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9/11/2015
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FHA Office of Single Family Housing
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ATLANTAHOMEOWNERSHIP
CENTER2015 Appraisal Training
N. Dan Rogers III, AHOC Director
Glenn Dumont, AHOC Deputy Director
Valerie D Williams, Processing and Underwriting Division Director
FHA Office of Single Family Housing
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On Behalf of The AHOC and Training Team,We Welcome you Today.
PLEASE BE CONSIDERATE OFOTHERS
1. Please silence your cell phones and pagers.
2. If you must answer your phone, please step out.
3. If you must text, please respect your instructorand neighbors.
FHA Office of Single Family Housing
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Presenter
Frank J. Coleman, Senior Review AppraiserTechnical Branch I
Processing and Underwriting DivisionAtlanta Homeownership Center
Federal Housing Administration (FHA)
Atlanta Home Ownership Center (AHOC)40 Marietta Street
Five Points Plaza 7th FloorAtlanta, GA. 30303
9/11/2015
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Archived Webinars
The official archived webinars are available at:http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/eve
nts/sfh_hb_webinars
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The Presentation
• Based on The Single Family Housing PolicyHandbook 4000.1.
• Summary of salient features, changes andclarification and is not intended to replace theguidance of the Department SF HandbookArchived Webinars.
FHA Office of Single Family Housing
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Handbook 4000.1
• Issued: August 26, 2015
• Effective: September 14, 2015
• Available at:http://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdf
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AppraisalsModule 3A
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Introduction
• The Appraiser and Property Requirements for Title II Forwardand Reverse Mortgages section of the Handbook 4000.1contains the Property Acceptability Criteria for FHA mortgageinsurance which include Minimum Property Requirements(MPR) and Minimum Property Standards (MPS), and includeby reference, associated rules and regulations.
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Objective
We will review some of the policies which we have providedclarity for effectively conducting an appraisal.
Appraisers are expected to exercise both sound judgmentand due diligence in the appraisal of properties to be insuredby FHA.
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Components of Appraisal Guidance
• Property Requirements
– FHA requires underwriting of property condition as well asvaluation.
• Appraiser Requirements to Observe, Analyze, Report
– Appraisers’ requirements spelled out in one place, clearly.
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Components of Appraisal Guidance (cont.)
• Report and Data Format Requirements
– A separate section dealing with forms, data andformats required, and “how to” instructions posted toHUD.gov.
• FHA Appraiser Roster
– Doing Business with FHA section of the Handbook.
• FHA Appraiser Quality Control and Oversight
– Legal and disciplinary issues.
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Enhancements to Note
• Zoning and Legal Non-Conforming Use
– Now requires appraiser to comment if improvementscan be rebuilt.
• Stationary Storage Tanks
– No distinction for above- or below-ground.
• Accessory Dwelling Units
– Emphasizes Highest and Best Use to determineproperty type of classification.
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FHA Office of Single Family Housing
Enhancements to Note (cont.)
Attic and Crawl Space Inspection Requirements
– Clarifies that FHA requires an inspection―more than just “head and shoulders” if possible.
General Acceptance Criteria, Property Eligibility,
Nonresidential Use of Property
– Making sure that mixed use properties comply with zoning.
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Enhancements to Note (cont.) Cost and Income Approach for Value
– Clarifies that ALL appropriate approaches must be utilized•when applicable.
Photograph Requirements
– Interior photos are required, as are photos of the attic andcrawl space.
– Spells out all requirements in one place.
Sales history of Comps
– 3 years+ instead of 1 year.– Due diligence by the appraiser for analyzing prior sales of
comparable properties.15
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Enhancements to Note (cont.)
Measurement and Reporting of Contributory Value of energyefficiency components or alternate systems (solar, etc.):
– Valuation of Solar Components is not limited to pairedsales only.
– Appraiser must follow proper appraisal practice including:
Contribution (Principle of Contribution);
Contributory Value;
Direct Sales Comparison Approach;
Cost Approach;
Income Approach; and
Reconciliation of the Approaches.
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FHA Office of Single Family Housing
Enhancements to Note (cont.)
High Voltage Transmission Lines
– The Appraiser must notify the Mortgagee of the deficiencyof MPR or MPS if:
The Overhead Electric Power Transmission Lines or theLocal Distribution Lines pass directly over any dwelling,Structure or related property improvement, includingpools, spas, or water features; or
The dwelling or related property improvements arelocated within an Easement or if they appear to belocated within an unsafe distance of any power line ortower.
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Enhancements to Note (cont.)
Mineral and Oil Reservations
– If currently under lease, the appraiser must analyze andinclude a summary of the effect on the property.
– Appraiser to comment on:
Impairment;
Property damage; or
Environmental concerns.
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Enhancements to Note (cont.)
A separate legal description for the surplus land is notrequired.
– Highest and Best Use (HABU) test of additional parcels orlarger than typical sites determines whether excess orsurplus applies (reminder-all FOUR tests of HABU).
Leasehold Valuation
– Reminder that appraiser to analyze terms of ground leaseand Mortgagee must ensure that appraiser has a copy.
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Enhancements to Note (cont.)
Methamphetamine Contaminated Properties
– Contaminated properties have potentially significantenvironmental risks due to use and/or storage ofdangerous chemicals on the property.
– If the Mortgagee notifies the Appraiser or the Appraiserhas evidence that a Property is contaminated by thepresence of methamphetamine (meth), either by itsmanufacture or by consumption, the Appraiser mustrender the appraisal subject to the Property being certifiedsafe for habitation.
– The Appraiser must analyze and report any long-termstigma caused by the Property’s contamination by methand the impact on value or marketability.
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Enhancements to Note (cont.)
Valuation Approaches
– Reminder to follow Uniform Standards of ProfessionalAppraisal Practice (USPAP) – apply all APPROPRIATE
methods.
Roofs Covered with Snow
– Reminder to report what can be seen inside the property.
Manufactured Home Additions
– Appraiser to require inspection by State Agency if anyAdditions or Structural changes are observed.
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High Efficiency Components
New Building Components
– Contributory value of building components that enhanceefficiency or energy savings must be analyzed and
reported.
– FHA requires that the appraiser utilize all appropriatemethods of valuation and does not restrict this to only a
matched pairs analysis.
