We all know money is tight and the economy is sluggish. With these factors many people buying a home in Metro Atlanta don’t have the money to complete renovations or repairs to their home.
The HUD 203k Renovation Loan Program is an excellent way to purchase a property and complete basic renovations and repairs without having to pay for it with you own money.
How HUD 203(k) Renovation Loan Program Works
Most people buying a home in Metro Atlanta will need us some kind of financing (loan). Most mortgage financing plans offer only permanent financing. If renovations are involved, lenders will not complete permanent financing on the home until the renovations are finished. There are three basic steps when using the HUD 203(k) Renovation Loan Program:
Get financing to purchase a home
Get additional financing to complete renovation construction
Obtain permanent financing (30 year fixed loan) when work is complete
When a Metro Atlanta homebuyer has to get financing for repairs and renovations, most times they have to obtain a construction loan at a higher interest rate and short amortization period. This is why the HUD 203(k) Renovation Loan Program is a great option. This program allows the borrower to get one mortgage at a long term fixed rate (or adjustable) rate. This mortgage allows anyone who is buying a home in Metro Atlanta to purchase the home and renovate it all at once.
How are Funds for the HUD 203(k) Loan Program Provided
To provide the funds to renovate a Metro Atlanta home with a HUD 203(k) Renovation Loan Program, the mortgage amount is based on the projected value of the property when all work is completed.
Eligible properties for the HUD 203(k) Renovation Loan Program
There are specific criteria for eligible homes for a HUD 203(k) Renovation Loan Program they are:
One-to-four unit dwelling that has been completed for at least one year
Single family homes or multi-unit properties must comply with local zoning requirements
Homes that are demolished or will be razed are eligible provided some of the existing foundation remains in place
Can be used to convert a one family dwelling into a 2-4 family dwelling or an existing multi-unit dwelling could be decreased to a one-to-four unit dwelling
An existing house or modular unit can be moved on the new home site
How Can the HUD 203(k) Renovation Loan Program Be Used
This program can be used for renovations and/or improvement of an existing property in one of three ways:
To purchase the home and land and renovate it
To purchase a home on another site and move it
To finance against the subject property and complete renovations
HUD 203(k) Renovation Loan Program Eligible Improvements
When buying a home in Metro Atlanta, Luxury items and improvements are not eligible. Homeowners can use the HUD 203(k) Renovation Loan Program to finance items such as:
Painting
Room additions
Decks
Many other items that are not luxury items even if the home does not need any other improvements
HUD 203(k) Renovation Loan Program Required Improvements
What required improvements and guidelines that must be met when using the HUD 203(k) Renovation Loan Program
Additions to an existing Metro Atlanta home must conform with local codes and HUD minimum property standards
To improve the thermal efficiency of the home
Weatherstrip all doors and windows
Caulk and seal all openings
Insulate all opening in exterior walls
Adequately vent attic and crawl space areas
Replacement systems
Heating, ventilating, and air conditioning system supply and return pipes and ducts must be insulated whenever they run through unconditioned spaces
Heating and air conditioning systems and burners must be sized to be no greater that 15 percent oversized
Each sleeping area must have at least one smoke detector
Determining if One or Two Appraisals are Needed
Before we talk about the two different types of appraisals and why more than one might be needed, knowing the terminology is really important and can help to better explain the different appraisals
As-Is Value – This is the value of the property at the time of the appraisal
Value after Renovations – The expected market value of a property after repairs have been completed
Determination of the number of appraisals required depends on:
If a lender requests an After-Improved value or an As-Is value
Complexity, scope, and lender review of the renovations
Basically if the lender only requests an After-Improved appraisal then only one appraisal is needed. If the lender wants more information such as and AS-IS value or determines that complexity and scope of the renovations requires another appraisal
Your Recently Acquired Metro Atlanta Property
When buying a home in Metro Atlanta using cash can still qualify for the HUD 203(k) Renovation Loan Program. In order to qualify the homebuyer must be done within six months of the purchase date (closing date).
Architectural Exhibits
The improvements (renovations) must comply with HUD’s minimum property standard and all local codes and ordinances. The homebuyer must provide lender with architectural exhibits with all scope of work in detail. The following exhibits are recommended for the HUD 203(k) Renovation Loan Program
A plot plan of the site- this is required only if a new addition is being made to current structure. It must show locations of structures (drives, streets, walks) and must include finish grade elevations
Proposed interior plan –Show where structural and planning changes will occur
Work write up and cost estimate- Basically, provide a complete and detailed list for all work, cost of each item shown, rehabilitation checklist in Appendix 1 of Handbook, and Hud form 9764-A Draw Request
The contractor who prepares the detailed work write up needs to inspect the property to make sure there are no:
Rodents, dryrot, termites and other infestations
There are no defects that will affect the health or safety concerns of the occupants
That the structure is in good shape and all systems are working (HVAC, water heater, etc.)
The upgrade of thermal (Insulation) where necessary
Maximum Mortgage amount for the HUD 203(K) Renovation Loan Program
The maximum mortgage amount is determined by whether you are buying a home in Metro Atlanta or refinancing one
Refinance – based on the lesser of:
The existing debt on the property before renovation, plus the estimated cost of renovations and allow closing cost or
The less of the AS-IS value plus renovation costs or 110 percent of the after improved value multiplied by the appropriate LTV (loan-to-value) factor
Loan-to-value – The loan to value ratio (LTV) tells how much of the property is being financed for and the amount of equity in the property
Purchase – The maximum mortgage amount is based on the less of criteria 1 or 2 below and multiplied by the LTV
The As-Is value or the purchase price of the property after renovations, whichever is less, plus the estimated cost of renovations or
110% of the after-improved value of the property
Types of Charges and Fees for the HUD 203(k) Renovation Loan Program
Supplemental Origination Fee – this fee is calculated as one and one-half percent (1 ½) or $350 whichever is greater
Independent Consultant Fee – a borrower can have an independent consultant prepare required architectural exhibits. A consultant is not required but an independent consultant could help to expedite the processing of the HUD 203(k)Renovation Loan Program
Fee Consultant – prior to appraisal, a HUD-accepted fee consultant has to visit the site to check that the site is in compliance with program requirements. This include all utilities will be on for site review. The fee scales are as follows:
Initial review prior to appraisal
$15,000 and under = $100.00
$15,001 to $30,000 = $150.00
$30,001 and up = $200.00
Additional review (re-inspection) – $50.00. If travel exceeds 30 miles round trip from reviews place of business, a mileage charge will apply
Appraisal Fee – the lender may charge a borrower nor more than the actual amount the lender pays the appraiser and may include in closing costs
Inspection Fee – (during the construction/renovation period
Fees for the maximum of five draw inspections will be allowed during construction. A borrower does not have to use all five draws and the remaining funds not used will be applied to the principle of the loan
If additional inspections are required by the lender, the borrower or contractor will be responsible for payment
Title Update Fee – update the title when all renovations are complete
If you are buying a home in Metro Atlanta, check back for a step-by-step process of the HUD 203(k) Renovation Loan Program. This process will guide you through all the steps from the beginning, when you locate your home to the final inspection and closing.
