The Home Buyer's Korner

Information presented should be used for educational purposes only.

February 8th, 2016

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Many real estate agents have lost numerous transactions and will continue to lose more transactions because they just don’t understand what should be their favorite loan program.

No matter how much the government drops rates, people just are not buying as expected.  Try this on for size: You set out shopping for a new wardrobe, expecting to get the perfect clothes at a discounted price. You walk into store after store only to find clothing that is twenty-plus years old, worn, torn and full of holes.  No matter how much the clothing is discounted, or how inexpensively you could finance your purchases, it does not matter:  You are not buying this ugly clothing!  You are better off to keep the clothing you have.

Agents are pushing worn-out, broken-down, outdated properties to an impatient generation seeking immediate gratification in a “home buyer’s market.”  We hear it every day from our clients, “I’ll buy if I can find the perfect house at the perfect price” (nails on a chalk board).

The perfect house just does not exist, they never existed (but at least they were visually pleasing).   Being a real estate agent is exhausting, and you should be exhausted.  You FINALLY get a motivated AND qualified home buyer.  After showing them hundreds of houses, you somehow get them under contract without offending anyone.  So why aren’t you celebrating?   Because you know the seller is broke and will not be paying to repair any discovered issues with the property, so you cross your fingers and say a few prayers that the condition of this outdated, twenty-year-old home doesn’t require any repairs that will freak out the home buyer or, worst case, eliminate it from surviving the appraisal and underwriting.  Sound familiar?  No wonder you’re about two problems away from re-inventing yourself in a new career.  You would have to be delusional to remain hopeful under these circumstances.

The problem is easy to see.  We need money to revitalize, to renew our existing properties, but no one has any money.  The good and bad news is that history repeats itself.  This isn’t the first time our real estate market has faced these challenges.  Luckily, the government launched the first program back in 1978 that solves the issues of today’s real estate market.

The program I am referring to is the FHA 203K Buy It, Fix It loan program and its conventional alternative, FNMA’s HomeStyle Buy It, Fix It home loan.  I am going to tell you my best-kept secrets on how these programs were designed to work and how you can use these programs to substantially increase your business. 

Finally, the truth about renovation loans.

What are the FHA 203K and FNMA HomeStyle Buy It, Fix It Home Loan Programs?

These programs provide home buyers the opportunity to buy and fix up a property, without exhausting their personal savings.  Home buyers can purchase a property and include whatever costs to make required repairs or desired updates, or to fully renovate the property, all in one simple thirty-year fixed loan.   ALL work starts AFTER purchasing the property, using the money set aside by the lender.

Show Fewer Properties

I love that house, but ____________.  I’m sure you’ve heard this statement at least once or twice.  I love that house, BUT the kitchen is outdated, BUT it needs another bedroom/bathroom, BUT I want a finished basement, etc.  Contrary to what so many people believe about today’s Buy It, Fix It home loans, it is not just for repairs! These little-known programs will solve any of these “buts” and more!  With the exception of two ineligible repair costs, major landscaping and the installation of outdoor luxury items (pool, tennis courts), your home buyer can include whatever their little heart desires into their loan.  A few ideas to get your juices flowing: carpet, paint, new appliances, new kitchen, new bathrooms, new hardwood flooring, finish the basement, build an addition, build a garage, convert to handicap accessible, install security system, etc.

Avoid Inspection and Appraisal Issues

A home buyer could be under contract on a property with every possible thing wrong with it: furnace, water heater, HVAC, roof, sewer, structural, plumbing, electrical, grading, siding, decks, windows, asbestos, lead-based paint, etc., and this property would fly through the appraisal and underwriting without any issues, when utilizing the todays “Buy It, Fix It Home Loan”.

What about all the properties listed as “cash only” due to the property condition?  These properties are screaming for help from FHA or FNMA, so educate the listing agent!   

How Much Money Is Needed?

Gosh, I might just become your favorite person in 2016.  Let me show you how the numbers work.   You have a client buying a home at $150,000.  They decide to remodel the kitchen and bathrooms and install hardwood floors throughout, totaling $30,000 (total amount of bids), and increasing their monthly payments by roughly $150/month, or what I like to call it “The Five Bucks per 1000 Buy It, Fix It home loan”.

Purchase Price: $150,000   Total Bids: $30,000   Contingency (15% of bids): $4,500 (contingency is for anything unforeseen)  +Fees: $500 (inspections, title work, loan fees) TOTAL PROJECT COST = $185,000 Client Down Payment = 3.5 percent for an FHA 203K Buy It, Fix It home loan. * Total Project Cost = $6,475.  ** 5.0 percent for FNMA HomeStyle Buy It, Fit home loan.  ** Total Project Cost = $9,250.

