Renovation Mortgages To Grow Your Business Renovation Lending 101 Comments: Note: Customize this slide your name, title, and phone number. Introduce yourself, guests, Fannie Mae rehab specialists, and Fannie Mae regional office staff. Confirm that each participant has a Workbook for the session. Point out that the workbook contains copies of the slides used in the presentation and also provides room for notes. HomeStyle Home Improvement Success Kit. Explain that you will be referring to this Kit a little later. Ask participants with rehab or construction loan experience to identify themselves by raising their hands. If time allows, ask each experienced person to tell the group their name, company, and the job function they have performed with respect to rehab or construction projects. Tell the group you will be calling on participants who have worked with rehab or construction projects to contribute to the discussion based on their experience. .

Renovation Loan Overview Renovation Loans offer a buyer the opportunity to buy a property and close as-is, financing both the purchase and repair money in one mortgage transaction. The appraisal assignment is done as if the property were complete and there is no requirement for a certificate of occupancy prior to closing. We close AS IS, payoff the seller and set up an escrow for repairs. Products: 203k Standard 203k Limited PowerSaver HomeStyle

Let’s talk FHA - 203(k) The beginning – 1 9 __ ___ Banks 203 - B, C, D, E, F, G, H, I, J,… FHA 203(k) 1 9 __ __

Exploring HUD’S FHA 203k The FHA 203k Program is unique mortgage financing that allows a buyer to obtain financing for the acquisition cost (purchase price or refinance amount plus the funds to renovate) in one seamless transaction. The money for the work is pulled out by a series of draws. None of the work can be performed until the loan is closed. (both purchase and refi’s) First, we are going to go over the guidelines that apply to the 203K, this includes the property types, allowed repairs and transaction types.

National RealtyTrac Foreclosure Data Foreclosures by Estimated Market Value: Highest Availability is in the $100-$200K Range -- 541,895 Properties

Renovation Scenarios Are your customers finding houses where they love the neighborhood and the school system, but don’t have any extra money or a way to finance the repairs or upgrades. Then renovation lending is right for both you and the borrower. It’s a win-win-win situation. Your customer, you and the community. 3

FHA Maximum Loan Limit for most Tennessee Counties: 1 Unit $275,665 2 Unit $352,950 3 Unit $426,625 4 Unit $530,150

                                                                                                                                                                                                                                                                                                                             The geographic distribution of the age of the owner-occupied housing stock is strongly correlated with population changes from 2000 to 2015. The population changes, including both natural growth and net migration, signal the rising demand for housing. States with faster population growth tend to have newer housing stock. The age of the housing stock is an important remodeling market indicator. Older houses are less energy-efficient than new construction and ultimately will require remodeling and renovation in the future. The age of the housing stock is an important remodeling market indicator. Older houses are less energy-efficient than new construction. Older houses will ultimately require remodeling and renovation as they become older and older.

Cable TV’s vision of Renovating Real Estate http://www.hgtv.com/shows/fixer-upper/videos/p/3 http://www.hgtv.com/shows/property-brothers/episodes/matt-krysten

Energy efficient measures and materials are allowed “Go Green” Environmentally-friendly home improvements Approved renovations “Save Green” Monthly utility savings

Some Eligible Improvements Whole-house sealing Interior/exterior sealing; weather stripping; caulk, etc. Insulation upgrades Attic: adds at least R-19 in existing insulation Wall: must add at least R-10 continuous insulation Crawl space: covers at least 500 square feet of crawl space, other specs Duct sealing Window & door replacement Windows must meet Energy Star requirements

Some Eligible Improvements Heating system upgrade Must meet current Energy Star specs Water heater Replace natural gas, propane or electric Ground source heat pump system Renewable energy upgrades Solar panels Fuel cells Micro turbine Wind turbine

Can I Refinance & Remodel? Yes! Increase your homes equity by renovating it. How could a potential seller use the 203k program?

