Comparing the FHA 203k, Homestyle, and EZ (C) Renovation Loans

[Jerry Padilla]

The Streamline FHA 203k, HomeStyle Renovation, & EZ (C) Renovation Loans are all renovation products. But there are considerable difference with each product. Here are the main point differences in these products. Further below are more details on each of the products or there is also a link to each individual blog. None of these products are for fix and flip properties.

FHA is for Primary Residence buyers only. This product has a low down payment only requiring 3.5% down on up to 4 units, and also allows up to 6% sellers concessions. There are high fee's associated with FHA financing compared to other conventional products. MIP has an upfront cost of 1.75% of the base loan amount as well as a monthly MIP as well. BUT ........ for primary home buyers this may be the best option with very little out of pocket. There is a maximum of $35k - 10% contingency reserve for renovations. FHA 203k Financing

The EZ (C) Renovation product allows individuals to purchase both primary or investment properties up to 4 units. The limitation with this option is a maximum renovation of $35k - 10% contingency reserve, as well as a limit of 4 properties including subject ONLY if purchasing an investment property. LTV's are also going to be lower than an FHA mortgage for a primary home purchase. The LTV requirements are as following; 95% LTV 1 Unit, 80% LTV 2 Unit, 75% LTV 3-4 Unit. This is the only of the 3 products allowing for an investment property renovation. The LTV requirements are as following; 80% LTV 1 Unit, 75% LTV 2-4 Units. EZ (C) Renovation Financing

The HomeStyle Renovation product allows for renovations, repairs, or improvements totaling 75% of the lessor of "as-completed" appraised value of the property, or the purchase price plus closing costs. This product has limitations for an investment purchase of only 1 unit properties allowed. There is also a maximum of 4 financed properties, when purchasing a second home or an investment property. There are no limits for a primary residence. The LTV for an investment SFR is 85% allowing for a slightly lower down payment than the EZ (C) Renovation product. This product allows for structural repairs, and requires a 10% - 20% contingency reserve as well - depending on the repairs needed. HomeStyle Renovation Financing

Streamline FHA 203k Product Overview

LTV Requirements: Maximum of 110%

1-2 units allowed (3-4 units by exception only)

***The Standard 203(k) requires a minimum repair cost of $5k and requires the use of a 203(k) specialist.

***The Limited 203(k) may only be used for minor remodeling and non-structural repairs. The Limited 203(k) does not require the use of a 203(k) Consultant, but a Consultant may be used. There is no minimum rehabilitation cost. Now allowing Manufactured Housing with the limited 203(k)

Maximum number of contractors: 3

Upfront MIP 1.75%, Annual MIP ranges depending on LTV, Base Loan Amount, and Term. See chart below.

Repair Limits

• Renovation Total can be up to $35,000 in cosmetic repairs.
• This amount includes: 10% contingency reserve and all fees and costs listed in the fee section.
• Exceptions are not allowed to exceed the repair amount.
• Borrower is not allowed to fund overage.

Allowable Repairs

- Repairs and final inspection completed lesser of 180 days or as approved by the Renovation department

- Maximum repairs $35,000 (inclusive of all financed renovation fees). NO Exceptions.

- Roof: repair or replacement (covering, underlayment)

- Gutters/downspouts: install/repair/replace

- Insulation: ceilings/walls/asbestos removal

- Siding/windows/doors

- Paint: interior/exterior/lead paint abatement

- Kitchen: all appliances/cabinets/ total

- Electrical: repair/replace/recondition all

- Plumbing: repair/replace/recondition all

- Repair/Replace HVAC or other systems

- Repairing or removing an in-ground swimming pool

- Installing or repairing fences, walkways and driveways

- Flooring/subflooring/tile/carpet/wood

- Termite treatment/damage repair

- Repairing or replacement of well and septic- *See appraisal section of the guidelines for specific requirements

- Weatherization items/repairs/ improvements

Non-Allowable Repairs

- Structural or requiring engineers report or requiring blueprints

- Repairs performed by the borrower

- No Detached Garages

- No Swimming Pool Installations. Pool Repairs are allowed.

- Improvements that do not conform to the surrounding neighborhood

- Repair cost that exceeds $35,000. NO Exceptions.

- Any new construction including room additions.

- Landscaping or similar site amenity improvements.

- Any repair or improvement requiring a work schedule longer than six months.

- Rehabilitation activities that require more than two payments per specialized contractor.

- Major rehabilitation or major remodeling.

