Core Property Consultants has been in contact with numerous professionals regarding topics that relate to the 2016 Flood Event. We have compiled in-depth, factual information to further assist you with your unanswered questions. Jennifer along with other professionals in the Housing Industry will be writing several articles addressing your questions on what to expect post flood and housing.
FHA 203(k) allows homebuyers and homeowners to finance either the purchase or a refinance of a house and the cost of its rehabilitation through a single mortgage. The loan includes purchase or refinance and rehabilitation cost in one transaction. We provide acquisition or refinance funds at closing in the same manner as traditional mortgage finance. At the same closing, we deposit renovation funds in an escrow account similar to that used in a traditional construction loan. The FHA 203k loan is a fully funded loan with one closing. Repairs are completed subsequent to the closing. There is no requirement for the property to be habitable on the day of closing. As repairs are completed and inspected, draws are disbursed from the Renovation Escrow Account to fund the project. The Borrower must use a Contractor to complete the repairs. The Borrower cannot complete the repairs regardless of their expertise.
For a flooded home, basically, they would refinance their home for the value of what the house is worth after the repairs. The process takes about 45-60 days because there are so many people involved and so many more steps than just a regular transaction.
There are extra fees & expenses with 203 (k) such as permits, inspections, etc.
The borrower is pre-qualified for the maximum loan amount based on the sales price plus renovation cost including contingency and renovation fees with minimum down payment of 3.5%.
For example:
These are figures used just for an example for a refinance:
Flooded house has an existing mortgage balance of $200,000
Contractor comes out and bids the $40,000 in repairs, then with all the other fees you have:
1. Subtotal of Repairs and fees: $45,760
a. Total cost of repairs: $40,000
b. Contingency Reserve*(10%): $4,000
c. Inspection fees: $500
d. HUD Consultant fees: $500
e. Permits:
f. Origination fee: $660
2. Estimated closing costs & pre-paid items $7,500
Existing debt plus repairs = $245,760
Appraised value (subject to repairs and improvements): $260,000 (this is done at the beginning)
* A contingency reserve is used to cover unexpected expenses. The reserve can be 10% to 20% of labor and materials only.
New loan –
$260,000 value – 3.5% down payment of $9,100 = $250,900
The repairs are done after closing and the $40,000 is put into an account that is drawn from to pay the contractor as he does the work.
Thanks,
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Do you need post-flood information? Comment on this blog or email me at jhutchinsonrealtor@gmail.com
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