What if your client does not have the 3.5 percent minimum down payment requirement?  They can receive the full amount as a gift from a family member or in the form of any city/county/state/federal down payment assistance.  The home buyer is not required to pay for any cost other than the typical costs associated with the home process (inspection and appraisal).  Any money not used is applied as a principal reduction on Buy It, Fit It Home Loan once the renovations are completed.

Two Types of FHA 203K Buy It, Fix It home loans

It’s important to understand that there are two types of FHA 203K Buy It, Fix It home loans – the Traditional FHA 203K and the Streamline FHA 203K. Buy It, Fix It home loan.

The Full 203K Buy It, Fix It home loans are for larger projects requiring more than $35,000 in costs or for projects that require structural repairs. An FHA 203K consultant is required for the Traditional FHA 203K Buy It, Fix It loan programs.

The Streamline FHA 203K Buy It, Fix It home loan is the new kid on the block, brought about in December of 2005 for less extensive repairs and improvements, therefore eliminating the required FHA 203K Consultant.  The maximum costs that can be included in the loan are $35,000, none of which can be structural costs.

How Do These Appraise?

When educating real estate agents on the FHA 203K Buy It, Fix It home loan, the very first concern that is raised is what about the appraisal!?  Well, again, you’re going to love this.  When buying a home with an FHA 203K Buy It, Fix It home loan, only one appraisal is required, providing the “after improvements to be made” meets value.   Additionally, there’s a fudge factor with FHA 203K Buy It, Fix It home loan.  The maximum mortgage amount is based on the lesser of 1) the as-is value + the cost of rehab work, or 2) 110 percent of the after-improved value of the property.

The majority of FHA 203K Buy It, Fix It home buyers establish instant equity, where organic appreciation is hard to come by.  Pretty exciting stuff! 

What Properties Are Eligible? 

There is no such thing as an FHA 203K approved property.  Any single-family home, town home, even multi-unit (up to four units), even manufactured homes can be financed with FHA 203K Buy It, Fit It home loans, so long as the home buyer is buying the property as their primary residence.   Condos are also eligible, but must be in an FHA approved complex and the building housing the unit can not have more than four units in it. To put it another ways an approved FHA complex with 200 units and 10 buildings with 20 units each wouldn’t work, but a complex with 200 units and 50 buildings would of four units each. 

10 Steps to the Renovation Loan Process

  1. Inform your home buyer on the ability to use FHA 203K or FNMA HomeStyle Buy It, Fix It loan program and refer them to your Google+ community lender.
  2. Your home buyer gets pre-approved – if they are pre-approved for $250,000 this must include the purchase price + costs they are rolling in for repairs.
  3. Shop for houses
  4. Negotiate the contract – offering as-is valued and selecting FHA financing or Conventional financing if you’re planning on using the FNMA HomeStyle Buy It Fit It Home Loan.
  5. Inspections/gathering bids
  6. Finalize bids
  7. Appraisal
  8. Final underwriting sign off
  9. Closing (depending on the lender this will be 30-60 days after going under contract)
  10. Work begins and must be completed in three months (with an FHA 203K Streamline Buy It, Fix It home loans ) to 6 months (Traditional FHA 203K or FNMA HomeStyle Buy It, Fix It home loan).

Using the FHA 203K or FNMA HomeStyle Buy It, Fix It Home Loan in Your Market Strategy

Remember, if your home buyers are going for an FHA 203K Buy It, Fix It home loan, the guidelines are just as lenient as the FHA programs you’re probably already familiar with, the FHA 203B Home Loan. If they are going to a FNMA HomeStyle Buy It, Fix It home loan, make sure your home buyers can meet the same standards required for a traditional 95-97 percent conventional loan, IE, good FICO scores, cash reserves, excellent job history, and verified down payment.

There are no income limits, you do not have to be a first-time home buyer. Credit scores for the FHA 203K Buy It, Fix Home Loans can be as little as 620, and possibly lower, but expect a 10 percent down payment requirement and stricter underwriting with a lower FICO score. If it’s the FNMA HomeStyle Buy It, Fix It Home Loan your home buyers are going for your home buyer needs at least a 660 FICO score and it could be higher, up 720 as a minimum score.

With the FHA 203K your home buyers have the ability to use alternative credit, debt-to-income ratios need to be not more than 45 percent for most home buyers. Cosigners allowed, down payment of 3.5 percent, gift money/down payment assistance allowed for down payment and seller concessions up to 6 percent.  

I know you’re concerned that the interest rates are much higher.  Of course, this varies per lender, but the rate for an FHA 203K is generally just .25 percent higher than a regular FHA 203B loan.