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Requirements for Reporting: SF HousingAppraisal Report and Data Delivery Guide
Posted to the HUD website.
Describes line by line reporting requirements for the fiveappraisal report forms utilized by FHA.
Includes Fannie Mae/Freddie Mac Uniform Appraisal Dataset(UAD) formats and requirements where applicable.
Appraisal software companies will use this document toensure that their products will comply with FHArequirements.
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FHA Office of Single Family Housing
Underwriting the Property
Module 3B
Single Family Housing Policy Handbook 4000.1
Title II Insured Housing Program Forward Mortgages Origination
through Post-Closing/Endorsement
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FHA Office of Single Family Housing
Objective
Review Underwriting the Property section of Handbook4000.1.
During our review, we will:
– Clarify some of our current FHA polices;
– Discuss some of our policy revisions upon the effectivedate of the Handbook; and
– Continue to familiarize ourselves with the structure of theHandbook.
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Introduction
The Mortgagee must underwrite the completed appraisalreport to determine if the property provides sufficientcollateral for the FHA insured mortgage.
The appraisal and the property must comply with therequirements in Appraiser and Property Requirements forTitle II Forward and Reverse Mortgages section of the
Handbook 4000.1.
The appraisal must be reported in accordance withAcceptable Appraisal Reporting Forms and Protocols.
•4001.1 II 3 Qtr. 2 FY 15 26
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Mortgagee Responsibility for AppraisalIntegrity
The Mortgagee is responsible for identifying any problems orpotential problems with the integrity, accuracy, andthoroughness of an appraisal submitted to FHA for mortgageinsurance purposes.
•4001.1 II 1 A Qtr. 2 FY 15 27
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Communications with Third Parties: Appraisal
Just a Reminder:
• Mortgagees may not discuss the contents of the appraisal
with anyone other than the borrower.
• Yes, this includes Real Estate Agents.
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Property Acceptability Criteria
The Mortgagee must evaluate the appraisal and anysupporting documentation to determine if the propertycomplies with HUD’s Property Acceptability Criteria.
Existing and New Construction properties must comply withApplication of Minimum Property Requirements (MPR) andMinimum Property Standards (MPS) by Construction Status.
•4001.1 II 3 a Qtr. 2 FY 15 29
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Defective Conditions
The Mortgagee must evaluate the appraisal in accordancewith the Appraiser and Property Requirements of the4000.1, Section 3. Acceptable Appraisal Reporting Tools and
Protocols, Defective Conditions to determine if the propertyis eligible for an FHA-insured mortgage.
If defective conditions exist and correction is not feasible, theMortgagee must reject the property.
•4001.1 II 3 a Qtr. 2 FY 15 30
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Defective Conditions (cont.)
Defective construction evidence of continuing settlement,excessive dampness, leakage, decay, termites, environmentalhazards, or other conditions affecting the health and safety ofoccupants, collateral security or structural soundness of thedwelling.
The Mortgagee must render the property ineligible until thedefects or conditions have been remedied and the probabilityof further damage eliminated.
•4001.1 II C Qtr. 2 FY 15 31
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Case Study• The contract of sale identifies the subject property may be
contaminated by methamphetamine.
• Does the contamination automatically establish a DefectiveCondition? Yes - Health and Safety.
• Is the property ineligible? Yes until the property (site anddwelling) is certified safe for habitation.
The appraiser must address any long-term stigma caused bythe property’s contamination by meth and the impact onvalue and/or marketability.
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FHA Office of Single Family Housing
Defective Conditions: Inspection Requirements Examples of conditions that require an inspection by qualified individuals or
Entities include, but are not limited to:
– Standing water against the foundation and/or excessively dampbasements;– Hazardous materials on the site or within the improvements;– Faulty or defective mechanical systems (electrical, plumbing or heating);– Evidence of possible structural failure (e.g., settlement or bulgingfoundation
wall, unsupported floor joists, cracked masonry walls or foundation);– Evidence of possible pest infestation; or– Leaking or worn-out roofs.– Chipped, Peeling, Loose Lead-Based Paint (on homes built 1978 or prior)
The reason for or indication of a particular problem must be given whenrequiring an inspection of any mechanical system, structural system, etc.
•4001.1 II C Qtr. 2 FY 15 33
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•FHA Office of Single Family Housing
Minimum Property Requirements andMinimum Property Standards
The Mortgagee must evaluate the appraisal and property
eligibility in accordance with:
– Minimum Property Requirements for Existing and NewConstruction properties; and
– Minimum Property Standards for New Constructionproperties.
If the appraiser cannot determine that a property meets
HUD’s MPR or MPS, the Mortgagee may obtain an inspection
from a Qualified Entity to make the determination.
•4001.1 II 3 a Qtr. 2 FY 15 34
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FHA Office of Single Family Housing
Minimum Repair Requirements
The appraisal report or inspection from a Qualified Entityindicates that repairs are required to make the property meetHUD’s MPR or MPS, the Mortgagee must comply with RepairRequirements.
•4001.1 II 3 a Qtr. 2 FY 15 35
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Minimum Repair Requirements (cont.)
The underwriter will determine which repairs for existingproperties must be made for the property to be eligible forFHA-insured financing.
•4001.1 II 3 a Qtr. 2 FY 15 36
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Minimum Repair Requirements (cont.)
Required repairs are limited to those repairs necessary tomaintain safety, security and soundness.
Required repairs are those necessary to preserve thecontinued marketability of the property and protect thehealth and safety of the occupants.
If an element is functioning well but has not reached the endof its useful life, the appraiser should not recommendreplacement because of age.
•4001.1 II C Qtr. 2 FY 15 37
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Required Documentation for Underwriting theProperty
• If additional inspections, repairs or certifications are noted bythe appraisal or are required to demonstrate compliance withProperty Acceptability Criteria, the Mortgagee must obtainevidence of completion of such inspections, repairs orcertifications.
4001.1 II 3 c Qtr. 2 FY 15
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FHA Office of Single Family Housing
Appraisal Review
The appraisal process is the Mortgagee’s tool for determiningif a property meets the minimum requirements and eligibilitystandards for a Federal Housing Administration (FHA)-insuredmortgage.