Typical Renovation Projects New Homeowner Long-Term Homeowner Minor or major kitchen and bath renovations Cosmetic changes Exterior (Deck/fence) Garage Addition Finish a lower level (basement) Major Kitchen and Bath HVAC Replacement Doors/Windows/Siding Plumbing Update Change in household Emergency This slide is intended to provoke the audience and to set the tone of the presentation. Since this particular HomeStyle presentation is geared to the Loan Originator, it is important to have them understand they will learn how HomeStyle will impact the volume they generate. Once they learn about HomeStyle and how to apply it to their market and origination scenarios, they will generate higher volume…volume they are currently sacrificing to 125% loans or to other home improvement mortgages or even to credit cards. In the next few slides it will be important to have Loan Officers discuss what they think happens to their borrowers now after the closing. How many of their borrowers do they believe run up their credit card or apply for home improvement loans at less than desirable terms? Repairs Maintenance Bathroom Addition Room Addition Two Story Addition Home Office .

FINANCING OPTIONS The New Homeowner Long Term Homeowner Savings Credit Cards Personal Loan Some Home Equity Home Equity Savings Credit Card FINANCING OPTIONS Change in Household Emergency Credit Card Consumer Loan Savings This slide is intended to provoke the audience and to set the tone of the presentation. Since this particular HomeStyle presentation is geared to the Loan Originator, it is important to have them understand they will learn how HomeStyle will impact the volume they generate. Once they learn about HomeStyle and how to apply it to their market and origination scenarios, they will generate higher volume…volume they are currently sacrificing to 125% loans or to other home improvement mortgages or even to credit cards. In the next few slides it will be important to have Loan Officers discuss what they think happens to their borrowers now after the closing. How many of their borrowers do they believe run up their credit card or apply for home improvement loans at less than desirable terms? Home Equity Savings Credit Card .

FHA allows lenders to use 110% of the After-improved appraised value After the first year, major home improvement projects return an average of 86% of their investment. Comments: Fannie Mae offers HomeStyle products to meet the needs of a variety of borrowers and home improvement projects. Point out that HomeStyle Standard is patterned after the FannieMae Standard mortgage. HomeStyle Community is patterned after the Community Home Buyer program. Discuss those features which are the same (u/w ratios, downpayment requirements and sources) and those that are different (maximum LTV, cash reserve requirement). Point out that the first four product are first mortgages and while the HomeStyle product line includes second mortgages they will not be discussed today. Again refer participants to the HomeStyle product matrix that is in the HomeStyle Home Improvement Success Kit which they can refer to as you briefly discuss each product. FHA allows lenders to use 110% of the After-improved appraised value .

The 203k Standard loan HUD Consultants are required Major rehab project Up-front Feasibility Study (similar to a Whole House inspection) Repairs/Updates/Improvements > $35,000 A 10%, 15% or 20% Contingency Reserve is required Finance up to 6 months of house payments Required when structural repairs or landscaping is part of the renovation project Minimum $5,000 of repairs.

What’s Structural?

HUD’s Minimum $5,000.00 in Repairs on 203k Standard loans Elimination of health and safety issues. Roofing, gutters & downspouts. Flooring, tiling and carpeting. Energy conservation improvements. Major landscape work & site improvement. Improvements for handicapped accessibility. Total repair/renovation budget > $35,000 Inclusive to Contingency reserve, title updates, other fineable costs.

What Properties Are Eligible On 203(k)’s ? 1 to 4 units Owner-occupied! FHA approved* condo’s Properties have to be at least 1 year old and have a certificate of occupancy For more information on Condo’s, Refer to LPM 95-203. Condo’s must be in an approved FHA project. Rehab is limited to interior work. Max Mtg cannot exceed 100% of after improved value. The borrower must sign 3 copies of the Supplement to Insurance Contract which has to be submitted to HUD. EEM’s are eligible for the program. Refer to Mortgagee Letter 93-13 for examples on calculating the mortgage amount. The entire mortgage cannot exceed 110% of the value of property. We will go over examples of the MMW for EEM in a little while. The program also allows for an existing house to be moved to be moved to another site. When the case is the borrower is buying both the property (where the house is being moved on) and house, two purchase agreements are needed.

