
• Basement waterproofing
• Window and door replacements and exterior wall re-siding
• Septic system and/or well replacement

Ineligible Improvements

• Major rehabilitation or major remodeling, such as the relocation of a load-bearing wall;
• New construction (including room additions);
• Repair of structural damage;
• Repairs requiring detailed drawings or architectural exhibits
• Landscaping or similar site amenity improvements;
• Any repair or improvement requiring a work schedule longer that six (6) months; or
• Rehabilitation activities that require more than two (2) payments per specialized contractor

Regular 203K Requirements

Eligible Improvements

There is a minimum $5,000 requirement for the eligible improvements on the existing structure on the property. Minor or cosmetic repairs, by themselves, are unacceptable; however, they may be added to the minimum requirement. Examples of eligible improvements are listed below:

A. Structural alterations and reconstruction – e.g. repair or replacement of structural damage, chimney repair, addition to the structure, installation of an additional; bath(s), skylights, finished attics and/or basements, repair of termite damage, and treatment against termites or other insect infestation, etc.

B. Changes for improved functions and modernization – e.g. remodeled bathrooms and kitchens, including permanently installed appliances, i.e., built-in range and/or oven, range hood, microwave, and dishwasher.

C. Elimination of health and safety hazards-including the resolution of defective paint surfaces or lead-based paint problems on homes built prior to 1978.

D. Changes for aesthetic appeal and elimination of obsolescence - e.g., new exterior siding, adding a second story to the home, covered porch, stair railings, attached carport.

E. Reconditioning or replacement of plumbing (including connecting to public water and/or sewer system), heating, air conditioning, and electrical systems. Installation of new plumbing fixtures is acceptable, including interior whirlpool bathtubs.

F. Installation of well and/or septic system – the well or septic system must be installed or repaired prior to beginning any other repairs to the property.

G. Roofing, gutters and downspouts.

H. Flooring, tiling, and carpeting.

I. Energy conservation improvements – e.g., new double pane windows, steel insulated exterior doors, insulation, solar domestic hot water systems, caulking and weather-stripping, etc.

J. Major landscape work and site improvements, patios, decks and terraces that enhance the value of the property equal to the dollar amount spent on the improvements or required preserve the property from erosion. The correction of grading and drainage problems is also acceptable.

K. Improvements for accessibility to the handicapped.

L. Rehabilitation or improvements to a detached garage, or the addition of an attached unit(s) (if allowed by the local zoning ordinances) can be included in the first $5,000.

Required Improvements

1. Cost effective Energy Conservation, i.e., weather-stripping, caulking, insulation, storm doors and windows, etc., if needed.

2. Smoke detectors (one per floor)

3. Correction of any deficiencies or repair items.

Required Exhibits

1. Specifications with complete cost breakdown (HUD form).

2. If additions or structural changes are made, then proposed plot plan and floor plan are needed, identifying each room with dimensions.

Sample Processing Flow

Loan application with lender.

Purchase contract.

Select a consultant/plan reviewer

Select a contractor for major rehabilitation.

Plan reviewer submits completed specifications to Concord.

Appraiser schedules appointment to do appraisal.

Appraiser submits completed appraisal to Concord’s underwriter for review.

Upon receipt of completed appraisal by the processor, the case is prepared for final underwriting.

Upon approval, the loan is prepared for closing.

The loan closes and the rehabilitation and contingency fee monies are placed in escrow.

After closing, the rehabilitation work starts within 30 days.

Borrower or contractor prepares draw request form 9746-A (signed by mortgagor and contractor) and submits to lender for inspection. [Receipts or invoices on actual monies spent needs to be attached to draw request.]

Lender releases monies less 10% holdback for cleared items (maximum of 4 draws).

Contractor and mortgagor request any contingency money from the lender needed for cost overruns or additional approved improvements (must submit bills for completed items).

Upon acceptance, lender releases contingency monies less 10% holdback.

Upon completion of the entire rehabilitation, authorization is obtained to release the 10% holdback and apply any remaining contingency reserve to the principal balance.