distressed property solutions a reconstructive approach to financing homes © john david adams, jr....

Distressed Property SolutionsA reconstructive approach to financing homes

© John David Adams, Jr.1

Distressed Property SolutionsJohn D. Adams, Jr. NEFAR Instructor

NMLS#442266(904) 294-7311

[email protected] – www.FL203k.com – (904) 294-7311



Why are you here today? What do you hope to accomplish with this education?

Take a few minutes and write down the reasons you came to hear about Distressed Property Solutions

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[email protected] – www.FL203k.com



First Hour•Introductions•Learning objectives•Market overview•Product need •Consumers•Perceptions•Common Misconceptions•Mortgage solutions•Product application




Second HourNon renovation solution:•HomepathRenovation Solutions•Homepath Renovation•Fannie Mae Homestyle•FHA 203k Streamline•FHA 203k Standard

•Examples

203 what?




Third hour•The renovation process•Needed inspections•Hud Consultant•Contractor validation•Contractor bids•Appraisals•Renovation forms•Draw process•How to market Distressed Properties




Learning Objectives•Identify distressed property•Identify consumer needs•Gain knowledge of specific programs to help consumers purchase distressed real estate•Outline the process for renovation•Know the “ins and outs” of the process•Strategies to help market your listings•Know all inspections and required documents•Understand timeframes•How to avoid common pitfalls




• Lending Requirements are More Stringent

• Equity Lending is Sparse• Availability of Credit Cards – Not as Accessible • Sellers unwilling to commit funds for Repairs• Short-sales • Overwhelming percentage of “As-Is” Listings• No repairs prior to Closing• More demanding buyers• foreclosures




• FNMA and FHLMC: -/+300% increase in Foreclosure 2008 - 2010

• Origination of 203k – now seeing conventional type renovation financing

• Roughly half of existing buyer pool is government loan based

• Roughly 52% of home sales today are First Time Home Buyers




• Investors setting prices on distressed property• 80% of US homes 20 years or older• Ability to purchase and renovate homes to

better standards




Could You Help More Consumers if: •…you had a solution that allowed you to offer FHA and or conventional financing on virtually any property regardless of condition?•…you could cure property conditions after you closed on the property and/or make the home exactly the way the customer envisions it?•…the solution was simple for your customers to understand and to execute?•…the solution allowed you to close on a property in 45 days from execution of the contract?




Consumers•Consumers don’t know about habitability rules•Most do not know that solutions exist•Many want to buy distressed property but don’t know where to start •Most want the ability to turn a home into what they envision and in the area they want to live “Dream Home”




Consumers•Tax advantages •Create DREAM Home •build immediate EQUITY after renovation•Take advantage of ‘as-is’ market•Can finance up to 6 mtg. payments•Instant improvement to quality of life•No minimum work – appliances to pools from foundation to fabulous




Perception of Real Estate Agents•Home in need of repair cannot go FHA•The loan is too expensive•Takes too long•Too complicated•Never closes•Tried one before and it was a nightmare•Loan officers are not competent to do this loan•Loan is for blighted properties or structural damaged properties only




Truths in renovation lending•Renovation solutions are one loan•There is no “floating rate” •Repairs are done after closing•There is only one closing•There is only one appraisal•You only need one bid•No contractor list




Renovation Lending Solutions(Federal Nation Mortgage Association) FNMA•FNMA Homepath•FNMA Homepath Renovation•FNMA Homestyle Renovation

FHA ( Federal Housing Authority) 203k•Streamline•Standard




[email protected] - www.FL203k.com (904) 294-7311

FNMA Homepath Loans:Homes eligible for Homepath are exclusively FNMA foreclosures they can be found in MLS and posted by FNMA at www.homepath.com



FNMA Homepath Loans•No Appraisal – can be purchased “as-is”•No monthly mortgage insurance premiums•No Upfront mortgage insurance premium•Less costly than FHA•Up to $417,000 loan amounts•All Occupancy types okay •As little as 5% down on owner occupied financing•As Little as 10% down on investor•Specific to FNMA Owned REO•Streamline approval for condo certifications




Repairs with Homepath Renovation and 203k

•Roofs, gutters and downspouts•HVAC systems•Exterior wall re-siding•Window and door replacements•Painting both interior and exterior•Wood Rot•Plumbing and electrical systems•Tile, carpet and flooring•Minor remodeling (such as kitchens or baths)