Mortgagees bear primary responsibility for determiningeligibility; however, the appraiser is the onsite representativefor the Mortgagee and provides preliminary verification thatthe Property Acceptability Criteria have been met.
•4001.1 II C Qtr. 2 FY 15 38
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Quality of Appraisal
The Mortgagee must evaluate the appraisal and ensure itcomplies with the requirements in the Appraiser andProperty Requirements of the 4000.1, Section 3. AcceptableAppraisal Reporting Tools and Protocols, Valuation andReporting Protocols and any additional appraisalrequirements that are specific to the subject property.
•4001.1 II 3 b Qtr. 2 FY 15 39
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Initial Appraisal Validity 30-Day Extension
The 120-day Validity period of an appraisal may be extended for30 days at the option of the Mortgagee if:
1. The Mortgagee Loan Approval or HUD-issued Firm
Commitment is issued prior to the expiration of the original
appraisal; or
2. The Borrower signed a valid sales contract prior to the
expiration date of the appraisal.
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Appraisal Update• Appraisal update must be performed before the initial
appraisal has expired.
• An appraisal cannot be updated if an appraisal extension has
been issued.
• The valid period for an updated appraisal is 240 days after the
Effective Date of the initial appraisal report.
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Restrictions on Property FlippingFor case numbers assigned on or after January 1, 2015:
• If a property is resold within 90 days or fewer following the
date of acquisition by the seller, the property is not eligible for
an FHA-insured mortgage.
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Restrictions on Property Flipping• Seller’s Date of Acquisition:
– FHA defines the seller’s date of acquisition as the date of
settlement on the seller’s purchase of that property.
• Resale Date:
– FHA defines the resale date as the date of execution of the
sales contract by all parties intending to finance the
property with an FHA-insured mortgage.
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Transferring Existing Appraisals• The Mortgagee, at the borrower’s request, must transfer the
appraisal to the second Mortgagee within 5 business days.
• The original Mortgagee may not charge the borrower a fee forthe transfer of any documents.
• A fee may be negotiated between the original Mortgagee andthe new Mortgagee. However, a fee for the transfer ofdocuments for Streamline Refinance transactions is notpermitted.
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Transferring Existing Appraisal-New Borrower
• When an existing appraisal is being used for a different
borrower, the Mortgagee must:
– Enter the new borrower’s information in FHAC;
– Collect the appraisal fee from the new borrower and
refund the fee to the original borrower; and
– Have the appraiser review the purchase contract and
revise the appraisal report for value adjustments
accordingly.
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Second Appraisal Warning Screen
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Material Deficiencies
• Material deficiencies on appraisals are those deficiencies thathave a direct impact on value and marketability.
• Material deficiencies are evident on the effective date of theappraisal.
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Material Deficiencies (cont.)Material deficiencies include, but are not limited to:
• Failure to report readily observable defects that impact thehealth and safety of the occupants and/or structuralsoundness of the house;
• Reliance upon outdated or dissimilar comparable saleswhen more recent and/or comparable sales were availableas of the effective date of the appraisal; and
• Fraudulent statements or conclusions when the appraiserhad reason to know or should have known that suchstatements or conclusions compromise the integrity,accuracy and/or thoroughness of the appraisal submittedto the client.
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Opinion of Market Value
• The Mortgagee must ensure the Market Value of the propertyis sufficient to adequately secure the FHA-insured mortgage.
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Reconsideration of Value
• The underwriter may request a reconsideration of value whenthe appraiser did not consider information that was relevanton the effective date of the appraisal.
• The underwriter must provide the appraiser with all relevantdata that is necessary for a reconsideration of value.
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Material Deficiencies
• May order secondappraisal but, not forvalue
• Typically, appraiserperformance negligence
Reconsideration of Value
• Second appraisalprohibited
• Typically, newcomparables becomeavailable after theeffective date.
Material Deficiencies vs. Reconsideration of Value
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• The Direct EndorsementUnderwriter/HUD ReviewerAnalysis of Appraisal Reportshould not be used tomodify value or forcomments.
(HUD-54114)
The Direct Endorsement Underwriter/HUDReviewer Analysis of Appraisal Report
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Form HUD-92800.5B, Conditional CommitmentDirect Endorsement Statement of Appraised Value
• The underwriter must complete form HUD-92800.5B asdirected in the form instructions.
• Form HUD 92800.5B serves as the Mortgagee's conditionalcommitment/direct endorsement statement of value of FHAmortgage insurance on the property. The form provides asection for a statement of the property's appraised value andother required FHA disclosures to the homebuyer, includingspecific conditions that must be met before HUD can endorsea firm commitment for mortgage insurance. HUD uses theinformation only to determine the eligibility of a property formortgage insurance.
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Conditional Commitment (Form HUD-92800.5b)Direct Endorsement Statement of Appraised ValueThe Conditional Commitment (Form HUD-92800.5b) Direct Endorsement Statement ofAppraised Value are not required in connection with:
– HUD REO sales;
– FHA’s 203(k) mortgage program;
– Sales in which the seller is:
o Fannie Mae;
o Freddie Mac;
o VA;
o USDA Rural Housing Services;
Sales in which the Borrower will not be an owner-occupant (for example, sales tononprofit agencies).
o Other Federal, State, and Local Government Agencies;o A Mortgagee disposing of REO assets; oro A Seller at a foreclosure sale; or
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Appraisal Review: Chain of Title
Mortgagee must review the appraisal to determine if the subjectproperty was sold within 12 months prior to the case numberassignment date.
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Acceptable Appraisal FormsProperty/Assignment Type AcceptableReporting Form
Fannie Mae Form 1004 MC/Freddie Mac Form 71, Market Conditions Addendum to the Appraisal Report, must be completed for every
appraisal.