- Required repairs arising from the appraisal that Necessitate a “consultant” to develop a Specification of Repairs/Work Write-Up.”

- Require plans or architectural exhibits.

- Results in work not starting within 30 days after loan closing.

- Borrower is unable to occupy at closing or within 30 days.

- Television antenna and satellite dishes.

- Additions or alterations for commercial use.

- SFR conversion to a 2 unit

Contingency Reserve

- 10% of the cost of rehabilitation

- Properties where the utilities are turned off will require a 20% contingency.

Permits

- If permits are required to complete the improvements, you must have permits prior to any subsequent draws after settlement. No Exceptions

Borrower Acknowledgment

- Parties listed below are not eligible to perform the work:

- Borrower

- Family Member

- Borrowers Employer

- Seller

- Realtor

- Any Interested party to the transaction

A family member is not allowed to originate or be involved in the loan process

- Family member as defined below:

- Child (son, stepson, daughter, stepdaughter)

- Spouse

- Parent (includes step-parent or foster parent)

- Grandparent (includes step-grandparent or foster grandparent)

- Legally adopted son or daughter, including a child who is placed with the borrower by an authorized agency for legal adoption

- Foster child

- Brother/stepbrother

- Sister/stepsister

- Uncle

- Aunt

- In-laws

Fees

- Single Fee: $550

Conforming Loan Amounts

- Maximum loan amount as determined by FHA (Conforming Loan Limits depending on location and number of units - below)

- Each county has its own individual area limit https://entp.hud.gov/idapp/html/hicostlook.cfm

High Balance Loan Amounts

- Maximum loan amount as determined by FHA (High Balance Loan Limits depending on location and number of units - below)

- Each county has its own individual area limit (refer to the following HUD website) https://entp.hud.gov/idapp/html/hicostlook.cfm

Upfront MIP

- 1.75% of the Base Loan Amount

Monthly MIP

Mortgage Term of More Than 15 Years Base Loan Amount	LTV	MIP	Duration
Less than or equal to $625,500
≤ 90.00%	.80	11 Years
> 90.00% but ≤ 95.00%	.80	Mortgage Term
> 95.00%	.85	Mortgage Term
Greater than $625,500
≤ 90.00%	1.00	11 Years
> 90.00% but ≤ 95.00%	1.00	Mortgage Term
> 95.00%	1.05	Mortgage Term

Mortgage Term of Less than or Equal to 15 Years	LTV	MIP	Duration
Less than or equal to $625,500	≤ 90.00%	.45	11 Years

EZ (C) Renovation Loan - Product Overview

To be used on Conventional loans for either required or optional repairs.

• Repairs MUST be permanently attached to the property and add value.
• May not be structural - exceptions are roofing and minor foundation repairs
• MOBILE/MANUFACTURED HOMES are now allowed with restrictions & Maximum repairs are limited to the lessor of $35k or 10% of appraised value + financed renovation fee's

Primary Homes

-1-4 Units

-620 FICO Minimum (660 High Balance)

-95% LTV 1 Unit

-80% LTV 2 Unit

-75% LTV 3-4 Unit

Second Homes and Investment Properties (MINIMUM LOAN AMOUNT- $30K)

-620 FICO Minimum (660 High Balance on Second Home only)

-1 Unit - 80% LTV Purchase Only (75% LTV Refinance)

-2-4 Unit Investment Properties now eligible (75% LTV purchase/refinance). Standard Conforming Loan amounts only, NO High Balance.

- Second Homes and Investment Properties are limited to 4 financed properties (Including Primary Residence) No Limit for Primary Residence.

- No Cash Out Allowed.

Reserve Requirements

• Second home - minimum of 2 months
• Primary and investment property - 2-4 unit properties require a minimum of 6 months reserves

Allowable Repairs or Renovations

• Repairs/improvements must be permanently attached to property and add value
• Cosmetic repairs only
  • "Built-in" kitchen appliances

Conversions:

-Conversion of 2-unit to 1-units

-Conversion of 1-unit to 2-unit by exception only. Borrower must have prior landlord experience or qualify without rental income

Renovation Cost Limits

• Up to $35,000 in repairs/improvements
  • This includes the 10% contingency reserve
  • Loan amount calculation is Sales Price + Bid + Contingency Reserve ONLY
    • Renovation fees CANNOT be rolled into the loan amount unless it is a REFINANCE and LTV permits.

Note: If cost of renovations exceeds 35k, the Borrower/Seller is NOT allowed to pay the difference at closing from their own funds. If maximum amount is exceeded use HomeStyle Renovation program.