Additional Property Type Examples Conversion of a single unit property to a 2,3 or 4 unit dwelling property or vice versa Homes that have been demolished but have an intact foundation that will be used Mixed Use Property….. Maximum Square Footage Requirements* What is Commercial Space No repairs to commercial space (prior to close) Mixed Use Property is eligible for 203k financing provided: 1) The property has no greater than 25% (one story) 33% (Three story) and 49% (two story) of its floor area used for commercial purposes. 2) The commercial use will not affect the health and safety of the residential occupants 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

Contractors. Contractors are validated on each property. Liability Insurance Workman’s Comp Licensing References Note: All work that is licensed work must be bid out, completed by a licensed contractor. - HVAC, Plumbing, and Electrical

The Streamline/Limited 203k Introduced December 2005 Intention was to increase the number of 203k nationally by streamlining some of the requirements of the 203k Standard. Gradually became more popular after increasing the allowawed repair amount from $15,000 to $35,000. Eliminated the need for the HUD Consultant. Great alternative for homes that needed “cosmetic” repairs, upgrades versus “gut” rehabs.

203k Limited Highlights HUD Consultants are NOT required. Total renovation account total must be < $35,000 No Structural or other “major repairs” are allowed No major mold. Self-help is not allowed Lower fees No general contractor is required but all work must be performed by a licensed and bonded contractor is required by local or state laws. No financing of mortgage payments Pool repairs - no limit on the dollar amount.

203k Limited Eligible Repairs Use of the 203(k) Limited program is limited to properties with the following work category items: Repair/Replacement roofs, gutters and downspouts Repair/Replacement/Upgrade of existing HVAC systems Repair/Replacement/Upgrade of plumbing and electrical systems Repair/Replacement of 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 appliance,- including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwaves Improvements for accessibility for persons with disabilities Lead-based paint stabilization or abatement of lead-based paint hazards Repair/replace/add exterior decks, patios, porches Basement finishing and remodeling, which does not involve structural repairs Basement waterproofing Window and door replacements and exterior wall re-siding Septic system and/or well repair or replacement

Self Help on 203k Limited "Self-help" arrangements in which the borrower is performing some or all of the work items are strongly discouraged unless the borrower's ability to competently perform the work in a timely and workmanlike manner is self-evident and easily documented. They must also satisfy the following requirements: Self-Help Agreement signed/dated, Written estimates from the suppliers of the materials the borrower will purchase. Cash reserves/credit sufficient to fund rehab costs until draw requests are processed, and Proof that they are a general contractor or have successfully completed rehabilitation projects. Note: Sweat equity is not permitted, which means that borrowers will not be compensated for their labor.

Purchase Agreement The purchase agreement must contain the following: FHA 203(k) financing plus special FHA language. 45-60 days for closing? Up-front home inspection or feasibility report

Selling HUD Homes www.hudhomestore.com Understanding how to sell HUD homes is essential in today’s market. As with many foreclosures, HUD homes must meet FHA’s minimum housing standards to be eligible for FHA financing. The 203k loan is a great alternative when considering a HUD home that in need of repair or upgrades that also may show up as uninsurable properties www.hudhomestore.com

The Consultant The consultant has a very key role in making the renovation loan process flow more smoothly. They will be involved in the 203K Standard-only to define the work, estimate a reasonable cost to the repairs and perform the draw inspections. The borrower, contractor and consultant all agree on a total to be borrowed for the homes renovation. Introduction of local HUD Consultant Role of the Consultant Advantages of using a Consultant Customary fees

HomeStyle Renovation

HomeStyle - A Conventional Renovation Program

HomeStyle Product Matrix

Conventional Loan Limits for HomeStyle for most Counties in Tn. 1 Unit $424,100 2 Units $543,000 3 Units $656,350 4 Units $815,650 Higher loan limits HomeStyle is used for bigger projects & higher priced listings than the Maximum rehab $ amount equal to 50% of as completed value

Second Homes 10% Down Payment Borrow the money to Purchase and Renovation or Refinance and Renovate

Non-Owner Occupied (Investor) m 20% down payment - 680 Credit score FNMA limits the number financed properties to 4

Successful Strategies for You after today! List more properties Pursue Listings in need of repairs, updating, rehabbing. Pursue REO properties Pursue Expired Listings Sell More Homes Know your buyer’s “Renovation Appetite” Suggest Renovation options and ideas while showing properties Work with more borrowers Be a Hero, suggest Renovation Mortgages

Are you selling the house as it is today, or the future?

Inside and out!