Single Family, Detached, Attachedor Semi-Detached
Residential Property
Fannie Mae Form 1004/Freddie Mac Form 70, Uniform Residential Appraisal
Report (URAR); MISMO 2.6 GSE format
Single Unit Condominium Fannie Mae Form 1073/Freddie Mac Form 465, Individual Condominium Unit
Appraisal Report; MISMO 2.6 GSE format
Manufactured(HUD Code) Housing Fannie Mae Form 1004C/Freddie Mac Form 70B, Manufactured Home
Appraisal Report; MISMO 2.6 Errata 1 format
Small Residential Income Properties (Two to Four Units) Fannie Mae Form 1025/Freddie Mac Form 72, Small Residential Income
Property Appraisal Report; MISMO 2.6 Errata 1 format
Update of Appraisal
(All PropertyTypes)
Summary Appraisal Update Report Section of Fannie Mae Form
1004D/Freddie Mac Form 442, Appraisal Update and/or Completion Report;
MISMO 2.6 Errata 1 format
Complianceor Final Inspectionfor New Constructionor
ManufacturedHousing
Form HUD-92051, Compliance Inspection Report, in Portable Document
Format (PDF)
Complianceor Final Inspectionfor Existing Property Certification of Completion Section of Fannie Mae Form 1004D/Freddie Mac
Form 442, Appraisal Update and/or Completion Report; MISMO 2.6 Errata 1
format
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Photograph RequirementsFHA Minimum Photograph Requirements
Photograph Exhibit Minimum Photograph Requirement
Subject Property Exterior Front and rear at opposite angles to show all sides of the dwelling
Improvements with Contributory Value not captured in the front or rear photograph
Street scene photograph to include a portion of the subject site
For New Construction, include photographs that depict the subject’s grade and drainage
For Proposed Construction, a photograph that shows the grade of the vacant lot
Subject Property Interior Kitchen, main living area, bathroom, bedrooms
Any other room representing overall condition
Basement, attic, and/or crawl space
Recent updates, such as restoration, remodeling and renovation
For two- to four-unit properties, also include photographs of common areas, hallways,
etc.
Comparable Sales, Listings, Pending Sales,
Rentals, etc.
Front view of each comparable utilized
Photographs taken at an angle to depict both the front and the side when possible
Multiple Listing Service (MLS) photographs are acceptable to exhibit comparable
condition at the time of sale. However, appraisers must include their own photographs as
well to document compliance.
Subject Property Deficiencies Photographs of the deficiency or condition requiring inspection or repair
Condominium Projects Additional photographs of the common areas and shared amenities of the Condominium
Project
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Site Section
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Flood Zone: Determination & Responsibilities
• A property is not eligible for FHA insurance if:
– A residential building and related improvements tothe property are located within SFHA Zone A, a SpecialFlood Zone Area ,or Zone V, a Coastal Area, andinsurance under the National Flood InsuranceProgram (NFIP) is not available in the community; or
– The improvements are, or are proposed to be, locatedwithin a Coastal Barrier Resource System (CBRS).
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Observing the Site
• FHA requires the appraiser to disclose any hazards thatendanger:
– Physical improvements;
– Affect livability;
– Marketability; and
– Health and safety of occupants.
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Individual Water Supply and Sewage Systems
• The Mortgagee is required to ensure the well and septic meetHUD and state and local jurisdiction requirements.
• The underwriter, not the appraiser, is required to determinefeasibility of connecting improvements to public water and/orseptic system.
• The appraiser and/or Mortgagee must require inspections ofreadily observable deficiencies of well or septic systems.
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Improvements Section
• Number of Units
• Stories
• Property Type
• Design
• Year Built
• Effective Age
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Accessory Units• An Accessory Dwelling Unit
(ADU) refers to a habitableliving unit added to, createdwithin, or detached from aprimary one-unit singlefamily dwelling, whichtogether constitute a singleinterest in real estate.
• It is a separate additionalliving unit, including:
– Kitchen;
– Sleeping; and
– Bathroom facilities.
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Interior: Materials Condition
• Appraiser is to statewhat they saw anddescribe whennecessary.
• What is readilyobservable?
• What upgrades didhe/she see?
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The Attic
• The appraiser is required to observe the interiors of all attic spaces.
• The appraiser is not required to disturb insulation, move personal items,furniture, equipment or debris that obstructs access or visibility. If unable toview the improvements safely in their entirety, the appraiser must contactthe Mortgagee and reschedule a time when a complete visual observationcan be performed, or complete the appraisal subject to inspection by aqualified third party. Photograph required.
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Mechanical Systems
All utilities must be on at the time of appraisal.
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Improvements Section
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Property Condition Requirements
• Determine the overall quality and condition of property.
• Identify items that require immediate repair and areDefective Conditions (health & safety, structural soundness).
• Identify items where maintenance has been deferred, whichmay not require immediate repair.
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Reconciliation
• The three approaches to value are reconciled with a briefdescription of the validity of each approach with respect tothe subject property appraisal:− Comparison;− Cost; and − Income.
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Identifying the Appraisal Report
Clarity
As Is No repairs, alterations or required inspections;Establish the “as is” value for 203(k); orAppraiser is recommending the property for rejection
Subject To Completion perPlans & Specs
Subject is less than 90% complete
Subject To Repairs orAlterations
The subject property is 90% or more complete
Subject To RequiredInspection (s)
The subject property is subject to inspection by aqualified individual or entity when the observationreveals evidence of a potential safety, soundness, orsecurity issue beyond the appraiser’s ability to assess.(termite, electrician, structural, etc.)
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Addressing Unique Properties
• Must be:
− Legal zoning;
− Structurally sound;
− Marketable; and
− Highest & Best Use.
If zoning is Legal Non-Conforming-evidence property can be rebuilt.
Mixed Use Properties requires aminimum of 51% of the entire buildingsquare footage is for Residential use.
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Required Exhibits
Maps
• Local street map showing location subject & each comparable sale.
• Show proposed roadways and street names.
Location Map
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Required Exhibits (cont.)
Exterior Sketch
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No Contributory Value?
• Zero value is often placed on accessory structures that:
− Were added without permits; or
− Exhibit costly defects.
• Appraisers are not to assign “zero” value just to avoidaddressing FHA requirements!
• Zero value may mean removal of the structure.
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Underwriting HUD Real Estate OwnedProperties
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HUD-owned Properties
• Permissible transactions (203b):
– Insurable; or
– As is with no repairs, alterations or inspections required.
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HUD-owned Properties (cont.)
• 203(b) Insurable with Escrow.
• Subject property will meet MPR if repairs estimated to cost nomore than $5,000 are completed.
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HUD-owned Properties (cont.)
Uninsurable:
• For FHA financing, must go 203(k).
• Subject property will meet MPR if repairs estimated to costmore than $5,000 are completed.