Repairs with Homepath Renovation and 203k

•Appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers, microwave ovens•Weatherization: such as storm windows, doors, & insulation•Exterior decks, patios, porches•Improvements for handicap accessibility




FNMA Homepath Renovation Loans•Up to $35,000 allowed for renovations•No monthly mortgage insurance premiums•No Upfront mortgage insurance premium•Less costly than FHA•Up to $417,000 loan amounts•All Occupancy types Okay •As little as 5% down on owner occupied financing•As Little as 15% down on investor•Specific to FNMA Owned REO•Streamline approval for condo certifications




Larger scale Construction•Raze home and rebuild on existing foundation•Build out buildings or put in a pool •Add a Bedroom, Bonus room, Bathroom or Garage•Move a home to a new lot•Completely gut existing structure and reframe•Convert a building to single or multi-family•Convert a building to mixed-use space where allowed•Finish a home that may have incomplete construction




Conventional FNMA Homestyle•Less Costs than FHA •No limit on repairs •Can include luxury ticket items•contingency reserve required •Loan amounts up to $417,000 •Any home is eligible•For investors, Second-home, and Primary residence •Feasibility study not required under $15,000•Increase size and footprint of home•Complete a home without prior C/O




FHA Streamline 203k•Program will allow for up to $35,000 in repairs•No minimum amount for repairs•Allowed up to 110% of after improved value•No minimum limit for repairs •Primary occupants only 3.5% down payment•No structural damaged property •No luxury items•Up to 4 unit multi-family mixed use properties allowed




Standard 203K (Full K )•No limit on repairs (minimum of $5,000 in repairs)•Move or raze a home•HUD Consultant Write-Up required •Structural repairs okay•Contingency reserve required•No luxury items •Lend up to 110% of after complete value•Increase size and footprint of home




Standard 203K (Full K ) - continued•Primary occupants only 3.5% down payment•Up to 4 unit multi-family mixed use properties allowed•Up to 6 months to complete renovations•Borrower can finance up to 6 months of mortgage payments




Conventional ( summary)• Loan Amount - up to county loan limit of

$417,000• Primary residence, 2nd Homes, Investment

properties• Property – SFR, 1-4 units, condos, etc.• Credit – 620 or automated approval• Up to 95% LTV




FHA 203K ( summary )•Loan Amount - up to county loan limit•NO minimum repairs (Streamline)•NO Maximum dollar ammount on repair (Consultant K) •Primary residence only•Credit – 620 and up•Property – SFR, 1-4 units, mixed-use, mobile homes, etc. •HUD 100 dollar down



Primary Occupancy

Program Traditional Conv. Homepath Homepath Reno Homestyle Reno

Purchase price $ 100,000 $ 100,000 $ 100,000 $ 100,000

Rehab amount $ 30,000 $ 30,000 $ 30,000 $ 30,000

financed amount $ 95,000 $ 95,000 $ 123,500 $ 123,500

Cash required* $ 35,000 $ 35,000 $ 6,500 $ 6,500

Investor Occupancy

Program Traditional Conv. Homepath Homepath Reno Homestyle Reno

Purchase price $ 100,000 $ 100,000 $ 100,000 $ 100,000

Rehab amount $ 30,000 $ 30,000 $ 30,000 $ 30,000

financed amount $ 75,000 $ 90,000 $ 110,500 $ 104,000

Cash required* $ 55,000 $ 40,000 $ 19,500 $ 26,000

*Cash necessary for cost of repairs as illustrated with down payment. Closing costs and prepaid expenses are not reflected in these estimates


Primary Occupancy

Program Traditional FHA FHA 203k streamline FHA 203k Standard

Purchase price $ 100,000 $ 100,000 $ 100,000

Rehab amount $ 30,000 $ 30,000 $ 50,000

financed amount $ 96,500 $ 125,450 $ 144,750

Cash required* $ 33,500 $ 4,550 $ 5,250

*Cash necessary for cost of repairs as illustrated with down payment. Closing costs and prepaid expenses are not reflected in these estimates