Contingency Reserve

A contingency reserve equal to 10% of the total costs of the repairs/improvements must be established and funded for all mortgages to cover required unforeseen repairs or deficiencies that are discovered during the renovation.

Contractor Validation

• Contractor is selected by the borrower and approved by the lender
• Contractor validation will be completed by the Renovation Department
• Maximum of three (3) contractors
• General Contractor is preferred but not required
• Follow state and local requirements for licensing of contractor(s). If a general contractor is not licensed for work that requires a license (i.e. plumbing, electrical, HVAC, etc.) obtain:
• proof of the general contractor's liability insurance coverage of at least 2 times the total bid, OR
• the license of the sub-contractor completing the work.
• “Do-It-Yourself” Projects are NOT acceptable even if the Borrower is a licensed contractor.
• Contractor on the project CANNOT be one of the following. (NO EXCEPTIONS):
  • Borrower
  • Borrower's employer
  • Members of Borrower's family
  • Seller
  • Realtor involved in transaction
  • Loan Officer involved in transaction

TEXAS PROPERTIES ONLY - It is important to remind the borrower that their contractor(s) will be required to attend closing

HomeStyle Renovation Loan -

Product Overview

• Combines home purchase or refinance (limited cash out) with home improvement financing in one loan with one closing
• Provides a convenient way for borrowers to make renovations, repairs, or improvements totaling up to 75% of the "as-completed" appraised value of the property with a first mortgage, rather than a second mortgage, HELOC, or other more costly financing method.
• Funds can be used for repairs or renovations that are permanently affixed and add value to the property.
• Primary residences as well as second homes and investment properties are eligible.
• Maximum of 4 financed properties including subject property, on second homes and investment properties. No limit on primary residences.
• NO MOBILE/MANUFACTURED HOMES

BOND/DPA NOT ALLOWED EXCEPT COMMUNITY SECOND DPA UP TO 100% CLTV.

Required LTV's:

Primary Homes:

-1-4 Units

-620 FICO Minimum (660 High Balance)

-97% LTV 1 Unit with standard conforming only and buyer must be a first time home buyer, or a limited cash out refinance (high balance and buyers that are not considered a first time home buyer - 95% max LTV)

-85% LTV 2 Unit

-75% LTV 3-4 Unit

- Minimum 620 Credit score

-2-4 units require 6 months reserves

Second Homes

-1 Unit - 90% LTV

- 620 FICO Minimum

- Minimum 2 months reserves

Investment Properties:

-1 Unit - 85% LTV Purchase Only (75% LTV Limited Cash Out)

- 620 FICO Minimum

- Minimum 6 months reserves

- Minimum $50k loan amount

-2-4 Unit Investment Properties - NOT ALLOWED WITH THIS PRODUCT!

Allowable Repairs or Renovations

• Funds can be used for any repairs or renovations that are permanently affixed and add value to the property.
• Allowable repairs or renovations include, but are not limited to:
  • Installation of an “in-ground” swimming pool
    • Outdoor living areas are also eligible along with the pool installation
  • Subject property cannot be an unfinished model home or unfinished new construction.
  • Kitchen appliances (i.e. cooktop/ovens/stove/refrigerator/dishwasher) may be included only as built-in fixtures (attached to property - cannot be removed) in connection with a total kitchen renovation that includes new cabinetry and countertops. Eligibility will be determined by the Renovation Department on a case-by-case basis. Washers and dryers are not included - no exceptions.

-Properties requiring foundation or structural repairs require a foundation or structural report from a licensed engineer. Some examples include but are not limited to additional square footage being added, garage additions with new foundations, cracks or settlement.

Renovation Cost Limits

• The cost of renovations is limited to 75% of the lessor of “as-completed appraised value” of the property, or the purchase price plus closing costs*.
  • No exceptions. This is a Fannie Mae requirement. These limits include the 10% contingency reserve IF FINANCED and all fees/costs listed below in the Fees section. Note: If the cost of renovations exceeds the maximum, the Borrower is NOT allowed to pay the difference at closing from their own funds. However, Contingency funds CAN be paid out of pocket. Any borrower funded contingency that is not used to complete the project will be refunded back to the borrower.
• Projects that include Structural Repairs or Adding Square Footage MUST have a Structural Engineers Report.