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Manufactured Homes
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Modular? Manufactured? Site Built?
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You can no longer tellsitting at the curb.
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Manufactured Home Appraisal
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HUD Certification Label: “Red Tag”
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• HUD Certification Labelmust be affixed to thetail-light end of eachtransportable section.
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• Obtain the label and/or serial number from data plate orchassis.
• Website for IBTS: www.ibts.org/labelreq.htm
– The processing time is expected to be 5-10 business days
for Regular and 1-3 business days if Urgent
– Current Costs $50 (or $75 if Urgent)
– Address: 45207 Research Place Ashburn, VA 20147
– Phone #: (703) 481-2000
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Missing HUD Label?
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HUD Data Plate Certificate
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Foundations
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Additions to Manufactured Housing
• If the appraiser observes additions or structuralchanges to the original house, the appraiser mustcondition the appraisal upon inspection by the state orlocal jurisdiction administrative agency that inspectsManufactured Housing for compliance, or a licensedstructural engineer may report on the structuralintegrity of the manufactured dwelling and theaddition if the state does not employ inspectors.
• Note: Required for HUD REO.
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Selection of Comparable Sales
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• At least two of thecomparable salesmust be closedmanufacturedhomes.
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Skirting
• Is vinyl skirting attached to frameworkacceptable for a manufactured home?
• HUD requires manufactured homes to haveskirting that is permanent or attached to apermanent foundation.
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FHA Condominium Project Approval
Site Condominium or Single Family Home?
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FHA Condominium Project Approvals (cont.)
Condominium or Attached Single Family Residence?
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FHA Condominium Project Approvals (cont.)
Condominium or Manufactured Home?
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FHA Condominium Project Approvals (cont.)
Condominium?
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Condominiums
• Any mortgage covering a one-family unit in a project coupledwith an undivided interest in the common areas andfacilities which serve the project.
• May include dwelling units in detached, semi-detached, rowgarden-type, low or high rise structures.
• Remaining Economic Life is to be entered.
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FHA Condo Case Numbers
• Case numbers cannot be assigned to condominium unitsunless and until the condominium project is approved.
• To be eligible for FHA insurance, the project must be on thelist of FHA-approved condominiums.
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Condominium Project Policy-Status• As stated in the Origination/Underwriting Section:
– A Condominium Project must be FHA approved before amortgage on an individual condominium unit can be insured.
• Currently, FHA’s Condominium Project Approval requirements arein the formal rulemaking phase. This process must be completedbefore the guidance is published.
• Our existing Condominium Project Approval requirements, locatedin Mortgagee Letter 2012-18, and the Condominium ProjectApproval and Processing Guide attached to Mortgagee Letter 2011-22 continue to be applicable.
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Condominiums: FHA Connection
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Individual Condominium Unit Appraisal Report:Fannie Mae Form 1073
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Site Condos
• Site Condominiums refer to a project of single family, totallydetached dwellings encumbered by a declaration ofcondominium covenants or a condominium form ofownership.
• They have no shared garages or any other attached buildings.Project approval is required for Site Condominiums that donot meet this definition.
• The appraiser must report the appraisal on Fannie Mae Form1073/Freddie Mac Form 465, Individual Condominium UnitAppraisal Report.
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Module 8B
Programs and Products - Continued
Single Family Housing Policy Handbook 4000.1Title II Insured Housing Program Forward Mortgages
Origination through Post-Closing/Endorsement
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Energy Efficient Mortgage (EEM)
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Energy Efficient Mortgage (EEM) Program
• Allows the Mortgagee to offer financing for cost-effective,energy efficient improvements to an existing property at thetime of purchase or refinancing, or for upgrades above theestablished residential building code for new construction.
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EEM: Eligible Programs and Transactions Types
The EEM program can be used in conjunction with any
mortgage insurance under Title II, including:
– 203(b);
Purchase; or
No cash-out refinance.
– 203(h) Mortgage Insurance for Disaster Victims;
– 203(k) (Standard and Limited [former Streamline]); and
– Weatherization Policy (Existing Construction only).
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EEM: Energy Package
The energy package is the set of improvements agreed to by
the Borrower based on recommendations and analysis
performed by the qualified home energy rater.
The improvements can include:
– Materials, labor, inspections, and the home energyassessment by a qualified energy rater;
– If the Borrower desires, labor may include the cost of anEEM Facilitator (general contractor); and
– Borrower labor (Sweat Equity) is not permitted to beincluded in the loan amount.
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EEM: EEM Facilitator (General Contractor)
Who is a EEM Facilitator?
– They are project managers.
What is an EEM Facilitator’s responsibility? They:
– Arrange the inspections, obtain the required documents forMortgagee, and on behalf of the Mortgagee; and
– Ensure that the improvements comply withrecommendations Home Energy Report.
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EEM: Cost-Effective Test
Cost-Effective refers to the costs of the energy efficiencyimprovements including maintenance and repair, and isone where the cost of the improvements is less than thevalue of the energy saved over the estimated useful life ofthose improvements.
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EEM: Cost Effective Test for New Construction
For new construction any upgrades greater than existing codemay not bare out any additional savings.
A property classified as a energy efficient home must meetthe requirements of the 2000 IECC standards.
More information on this energy code can be obtained fromthe Department of Energy or the International Code Council.
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EEM: Cost Effective Test for New Construction
(cont.)
The financed portion of an energy package includes only
those cost-effective energy improvements over and above
the greater of the following:
– The requirements of the 2006 International EnergyConservation Code (IECC);
– A successor energy code standard that has been adoptedby HUD for its Minimum Property Standards (MPS),
pursuant to 42 U.S.C. § 12709; or
– The applicable IECC year used by the state or localbuilding code for New Construction.
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EEM: Home Energy Report/Assessment
The Borrower must obtain a home energy assessment.
The purpose of the energy assessment under the EEM
program is to identify opportunities for improving the
energy efficiency of the home and their cost-effectiveness.
The assessment must be conducted by a qualified energy
rater, assessor, or auditor using whole-home assessment
standards, protocols, and procedure.
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EEM: Qualifications of Energy Raters/Assessors
Qualified home energy rater/assessors must be trained and
certified as one of the following and meet local and state
jurisdictional requirements:
– Building Performance Institute Building AnalystProfessional;
– Building Performance Institute Home Energy ProfessionalEnergy Auditor; or
– Residential Energy Services Network Home Energy Rater.
