Microsoft PowerPoint - Ch12 Purchase with Rehab

Purchase with Rehabilitation and Repair Loans

Single Family Housing Guaranteed Loan Program

• Where is the topic located?

7 CFR 3555, and HB-1-3555

TrainingObjectives:

• Learning Checks

• Resources

7CFRPart3555

http://www.rd.usda.gov/publications/regulations‐guidelines

7CFRPart3555

• § 3555.104 LoanTerms.

• § 3555.105 Combinationconstructionandpermanentloans.

7CFRPart3555

HB 12.28 - Purchase with Rehabilitation and Repair Loan

Applicant Advantages

 Purchaseexistingdwelling

 Customizeimprovements

 Oneloanclosing

 Fundstopurchasethedwellingand

provideeligiblerehabilitation

HB 12.28 - Purchase with Rehabilitation and Repair Loan

Applicant Advantages

 100%financing

 Maximumloanamount:100%of“As

Improved”appraisedvalue

 Upfrontguaranteefeemaybe

includedabove“AsImproved”value

 Nofutureloanamountchanges,no

re‐amortization

HB 12.28 - Purchase with Rehabilitation and Repair Loan

Applicant Advantages

 Correctdwellingdeficiencies

 Revitalizeexistinghousingstock

 Retainpersonalreservespost‐

closing

HB 12.28 - Purchase with Rehabilitation and Repair Loan

Lender Advantages

• REDUCEDRISK!

• LNGisissuedpost‐closing

• Repair/Renovationcompletedpost‐closing

• Immediatesaleonsecondarymarket

• Upgrade/modernizekitchens,

bathrooms,interiorfloorcovers,

etc.

• Createaccessibleamenitiesto

accommodatedisabilities

• Additions,structuralalterationsor

reconstruction

• Installenergyconservationor

weatherizationfeatures

Eligible Loan Costs

• Repairorinstallsepticsystems

andwaterwells

• Removesafetyandhealthhazards

• Repairexistingamenities;

swimmingpools,saunasand

accessoryunits

Eligible Loan Costs

Non-Structural Repairs

• Finance up to $35,000 in repairs

• No minimum repair costs

• Dwelling must be habitable

• Contingency reserves allowed:

• 10% utilities on

• 15% utilities off

Structural Repairs

• Finance over $35,000 in

repair costs

• Qualified Inspector

required; write-up and all

inspections.

• Contingency reserves

allowed

• 10% utilities on

• 15% utilities off

• PITI reserves; up to 6

months when the dwelling

is not habitable.

HB 12.28 - Purchase with Rehabilitation and Repair Loan

Prohibited Loan Purposes:

• Investment properties

• Install new inground swimming pools, hot tubs, or saunas

• Installation of luxury items (exterior fireplace and kitchen, etc.)

• Convert existing structures to SFH dwellings

HB 12.28 - Purchase with Rehabilitation and Repair Loan

Prohibited Loan Purposes:

• Alterations that allow income-producing features

• Repair new or existing manufactured homes or condos

• Repairs or improvements to common space areas (community meeting

rooms, playground, etc.)

HB12.28 - Purchase with Rehabilitation and Repair Loan

7 CFR 3555 / HB-1-3555

LEARNING CHECKS

HB 12.28 - Purchase with Rehabilitation and Repair Loan

• Ben and Leslie want to purchase an existing dwelling for

$85,000.

• The home is habitable. Repairs include: carpet, tile, kitchen

cabinets and countertops.

• Total repair cost is $35,000 plus $3,500 contingency and $500

of permit/inspection fees.

• The “as improved” market value of the property is $125,000.

This proposal is eligible for a rehab/repair loan.

True/False

Answer: TRUE 3555.107(d) and HB 12.28

Part One: Maximum Loan Amount

• Purchase Price: $85,000 + $39,000 repairs/fees/contingency =

$124,000

• As-Improved Value : $125,000

• Maximum Loan amount: $126,262.60

• $125,000 - $124,000 = $1,000 closing costs + $1,262.62 GRH Fee

HB 12.28 - Purchase with Rehabilitation and Repair Loan

Answer: TRUE 3555.105 and HB 12.28

Part Two: Loan Eligibility

• Home is habitable

• Ben and Leslie may occupy and make mortgage payments

• Lender must obtain interim and final inspections

• Lender will work with borrowers to approve disbursements for

completed work

HB 12.28 - Purchase with Rehabilitation and Repair Loan

• After the loan closes, Ben and Leslie decide they don’t want to

renovate kitchen and instead want to add a covered patio with

an outdoor kitchen.