Hiring a General Contractor

There is no such thing as an FHA approved contractor/handyman and you can choose any licensed contractor that meets a minimal requirements by the Department of Housing and Urban Development (HUD), but working with a general contractor who’s experienced with Buy It, Fix It Home sure helps. Find one in our Google+ General Contractor Community.

Problems to Avoid 

The most important problem to avoid is choosing an experienced renovation lender. This program wasn’t needed until now, so many lenders have chosen not to provide renovation lending, because they don’t know how the program works, don’t want to invest in learning how or don’t want to do the extra paperwork.

Either way, working with a lender who isn’t experienced with renovation loans is something you should avoid at all costs, the process is complex enough as it is. The formula to success is 1) selecting the right team of lenders and contractors, 2) setting realistic dates and deadlines, and 3) setting proper expectations with the home buyer.

5 Ninja Marketing Strategies

  1. How to Buy and Fix Up a Property for $100 – a buyer can layer the FHA 203K Buy It, fix It home loan with the FHA Energy Efficient Mortgage and/or  the HUD $100 down program, where available.  The only requirement is that the buyer is using an FHA loan to buy a HUD property as their primary residence.  This is not limited to first-time home buyers.
  2. General Contractors Wanted – guess who may love this program more than you and I?  All of the contractors/handymen that are out of work.  Host a lunch at your office and educate every roof installer, electrician, plumber, general contractor, and handyman you know.  They will turn into your marketing department.
  3. Remember Kiddie Condos – the rental market has been and will be amazing around college campuses.  Educate the baby-boomers on the possibility of co-signing for their children on a property, using the FHA 203K Buy It, Fix It home loan. Not only are they able to do so with little investment, they have the opportunity to establish equity and create a monthly cash flow by renting out to other students.  This is a phenomenal vehicle to help their children pay down their student loans.
  4. Generating more Sellers – sellers are faced with the most common question – move or improve?  In your listing presentation make sure to educate your prospective sellers on the ability to list now, and market their not-so-perfect home with a Buy It, Fix It Renovation Home Loan.
  5. Social Proof on Steroids – When working with your next Buy It, Fix It home buyer make sure to gather the goods.  Before and after pictures are worth some serious cash.  Seriously!  You post the before and after pictures to our social media network, tagging your clients, and all their friends show up wanting to know how they too can buy a house and fix it up. 

Stop working against the market!  Your lender has loan programs that will help you show fewer properties, avoid common issues, generate more home buyers and sellers.

Bottom line, look like a rock star to your clients! 

HAWAII HOMES FOR SALE LISTINGS

Livingston Homes for Sale

HAWAII HOME OWNERSHIP TOOLS

Your Home Purchasing or Refinancing & Renovation Tools,

Home Improvements, Home Renovations,

Mortgage Loan Officers, Real Estate Agents & General Contractors

are ready to assist you with your home purchase.

Here are just a few of the home improvements

you might consider with any Home Renovation loan

Repair or replace a roof

Install, replace or repair gutters and downspouts

Replace, repair or upgrade your HVAC system

Repair or replace plumbing

Install, repair or replace electrical systems

Kitchen remodeling (including the purchase and installation of appliances)

Bathroom remodeling, Full interior painting, Total exterior painting

Repair or replace a septic system and/or well

Disability access (wheelchair ramp, elevator, widen doorways)

Build, repair or replace a deck, patio or porch

Basement waterproofing and finishing

Abatement/Stabilization of lead-based paint hazards

Replace old windows, Room additions, Finish an attic

Add a second story to your home

Replace a termite damaged sill plate (a water-damaged sill plate also)

Possible landscaping items such as correction of grading & drainage problems,

tree removal, repair a driveway and sidewalks

FHA 203K

Your Home Purchasing or Refinancing & Renovation Tool

Mortgage Loan Officers, Real Estate Agents & General Contractors

are ready to assist you with your home purchase

FANNIE MAE HOMESTYLE

The Conventional Alternative to FHA 203K

Great for Real Estate Investors and Second Home Renovations

Mortgage Loan Officers, Real Estate Agents & General Contractors

are ready to assist you with your home purchase

USDA RURAL DEVELOPMENT

Up to $10K for Home Improvements, Renovations or a Simple Remodel

Mortgage Loan Officers, Real Estate Agents & General Contractors are ready to assist you

A SIMPLE HOME SHOPPING INSPECTION TOOL

Organizing your home shopping experience affords a wise decision-making process.

This simple home inspection tool makes your ultimate buying decision a smart one.

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click on “File”; then click on “Print”. In the center of the screen you will

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