All Forum Posts by: Jerry Padilla

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 25% 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.
• Single Unit, Primary residence only
• NO MOBILE/MANUFACTURED HOMES
• Must be completed within 90 days of funding.
• Up to 25% of the as complete value (Including contingency).

Conforming High Balance loan limits available where applicable.

Allowable repairs to be done on the property.

• Repairs and final inspection completed lesser of 90 days or as approved by the Renovation department
• Maximum repairs 25% of the after complete value.
• 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

Foundation Repair

Repairs not allowed by the program.

• 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
• Any new construction including room additions.
• Landscaping or similar site amenity improvements.
• Rehabilitation activities that require more than two payments per specialized contractor.
• Major rehabilitation or major remodeling.
• 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

Any structural repairs or renovations that are not foundation or roof repair.

Parties listed below are not eligible to perform the work:

• Borrower
• Family Member
• Borrowers Employer
• Seller
• Realtor

Any Interested party to the transaction

Maximum number of contractors: 3

2 Draws, 30% initial and 70% final.

Contingency Reserves

• 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.

Product Overview

LTV Requirements: Maximum of 110%

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

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.

Maximum number of contractors: 3

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

oIf 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

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)

Upfront MIP

• 1.75% of the Base Loan Amount

Monthly MIP

@Arthur Voskanyan as mentioned above HELOC's are nearly impossible to find on investment properties. You can go the route of a cash out refinance if you have enough equity built up in the property.

Here are the LTV's that you would get with conventional cashing out:

• On an investment property; A SFR if you have #1-10 mortgaged properties, you can pull out up to 75% of the equity and on 2-4 units is up to 70% equity.
• On an investment property; If you have #7-10 mortgaged properties, including subject you are required to have a credit score of 720.

We do take into consideration, your income, debts, DTI's, credit score, just like Primary residence financing.

@Patrick Light 

Welcome to the site! @Darren Sager is an experienced agent on the site that can guide you in the right direction with getting started! I am glad to answer any financing questions that you may have. 

@Paul Defngin

If you click on the link, it is directly to the FHA guideline that restricts the number of units that FHA allows. This is coming directly from FHA. Fannie Mae and Freddie Mac do not restrict the limit if purchasing a primary residence, but FHA does. You are correct that they can only have one FHA financed property unless they meet the exception guidelines.

Here is the guideline copy and pasted - it is on the last page of the link to FHA's guidelines.

Qualified investor entities are limited to a financial interest (that is, any type of ownership, regardless of the type of financing) in seven rental dwelling units, when the subject property is part of, adjacent to, or contiguous to, a property, subdivision or group of properties owned by the investor. The units that count toward this limitation include 

 each dwelling unit in a two, three, and four family property, and 

 the rental units in an owner-occupied two, three, or four unit property. Notes: 

 The lender is responsible for ensuring compliance with this regulation. 

 Waivers to the seven unit limitation can only be initiated by the jurisdictional HOC for good cause.

@Albert Bui 

We don't have any FHA overlays and just go according to FHA guidelines. I copied the section in here that states every dwelling unit counts in each property. We count every unit total in their portfolio for 1-4 unit properties. It is up to the lender to ensure the compliance. FHA guidelines are the most difficult guidelines to read through and get clear cut answers in my opinion. Lol on the testing out. Let me know if you get it to go through. It does state for a good cause, you can get past that guideline........ But not sure how the need for that many units and an FHA loan will get through as a good cause.

Qualified investor entities are limited to a financial interest (that is, any type of ownership, regardless of the type of financing) in seven rental dwelling units, when the subject property is part of, adjacent to, or contiguous to, a property, subdivision or group of properties owned by the investor. The units that count toward this limitation include

 each dwelling unit in a two, three, and four family property, and

 the rental units in an owner-occupied two, three, or four unit property. Notes: 

 The lender is responsible for ensuring compliance with this regulation. 

 Waivers to the seven unit limitation can only be initiated by the jurisdictional HOC for good cause.

@Brent Coombs

FHA is the different than Fannie Mae. Fannie Mae and Freddie Mac are conventional products. You can go up to a limit of 10 properties with conventional.

FHA is a low down payment program geared toward primary home purchases.

The Reserve requirement that you are referring to is for Conventional. DU means direct underwriting - also known as Fannie Mae requirement. 

Cash Reserve Requirements; (Fannie Mae) 

6 months PITI is required on subject property.

If you have 1-4 financed properties than it is now 2% of all unpaid principle balances.

If you have 5-6 financed properties than it is now 4% of all unpaid principle balances.

If you have 7-10 financed properties than it is now 6% of all unpaid principle balances.

Freddie Mac has a different cash reserve requirement:

6 months PITI is required on subject property

2 months reserves for SFR

6 months reserves for MFR

@Zachary Pesicka

A HELOC is always risky in the long term, just because of the risk of rates going up, but if you plan to pay it off quickly by doing a cash out refinance on the new property, than it can work well, for the simple fact that you don't have money sitting in an account, waiting to purchase the new property.

@Logan I.

There is a restriction to the number of units that you own to be eligible for an FHA loan. 7 total units, including the subject primary residence. So, if all your 4 mortgages are duplexes - you won't qualify. If they are a SFR than at most you could purchase a triplex. Let me know if you have any other questions.

FHA Unit Restrictions - Chapter 4, Section B, page 13. 

@Ryan Keenan

FHA limits you to a total of 7 units including the primary residence you are purchasing. Each unit in the properties count. So if you own three duplexes, you will only be able to purchase a SFR. Feel free to reach out with any questions. Many people are not aware of this guideline. Below is a link. FHA Unit Restrictions - Chapter 4, Section B, page 13.