LenderSelect Mortgage Group Education for Renovation

What is a Renovation Loan? A Renovation Loan allows a borrower to purchase or refinance a home and include the cost of substantial repairs or improvements through a single loan. This saves borrowers thousands of dollars out of pocket.

Types of Renovation loans There are 2 types of Renovation Loans: Full Streamline The home and the amount of repairs that are needed will determine which one is the best fit.

Renovation Loans Repairs are completed after closing Down payment for purchases are based on the sales price PLUS repairs Underwritten and processed locally with LSMG Close within 30-45 days

Full vs. Streamline Full Streamline $5,000 minimum for repairs/improvements HUD Consultant required Architectural exhibits required Up to 6 months of payments may be financed if the home is not habitable $5,000 minimum for repairs/improvements HUD Consultant Feasibility Study Architectural exhibits NOT required Mortgage payments may NOT be financed

Full vs. Streamline Full Streamline Repair limit: 50% of the after-improved value for Fannie Mae Homestyle only OR Repair limit: None for FHA 203(k) Repair limit: up to $31,100 for both Fannie Mae Homestyle and FHA 203(k)

Full Renovation Loans For purchase or refinance transactions Major repairs and improvements Loan amount includes repair costs and any: Inspection fees HUD Consultant fees Other fees 10% contingency requirement $5,000 minimum repair cost

Full Renovation Loans - Eligible Work Items Most work items are allowed on the Full Renovation loan with the exception of a few items Up to $1,500 for pool repair for existing pools Pumps Covers Pipe replacement

Full Renovation Loans - Ineligible Work Items Any repair or improvements requiring more than 6 months to complete Luxury item installation, for example: Pools Hot tubs Barbeque pits

Full Renovation Draws No draws at closing Up to 5 draws throughout the renovation process Draws disbursed upon HUD Consultant’s approval and title update

Streamline Renovation Loans For purchase or refinance transactions Minor repairs and improvements (upgrades) Loan amount can include repair costs up to and not exceeding $35,000, value permitting. This amount includes inspections, fees, etc. and 10% contingency requirement PLEASE NOTE: Work bid amount should not exceed $31,100 $5,000 minimum repair cost

Streamline Renovation Loan - Eligible Work Items Repair, replace & upgrade roofs, gutters & downspouts Existing HVAC systems, plumbing and electrical systems Can be combined with an EEM (Energy Efficient Mortgage) Flooring, paint, siding, windows and etc. Minor remodeling (non-structural)

Streamline Renovation Loan - Eligible Work Items Weatherization Storm windows, doors, insulation, weather stripping Appliances (including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwaves) PLEASE NOTE: addition of appliances may not support an increase in appraised value Improvements for accessibility for persons with disabilities Lead-based paint, mold, radon abatement

Streamline Renovation Loan - Eligible Work Items Repair/replace/add exterior decks, patios, porches Basement finishing and remodeling (non-structural) Basement waterproofing Defective Drywall Minor repairs to Well & Septic Minor cosmetic renovations Kitchen & bathroom remodeling (non-structural)

Streamline Renovation Loan - Ineligible Work Items Major rehabilitation or remodeling (such as relocation of any load-bearing walls) New construction (including room additions) Repair of structural damage (floor joists, girders, beams, piers, etc.) Repairs requiring detailed drawings or architectural exhibits Landscaping or similar site amenity improvements Any repair or improvements requiring more than 6 months to complete Luxury Items (pools, hot tubs, barbeque pits, etc.)

Streamline Renovation Draws FHA 203(k) Streamline loans have 2 draws: First draw The borrower can receive up to 50% of the bid amount at closing Final draw Disbursed after ALL work is complete Homestyle Streamline loans do not have any draws. Total funds are disbursed after ALL work is complete.

Required Inspections Termite & Moisture Inspection Required on all FHA 203(k) loans Required on Homestyle Full loans (not required on Streamlines unless specified on the sales contract) Well/Septic Inspection HUD Consultant Inspection Required on all Full loans; 203(k) Streamlines require Feasibility Study only

HUD Consultant Provides full home inspection Cost break down and write up of repairs Provides Minimum Property Requirement (MPR) repairs to ensure the home is: Safe, structurally sound and sanitary, and Meets the standards considered acceptable in its locality List of permits needed for work being performed Provides three (3) contractor references Confirms satisfactory completion of work prior to any updates of title or disbursement of draws

Contractors Licensed & Bonded Class A or B Liability & Workman’s Comp Insurance required Must provide W9s Lowes & Home Depot bids are not allowed Borrower may NOT act as their own contractor.

Eligible Properties 1-4 Units Refinance of existing properties Properties owned free and clear Existing properties – more than 1 year old New Construction – if not previously occupied, must have had CO issued over 1 year ago

Ineligible Borrowers Identity of Interest transactions are NOT allowed on any Renovation loan, per HUD Identity of Interest refers to any relationship (generally based on family ties or financial interests) between: The seller and purchaser (prospective owner) The owner and/or general contractor and the subcontractor, material supplier or equipment lessor, Realtor, appraiser, consultant The owner and the lender In addition the borrower cannot be related to the listing agent, selling agent, seller or contractor

Fannie Mae Homestyle vs. FHA 203(k) Primary residences, second homes, and investment properties allowed 5% down payment on primary residences Credit-based MI premiums Standard FNMA Seller Concessions guidelines Primary residences only 3.5% down payment 6% Seller Concessions

How can this product benefit you and your borrowers? With short sales and foreclosed properties, this loan product can help buyers purchase a home in need of repairs and be able to close and complete the repairs afterwards. More options for your buyers to be able to purchase a house that may meet some of their needs, but requires some work. You get paid at closing and do not have to wait. Great way to “List” a property that needs help!

How can LSMG help you and your borrowers with Renovation Loans?