HUD 100 dollar down payment program available

31




Prequalify your buyers and property•Identifying a renovation project •Customer looking to buy exclusively short sales or bank real estate owned property•Any home could use a renovation solution•Homes being sold “as-is”•Sometimes offered as “cash only” •Bank REO or listings where repairs are not negotiable•Short sales where seller cannot afford to make the repairs




Contract•Add contingency for renovation financing•Select Conventional or FHA “AS-IS” •Allow 45 days for closing•Example




Property Condition Solution•Obtain inspections•Make sure utilities are on•Get home inspections•Get HUD Consultant Write-Up if needed•Obtain Estimates•Make sure the renovations make sense•Run comparable for price•Finalize bid•Order appraisal/Consultant SOR Report




Consultant Process (203k Consultant K)•When you will need a HUD Write-Up•What is the consultant write up and SOR•Consultant meets with borrower and contractor at property to discuss FHA required repairs•Consultant will complete the Work Write Up•Will Perform Draw Inspections after closing•How much it costs – is financed into the loan




Feasibility study on Homestyle •What is the Feasibility study •How much it will typically cost




Contractor Validation•Provided applicable licenses and insurance•Provide references•May involve credit check•Home Owner Contractor Agreement•Contractor Notice




Contractor Bids – Bad Bid




Contractor Bids – Good Bid




Contractor Selection•Licensed and insured? •Experience with this type of transaction?•Timeline on start / completing this project? •Are you familiar with the draw process on these type of loans and are you comfortable with submitting the permits/paperwork to the lender to get yourself paid?•Make sure your contractor can afford to take your project




Appraiser will not detriment property for defects that have been addressed in the work bid such as:•WDO•Unfinished construction•Health Hazard or Safety Issues•Septic, Well or Structural issues•Inability to get the utilities on or working properly




Time for closing•Once the customer is satisfied with the bid the appraisal is ordered with the scope of work provided by the contractor for a “Subject To” valuation•Once the appraisal order is received, it is reviewed for any additional work required by the appraiser. If necessary, the contractors scope of work will be modified to include the additional repairs•The Loan Closes and Renovation Begins




Important customer points with lenders:•How does the draw process work?•Who will service my loan once the loan is closed?•How fast are the funds available after closing?•Can I get money for my contractor for materials up front in the process?•How comfortable are you with this process?




Other important renovation documents•Maximum Mortgage Worksheets •203k Acknowledgement•Contractor Validation•Summary Notices




Draw ProcessFHA 203k Streamline K and Homepath renovation•35% of contractor’s bid funded 5-7 days after closing•balance released when work completed, after final inspection & title update




Draw ProcessFHA 203k Consultant K and FNMA Homestyle•Funds released per Consultant’s line item breakdown and completion•Up to 5 draws •10% holdback on each draw•Holdback released after final inspection & title update




Renovation Key Points•Allow 45 days for closing•Make sure utilities are on at time of inspection•Get all inspections done early •Septic, Well, WDO, Mold , Roof, Etc..•If you don’t know - Consult•Add contingency for renovation financing•Select contractor or National Home Improvement Vendor •Finalize a quote you like - Nail down the details




• Interested in increasing you client base and referral network?

• Turn every house into the customers dream home

• Increase customer satisfaction• Provide options for consumers to purchase

homes that otherwise wouldn’t be eligible for financing

• Include purchase price plus repairs in one loan, one closing, one payment




How to Market Distressed properties•Add “renovation financing available on this property” in MLS •Pre-bid minimal work for FHA compliancy and upload in MLS•Change from cash only to accept FHA, Conventional, and now there is a 203k financing option in MLS •Be informed of lending options•Add marketing for renovation financing




FLYERS/PROPERTY TENTS – Highlight how the Special Financing program can

work to a homebuyer’s advantage.Place in homes for sale; attach to your listing flyers

and attach to MLS document setYARD SIGNS – “Special Financing” yard signs may help increase traffic and calls on listings.MLS INFO – Advertise with your listings: “Customize this home with Special Financing. Contact Your Renovation Specialist for more information about renovation loans”WORD of MOUTH – Nothing is more powerful than telling your buyers, sellers & colleagues the opportunity Renovation / Special Financing presents.


Thank you for your time today.

John Adams

NMLS # 442266

(904) 294-7311

www.johnadamsloans.com

[email protected]



distressed property solutions a reconstructive approach to financing homes © john david adams, jr....

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