This proposal is eligible for a rehab/repair loan.

True/False

Answer: FALSE 3555.105 and HB 12.24 and 12.28

Loan Eligibility

• Proposed changes should not affect the scope of the project and/or

affect the appraised value.

• An outdoor kitchen is considered a luxury feature and is a prohibited

loan purpose.

HB 12.28 - Purchase with Rehabilitation and Repair Loan

• Using the same scenario, Ben and Leslie have an unused

balance in the contingency reserve in the amount of $3,000.

New appliances were not included in their contract. They want

to use the funds to purchase appliances for their newly

renovated kitchen.

This proposal is eligible for a rehab/repair loan.

True/False

Answer: TRUE 3555.105 and HB 12.24 and 12.28

Loan Eligibility

• The change order does not change the scope of the work.

• New appliances are an eligible loan purpose.

HB12.28 - Purchase with Rehabilitation and Repair Loan

• April and Andy want to purchase an old 2 bedroom, 1 bath

home on a 1 acre lot for $30,000

• They want to add 2 bedrooms and a full bathroom. They expect

the cost to be at approximately $50,000.

• The lender’s qualified inspector determined that the structure is

too dilapidated and not stable enough to withstand renovations.

• He determines the foundation to be structurally sound.

This proposal is eligible for a rehab/repair loan.

True/False

HB 12.28 - Purchase with Rehabilitation and Repair Loan

Part One: Loan Eligibility

• Obtain certification from qualified structural engineer that the existing

foundation is sound.

• Qualified inspector assigned by their lender can develop a plan to

raze the building and rebuild a new structure using the existing

foundation.

• A qualified contractor can work with them to design and rebuild using

the existing foundation and expand to suit their needs.

• The builder and inspector will work on the final cost estimate.

Answer:TRUE3555.105andHB12.28

HB 12.28 - Purchase with Rehabilitation and Repair Loan

Answer: TRUE 3555.105 and HB 12.28

Part Two: Maximum Loan Amount

• The “As Improved” market value of the property must cover the

costs to purchase, demolish, and renovate; including inspection

fees, PITI reserves and contingency fees, if applicable.

• The dwelling is not habitable; PITI reserves may be established to

cover mortgage payments up to 6 months.

• No loan modification needed. Borrower takes over mortgage

payments when the dwelling is deemed habitable.

HB 12.28 - Purchase with Rehabilitation and Repair Loan

• April and Andy’s final cost for demolition and construction of the

dwelling is $110,000, including inspection and permit fees.

• 10% contingency reserve would equal to $11,000.

• 6 month PITI reserves equal to $7,077.24

• “As Improved” market value is $150,000.

This proposal is eligible for a rehab/repair loan.

True/False

Item Amount

MaximumLoanAmount($150,000+$1,515.05GRHfee) $151,515.15

LessPurchase/Demo/RenoCost $140,000.00

LessfinancedGRHfee $1,515.15

AvailableLoanFunds $10,000.00

HB 12.28 - Purchase with Rehabilitation and Repair Loan

Remainingloanfundsarenotsufficienttocoverboththe

10%ContingencyReservesof$11,000andthe6‐monthPITI

Reservesof$7,077.24.

Answer:TRUE3555.105andHB12.28

Let’sreview

:

No problem!

A few options:

• Fund one of the reserves and reduce the other; amounts may

be adjusted,

• Borrower may fund the remaining amount needed out of

pocket,

• Omit one reserve. April and Andy must have sufficient cash

reserves to cover either PITI payments and/or costs for change

orders/cost overruns, if they occur.

Contingency and PITI Reserves are recommended but are optional.

HB 12.28 - Purchase with Rehabilitation and Repair Loan

• Jack and Diane want to purchase a two year old manufactured

home.

• Home is on a permanent foundation.

• No interior work is needed.

• They want to add a covered porch and a two-car garage for $20,000.

• This proposal is eligible for a rehab/repair loan. True/False

HB 12.28 - Purchase with Rehabilitation and Repair Loan

• Manufactured homes, condominiums and newly

constructed homes are not eligible.

Answer:FALSE3555.102,3555.105andHB12.28

HB 12.28 - Purchase with Rehabilitation and Repair Loan

• This is a 100% LTV program.

• Include the amount of contingency and reserves in the

construction contract

• Contract or worksheet similar to HUD 203(k) Form

92700

HB 12.28 - Purchase with Rehabilitation and Repair Loan

USDA LINC: Training and Resource Library

https://www.rd.usda.gov/programs-services/lenders/usda-linc-training-

resource-library

Thank you

for supporting the Single Family Housing

Guaranteed Loan Program!