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EEM: Required Documentation
The Mortgagee must obtain a copy of the home energyreport:
– Must not be more than 120 days old.
The Mortgagee must submit two forms HUD 92900-LT:
– FHA Loan Underwriting; and
– Transmittal Summary.
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EEM: Maximum Financeable Energy Package
The maximum amount of the energy package that can beadded to the Base Loan Amount is the lesser of:
– The dollar amount of a cost-effective energy package asdetermined by the home energy audit; or
– The lesser of 5 percent of: The Adjusted Value;
115 percent of the median area price of a Single Familydwelling; or
150 percent of the national conforming mortgage limit.
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EEM: Maximum Mortgage Amount for ExistingConstruction
The maximum final Base Loan Amount is determined byadding:
− The maximum financeable energy package amount tothe initial maximum Base Loan Amount.
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EEM: Maximum Mortgage Amount For
New Construction
Determine Adjusted Value to calculate the Base Loan
Amount:
– The cost of the financeable energy package includedin the purchase contract must be subtracted from
the sales price when computing the Adjusted Value.
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EEM: Maximum Mortgage Amount for
New Construction (cont.)
The steps for calculating the maximum mortgage amount fornew construction are:
– Determine the Adjusted value;
– Determine maximum financeable energy package usingthe EEM calculator in FHAC; and
– Determine the maximum FHA mortgage.
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EEM: Appraisals
For Existing and New Construction, the appraisal does notneed to reflect the value of the energy package that will beadded to the property.
If the appraisal does include the value of the energy package,the value must be subtracted from the Property Value whencomputing the Adjusted Value.
On the 203(k) program, the after-improved value is to be usedfor the EEM process.
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Completion Requirements for Energy EfficientMortgages (EEMs)
With the exception of 203(k), the energy package is to beinstalled within 90 Days of the mortgage closing.
If the work is not completed within 90 Days, the Mortgageemust apply the EEM funds to a prepayment of the mortgageprincipal.
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Completion Inspection
The Mortgagee, the rater, or an FHA fee inspector may inspectthe installation of the improvements.
An FHA fee inspector must be currently approved andcurrently on the roster.
The Borrower may be charged an inspection fee
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Weatherization
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Weatherization
The weatherization product permits the Borrower to financethe cost of eligible energy-related weatherizationimprovements, in conjunction with a purchase or refinance.
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Eligible Programs and Transaction Types
Weatherization improvements may be financed in conjunction
with the following:
– Section 203(b); purchase or no cash out refinance;
– Section 203(h) Mortgage Insurance for Disaster Victims;and
– Energy Efficient Mortgages (EEMs).
For financing of weatherization under the 203(k)Rehabilitation Mortgage Insurance Program, refer to 203(k)Rehabilitation Mortgage Insurance Program.
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Eligible Property Types
Weatherization improvements may be used on the followingproperty types:
– Existing properties (one- to four-units);
– Condominiums (one unit); and
– Manufactured Housing (single unit).
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Eligible Weatherization Items
Eligible energy-related weatherization items include:
– Air sealing (including weather-stripping doors, caulkingwindow and plumbing penetrations);
– Insulation (attic, floors, walls, basement);
– Duct sealing and insulation;
– Smart thermostats and equipment controls; and
– Windows and doors.
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Weatherization Combined with an EEM
For existing Properties, energy-related weatherization itemsmay be combined with the EEM.
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Escrows
The Mortgagee must establish an escrow account for theremaining costs of the energy improvements if theinstallation of weatherization items is not complete by thetime of closing.
Any funds remaining in the escrow account at the end of theimprovement period must be applied to pay down themortgage principal.
Escrows may not include costs for labor or work performed
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Mortgagees Assurance of Completion
When funds to complete weatherization improvements areescrowed:
– The Mortgagee must execute form HUD-92300,Mortgagee’s Assurance of Completion, to indicate that theescrow for weatherization improvements has beenestablished.
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Time of Completion for Weatherization Items
Installation of weatherization improvements must becompleted within:
– 30 Days of the mortgage Disbursement; or– 90 Days of the mortgage Disbursement if the improvements
are part of an energy package for an EEM.
The Mortgagee must apply the remaining weatherizationescrow funds to a prepayment of the mortgage principal if thework is not completed within the required time frames.
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Inspection
The Mortgagee or their agent must inspect theweatherization items or obtain evidence from a localauthority that the system was installed in accordance withlocal requirements.
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Case Binder: Specialized Program Documents
Specialized Product Eligibility Documents are to be located onthe Left Side of the case binder.
Refer to HUD Handbook 4000.1 for order of stacking.
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New Construction
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New Construction
New Construction refers to properties that are Proposed,Under Construction, or were completed within one year.
Each type of New Construction has separate/distinctguidance.
Each is covered in this section.
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Proposed Construction
Proposed Construction refers to a property where noconcrete or permanent material has been placed.
Digging of footing and placement of rebar is notconsidered permanent.
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Under Construction
Under Construction refers to the period from:
– The first placement of permanent material to 100percent completion; and
– With no Certificate of Occupancy (CO) or equivalent.
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Existing for Less than One Year
Existing for Less than One Year refers to a property that:
– Is 100 percent complete; and
– Has been completed less than one year from the date ofthe issuance of the CO or equivalent.
The property must have never been occupied.
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Inspections or Warranties for MaximumFinancing Site Built Housing or CondominiumsProposed Construction
A 10-year warranty and final inspection issued by the localauthority with jurisdiction over the property or an FHARoster Inspector.
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Inspections or Warranties for Maximum
Financing Site Built Housing or Condominiums
Under Construction
The Mortgagee must obtain:
– Copies of the building permit and CO (or equivalent); or
– A 10-year warranty and final inspection issued by thelocal authority with jurisdiction over the property or an
FHA Roster Inspector.
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Inspections or Warranties for MaximumFinancing Site Built Housing or Condominiums
Existing for Less than One Year (100% Complete)
The Mortgagee must obtain:
– Copies of the building permit and CO (or equivalent); or
– A 10-year warranty and final inspection issued by the localauthority with jurisdiction over the property or an FHA
Roster Inspector; or
– An appraisal evidencing property is 100 percent complete.
