by Dustan Shepherd
All renovation projects begin with the same question: “How do I pay for my repairs?” Your first stop for long-term market rate financing should be the FHA 203k and the Fannie Mae HomeStyle loan. Both financing vehicles offer special features for both home purchases and refinance transactions. A borrower should compare these programs the same way one would compare carpet to wood floors or single-hung to double-hung windows. Details for both the FHA 203k and the Fannie Mae HomeStyle (some lenders call the HomeStyle product their “conventional renovation loan”) are listed above on the navigation bar, but I thought I would break out a few items that might help you initially address which program might be best for your renovation project.
203k and HomeStyle Renovation Credit Processing
|
FHA 203k |
Fannie Mae HomeStyle |
| Mortgage Insurance |
1% of the loan amount is calculated and financed on to the loan (it may be paid in cash, but that option is seldom chosen); for a 3.5% down 30-year loan an additional 1.15% is calculated (divide by 12 payments) and paid monthly as part of your total payment. Monthly mortgage insurance is generally applied to all FHA loans (15-year loans have different parameters) with no respect to the loan-to-value. |
There is no up-front mortgage insurance, and the monthly payment averages between .70-.80% of the loan amount (for 5% down). As a borrower places more money down, the monthly mortgage insurance decreases until a borrower has reached a down payment of 20%, then no mortgage insurance is applied. If a borrower is refinancing and has equity in his home, the same principle applies: More equity = less mortgage insurance. |
| Maximum Loan Limits |
In non–high balance loans area, the maximum FHA loan amount is $271,050. |
In non–high balance loans area, the maximum conventional loan amount is $417,000. |
| Downpayment |
3.5% minimum (may come from a gift) |
5% minimum (must be the borrower’s own funds) |
| Credit Scores |
For owner-occupied properties, the minimum median score is 620. (This score should be used only as a yardstick. Property location, high-balanced loan limits, and other factors may affect this number.) |
For owner-occupied properties, the minimum median credit score is 660. (This score should only be used as a yardstick. Property location and type, high-balanced loan amounts, and other factors may affect this number.) |
| Cash Reserves |
No requirements for reserves. |
Must have a minimum of two months PITI with additional reserves needed for high-balance loans, second homes and investment properties. |
203k and HomeStyle Renovation Property Standards
|
FHA 203k |
Fannie Mae HomeStyle |
| Appraisals |
A lender can loan up to 110% of the appraised value. |
A lender can loan up to 100% of the appraised value. |
| Luxury Repairs |
No luxury items allowed; only $1,500 toward pool repair. |
Luxury items allowed, including renovating or putting in a new pool. |
| Property Types |
Owner-occupied homes only. |
Owner-occupied homes, second homes, and investment properties. |
Remember: A more detailed description for each loan program is listed on the navigation bar above.
The guidelines listed above are generic, so consult your 203k or HomeStyle lender on their specific program parameters. Don’t forget that, in today’s lending environment, more and more lenders are placing overlays on their products. If you believe you fit within the one of these program parameters, don’t give up on your project after one negative lender conversation; make a couple of additional calls to confirm what you have been told.
Remember: I lend nationwide and can be reached by phone at 1-800-689-6001 or e-mail at info@203kkc.com.
by Dustan Shepherd
Prefab Homes Are Allowable Renovation Projects For FHA 203k loans.
When you are buying a home, you might hear the terms modular homes and manufactured homes, it is critical that you understand how these prefab homes differ. The FHA 203k mortgage program allows for both modular and manufactured homes. The differences can affect a home’s price and its resale value, and even dictate your financing options.
I receive a lot of calls from prefab home buyers that start with an extended conversation on the specifics of the home in order to arrive at the structure’s true identity. A borrower can purchase an existing prefab home or refinance their current home with a 203k mortgage. Many lenders will not allow a manufactured home with a 203k mortgage, however we do.
What Are Modular Homes?
- Modular homes are built in sections at a factory.
- Modular homes are built to conform to all state, local or regional building codes at their destinations.
- Sections are transported to the building site on truck beds, then joined together by local contractors.
- Local building inspectors check to make sure a modular home’s structure meets requirements and that all finish work is done properly.
- Modular homes are sometimes less expensive per square foot than site built houses.
- A well-built modular home should have the same longevity as its site-built counterpart, increasing in value over time
What Are Manufactured Homes?
- Formerly referred to as mobile homes or trailers, but with many more style options than in the past.
- Manufactured houses are built in a factory.
- They conform to a Federal building code, called the HUD code, rather than to building codes at their destinations.
- Manufactured homes are built on a non-removable steel chassis.
- Sections are transported to the building site on their own wheels and then the wheels are removed. This is often the quickest means to identify a manufactured home: did the home have wheels or no wheels?
- Multi-part manufactured units are joined at their destination.
- Segments are not always placed on a permanent foundation, making them more difficult to re-finance.
- Building inspectors check the work done locally (electric hook up, etc.) but are not required to approve the structure.
- Manufactured housing is generally less expensive than site built and modular homes.
- Manufactured homes sometimes decrease in value over time.
Manufactured Home Criteria
To obtain a FHA 203k mortgage on a manufactured homes a borrower must be ready to supply additional documentation. A few items that will need immediate attention is the length of time on the home site, proof the home was new when delivered to site and no renovation will disturb the homes structural conformity to national manufactured housing codes.
The 203k program allows for renovation on manufactured homes when they meet all of the following requirements:
- Built after June 15, 1976
- On a permanent foundation for over one year, can be renovated, or
- A manufactured home that not has been on a permanent foundation but has been located on the property for over a year and will be placed on a permanent foundations as part of the 203k process. Additional steps will apply to all homes that are not on a permanent foundation prior to closing, call me to discuss your situation.
- The unit must have been new when delivered to the property with no prior occupancy.
- The renovation must not effect the structural integrity of the home that was designed and constructed in conformance with the Federal Manufactures Construction and Safety Standards.
- Each foundation must meet HUD standards and must be certified by a licensed engineer.
- The unit must be titled as real estate at or prior to closing, this is a biggie on refinance loans, so dig out your paperwork from your original purchase, I see many homes that are still titled as a trailer and a piece of land.