• Contingency Reserve

• A contingency reserve equal to 10% (or may be higher depending on scope of work) of the total costs of the repairs and renovation work must be established and funded for all mortgages to cover required unforeseen repairs or deficiencies that are discovered during the renovation.
  • 20% contingency reserve required when property needs structural repairs, or where utilities are turned off.

Fees for Renovation loan

• Single Fee: $900

Contractor Validation

• Contractor is selected by the borrower and approved by the lender
• Contractor validation will be completed by the Renovation Department.
• Maximum of three (3) contractors
• General Contractor is preferred but not required
• Follow state and local requirements for licensing of contractor(s). If a general contractor is not licensed for work that requires a license (i.e. plumbing, electrical, HVAC, etc.) obtain:
  • proof of the general contractor's liability insurance coverage of at least 2 times the total bid, OR
  • the license of the sub-contractor completing the work.
• “Do-It-Yourself” Projects are NOT acceptable even if the Borrower is a licensed contractor.
• Contractor on the project CANNOT be one of the following. (NO EXCEPTIONS):
  • Borrower
  • Borrower's employer
  • Members of Borrower's family
  • Seller
  • Realtor involved in transaction
  • Loan Officer involved in transaction

Draw Information and Process

A maximum of 4 draws are allowed on this program. An initial 10% draw, 2 progress draws which will be based off of progress, and a final draw after receiving a clear final inspection and a title update. The renovation work is to be completed by the registered contractor only. Please note, no other work can be completed while the scope of work is being done. Material Draws: We allowed material draws for specialty items only such as flooring, cabinets, countertops, and windows. Only 50% of the vendor's invoice will be paid directly after receiving copies of their W-9, invoice, and a change order signed by both the borrower and the contractor. If permits are required, the contractor or the borrower is to send copies to the Disbursement Analyst after the loan funds. Complete draw documents are required to be submitted prior to ordering progress/final inspections. **Additional Final Documents are needed for properties located in the state of Texas. The original Texas Documents must be sent via mail, as the original signed copies are sent to be recorded. This is the state's requirement. Please reach out to the assigned Disbursement Analyst for the draw documents. All progress inspections, final inspections/1036 form, and title updates are ordered through our 3rd party vendor, Trinity Inspections. Change Orders must be signed by both the borrower and the contractor and sent to the assigned Disbursement Analyst prior to any work starting and for any changes made to the scope of work. The Disbursement Analyst will review and approve the change order. **Please note, the Disbursement Analyst will send the change order to the appraiser for approval, if repairs that could negatively affect the value are requested to be removed. Wire instructions are required to process disbursements. Funds will be wired within 48 business hours to the contractor's account, once the progress/final (100%) inspections are received. Additional Draw is allowed at a charged of $110 per progress draw. This fee will be charged to the borrower for any draws over the number allowed, per the product. The contractor is welcome to pay the fee, if he/she commands. It will be deducted from the contractor's disbursement. **Also, the contractor's final disbursement will be deducted, if the borrower does not have sufficient funds in his/her contingency reserve to cover the additional inspection and/or title up-date fees that he/she has incurred during the renovation process. The borrower will be responsible for paying the difference (that was deducted) to the contractor directly. If the renovation is not completed by the completion date, the borrower and the contractor will need to submit theExtension Request Form. The reason for the delay, their next steps, and an estimated new completion date will need to be stated on the form. **The borrower and the contractor will need to include an additional week to their new estimated completion date to allow time for the final inspection report to be delivered. This form will need to be signed by both parties and sent to the assigned Disbursement Analyst prior the original completion date. If the project is past the completion date and late fees have incurred, the fees are either to be deducted from the contingency reserve, if there are sufficient funds to cover, the contractor's final payment, if the contractor accepts responsibility, or the borrower can send a check. Any unused funds will be refunded to the contributing party or applied as a principal reduction, per the Escrow Holdback Approval form. Contractor Termination: The borrower will need to send an email or a letter to the contractor and copy the assigned Disbursement Analyst and the Loan Officer stating he/she has been terminated, the reason for the termination, and the date their contract was terminated. The Disbursement Analyst will send the borrower the required documents to register a new contractor. The complete documents are to be sent to the Disbursement Analyst for review. After review, the Disbursement Analyst will alert the borrower that the new contractor may proceed with the completion of the renovation work. **Please note, the borrower is responsible with providing the Disbursement Analyst direction on how much, if any, would be paid to the terminated contractor. Final draw documents would be required to pay the final amount.Permits

Copies of permits must be provided to PrimeLending before any subsequent draws will be disbursed, after initial settlement. Work not requiring a permit may begin after loan funding.

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