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Additional Required Documentation forMaximum Financing
All New Construction Typesand All Property Types
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Additional Required Documentation
The Mortgagee must obtain and include the following
documents in the case binder:
– Form HUD-92541, Builder’s Certification of Plans,Specifications, and Site; and
– Form HUD-92544, Warranty of Completion ofConstruction.
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Additional Required Documentation (cont.)
Evidence that the property was pre-approved or the 10-yearwarranty plan:
– Evidence of pre-approval is the Early Start Letter or copy ofbuilding permit issued by local authority prior to start ofconstruction; and
– For a 10-year warranty plan, evidence of acceptance orenrollment in the plan is required.
The application alone is not acceptable.
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Required Inspectionsfor Maximum Financing
All New Construction Typesand All Property Types
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Required Inspections
The Mortgagee must obtain and include the followingdocuments in the case binder.
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New Construction: Required Inspections
Wood Infestation Report, unless the Property is located in anarea of no-to-slight infestation as indicated on HUD’s“Termite Treatment Exception Areas” list.
Form HUD-NPMA-99-A, Subterranean Termite ProtectionBuilder’s Guarantee.
If the building is constructed with steel, masonry, or concretebuilding components with only minor interior wood trim androof sheathing, no treatment is needed.
The Mortgagee must ensure that the builder notes on theform that the construction is masonry, steel, or concrete.
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•FHA Office of Single Family Housing
New Construction: Required Inspections (cont.)
Form HUD-NPMA-99-B, New Construction SubterraneanTermite Service Record, is required when the proposedProperty is treated with a soil chemical termiticide.
The Mortgagee must reject the use of post construction soiltreatment when the termiticide is applied only around theperimeter of the foundation.
Local Health Authority well water analysis and/or septicreport, where required by the local jurisdictional authority.
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New Construction: Financing LTV Limit
Properties that are Under Construction or Existing for Less
than One Year are limited to a 90 percent LTV unless they:
– Meet the Pre-Approval requirements; or
– Are covered with a HUD-accepted insured 10-yearprotection plan; and
– Meet the Required Documentation for MaximumFinancing.
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New Construction: Financing LTV Limit
For a Mortgage with an LTV of 90 percent or less, theMortgagee must obtain:
– Form HUD-92541, Builder’s Certification of Plans,Specifications, and Site;
– Final inspection or appraisal, if the Property is 100 percentcomplete; and
– Wood Infestation Report, unless the Property is located inan area of no to slight infestation as indicated on HUD’s
“Termite Treatment Exception Areas” list.
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New Construction Financing 90% or Less (cont.)
Form HUD-NPMA-99-A, Subterranean Termite ProtectionBuilder’s Guarantee, is required for all New Construction.
If the building is constructed with steel, masonry, orconcrete building components with only minor interiorwood trim and roof sheathing, no treatment is needed.
The Mortgagee must ensure that the builder notes on theform that the construction is masonry, steel, or concrete.
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New Construction Financing 90% or Less (cont.)
Form HUD-NPMA-99-B, New Construction SubterraneanTermite Service Record, is required when the proposedProperty is treated with a soil chemical termiticide.
The Mortgagee must reject the use of post constructionsoil treatment when the termiticide is applied onlyaround the perimeter of the foundation.
Local Health Authority well water analysis and/or septicreport, where required by the local jurisdictionalauthority.
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•FHA Office of Single Family Housing
Documents to be Provided to Appraiser atAssignment
The Mortgagee must provide the appraiser with a fully-
executed Form HUD-92541.
– Signed and dated no more than 30 Days prior to the datethe appraisal was ordered.
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•FHA Office of Single Family Housing
Documents to be Provided to Appraiser atAssignment (cont.)
Stage of Completion
Properties 90 Percent
Completed or less
Documents Needed to Be Provided
Floor plans, plot plan, and any other
exhibits necessary to allow them to
determine the size and level of the
finished house.
Properties Greater than
90 Percent but Less than
100 Percent Completed
A list of components to be installed or
completed after the date of
inspection.
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•FHA Office of Single Family Housing
New Construction: Mortgagee Review ofAppraisal
New Construction, like existing construction, must meetHUD’s:
– Minimum Property Requirements (MPR); and
– Minimum Property Standards (MPS).
HUD Form 92541 requirements.
HUD Handbook 4000.1; Property and Appraisal•Requirements Section.
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Mortgagee Review of Site Considerations
Environmental
– The Mortgagee must require corrective work to mitigateany condition that arises during construction that mayaffect the:
Health and safety of the occupants;
Property’s ability to serve as collateral; and
Structural soundness of the improvements.
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Mortgagee Review of Site Considerations (cont.)
Operating Oil or Gas Wells
– If a proposed or newly constructed dwelling is locatedwithin 75 feet of an operating oil or gas well theMortgagee must:
Reject the property unless mitigation measures arecompleted.
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Mortgagee Review of Site Considerations (cont.)
Slush Pits
– If a property is Proposed Construction near an active orabandoned Slush Pit:
The appraiser must require a survey to locate the pit;and
The Mortgagee is to assess any impact on the subjectproperty.
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Mortgagee Review of Site Considerations (cont.)
Special Airport Hazards
– If a proposed or newly constructed property is locatedwithin Runway Clear Zones (also known as RunwayProtection Zones) at civil airports or within Clear Zones atmilitary airfields the Mortgagee must reject the propertyor insurance.
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Mortgagee Review of Site Considerations
Flood Hazard Areas
– The Mortgagee must reject the property if any portionof the property improvements is located within a SpecialFlood Hazard Area (SFHA) (the dwelling and relatedstructures/equipment essential to the value of theproperty and subject to flood damage) unless:
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Mortgagee Review of Site Considerations (cont.)
Flood Hazard Areas (cont.)
– The Mortgagee must include the LOMA, LOMR, or floodelevation certificate with the case when it is submitted
for endorsement.
– The Mortgagee must ensure that insurance under theNFIP is obtained when a flood elevation certificate
documents that the property remains located within an
SFHA.
– A manufactured home in a flood zone is not permittedeven with insurance.
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Mortgagee Review of Site Considerations (cont.)
Individual Water Supply Systems (Wells)
– The Mortgagee must ensure that new wells are:
Drilled;
No less than 20 feet deep; and
Cased.
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Mortgagee Review of Site Considerations (cont.)
Individual Water Supply Systems (Wells) (cont.)
– Casing should be steel or other casing material that isdurable, leak-proof, and acceptable to either the local
health authority or the trade or profession licensed todrill and repair wells in the local jurisdiction.
– A well located within the foundation walls of newconstruction is not acceptable except in arctic or sub-
arctic regions.
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Mortgagee Review of Site Considerations (cont.)
Shared Well
– A shared well is permitted only if the Mortgagee obtainsevidence that:
It is not feasible to serve the housing by an acceptable
public or community water system; and
The housing is located in an area other than in an areawhere local officials have certified that installation ofpublic or adequate community water and sewersystems are economically feasible.
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Sales Comparison Approach:Comparable Selection
For properties in new subdivisions, the selectedcomparable sales must include:
– At least one sale outside the subdivision or project; and
– At least one sale from within the subdivision or project.
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Completion of Construction
Regardless of the inspection process used, the Mortgageemust certify on Form HUD-92900-A, HUD/VA Addendum toUniform Residential Loan Application, that the property is100 percent complete and meets HUD’s MPR and MPS.
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203(k) and ConsultantRequirements
Module 9
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Introduction
• The Section 203(k) program is the agency’sprimary program for the rehabilitation andrepair of Single Family properties.
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How is the 203(k) Program Different?
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• How the Program Can Be Used
• Benefits of the 203(k)
• Basic Eligibility
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203(k) Programs for Two DifferentRenovation Project Needs
• There are two types of 203(k) rehabilitationmortgages as described below:
– Standard 203(k); and– Limited 203(k).
• The guidance per the Program and Product section isapplicable to both the Standard 203(k) and Limited203(k) mortgages, unless noted otherwise.
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203(k) Programs: The Limited 203(k)
• The Limited 203(k) (formally known as the Streamlined (k),may only be used for minor remodeling and non-structuralrepairs.
• The Limited 203(k) does not require the use of a 203(k)Consultant, but a Consultant may be used.
• The total rehabilitation cost must not exceed $35,000.There is no minimum rehabilitation cost.
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Property Eligibility
• The property must be an existing propertythat has been completed for at least one yearprior to the case number assignment date.
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Acceptable Property Types• One- to four-unit Single Family Structures
• Condominiums– Individual Condominium Unit
– Site Condominium Unit
• Manufactured Housing
• Mixed Use
• HUD Real Estate Owned (REO)
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Mixed Use 203(k) Specific Policies:
Mixed Use property with one- to four-residentialdwelling units, is acceptable provided:
• Fifty-one percent of gross building area is forresidential use; and
• Any commercial use will not affect the health andsafety of the occupants of the residential property.
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Gross Building Area: Clarified• Fifty-one percent of gross building area is for
residential use.
• Gross Building Area (GBA) is the entire floor space ofthe building, as opposed to Gross Living Area. Thisincludes unfinished and finished non-living areas, suchas unfinished mechanical areas, laundry areas,entryways, stairs, unfinished storage, etc.
• This also includes any commercial space within thebuilding.
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Acceptable Property Types: HUD RealEstate Owned (REO)
• The property is identified as eligible for 203(k)financing as evidenced in the sales contract oraddendum.
• HUD REOs that are listed as uninsurable can only be anFHA loan as a 203(k).
• Good Neighbor Next Door and $100 Down Programscan be used with 203(k).
• Investor purchases of HUD REO properties are noteligible for 203(k) financing.
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Sample HUD REO Sales Contract
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Standard 203(k)• A Standard 203(k) has the following general requirements:
– A minimum of $5,000 in eligible improvements are required toqualify for the product.
– Fees and costs related to the renovation can be rolled into the loanamount.
– Standard FHA credit and cash investment requirements apply.
– Standard FHA property guidelines apply, unless otherwise stated in203(k) policies.
– A 203(k) HUD-approved Consultant is required.
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The Origination Process of a Standard 203(K)• Borrower selects a property;
• Borrower selects a FHA approved lender;
• Mortgagee takes loan application;
• Mortgagee selects 203(K) Consultant;
• Consultant visits property with Borrower;
• Consultant prepares “Work Write-up”;
• Borrower hires Contractor;
• Work write-up and bids are provided to the Mortgagee;
• Mortgagee processes, underwrites, closes, and funds the transaction;
• FHA insures the loan; and
• Improvement process to the property begins.
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Repair/Improvements Begin• Contractor completes first phase of the project.
• Borrower contacts the 203(k) Consultant who inspects work completedat this point by the contractor for a draw request to be completed forrelease of funds.
• The Consultant and Borrower sign the draw request.
• Draw Request is submitted to the Mortgagee.
• Mortgagee disburses a check made payable to Borrower and Contractor.
• This process continues until the work is completed.
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Project Completion• Final draw is requested.
• Borrower provides release letter indicating work iscompleted.
• Consultant verifies completion.
• Remaining Rehabilitation Escrow Account funds are released.
• Note: The project should be completed within 6 months
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Eligible ImprovementsTypes of eligible improvements include, but are notlimited to:• –Reconstructing a Structure that has been, or will
be demolished, provided the complete existingfoundation system is not affected and will still beused;
• –Repairing, reconstructing, or elevating anexisting foundation where the Structure will notbe demolished;
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Eligible Improvements (cont.)• Installing or repairing wells and/or septic systems;
Note: Lot size requirements removed.
• Repairing or removing an in-ground swimming pool;
Note: $1,500 limitation removed.
• Constructing a windstorm shelter.
Note: $5,000 limitation removed.
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Improvement Standards
• All improvements to existing Structures must comply withHUD’s MPR.
• All new construction must comply with HUD’s MPS.• For a newly constructed addition to the existing Structure,
the energy improvements must meet or exceed local codesand the requirements of the 2006 International EnergyConservation Code (IECC) or a successor energy codestandard that has been adopted by HUD for its MPS.
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Mortgagee Responsibility inConsultant Selection
• The Mortgagee must select an FHA-approved203(k) Consultant from the FHA 203(k)Consultant Roster in FHA Connect (FHAC).
• The Mortgagee must not use the services of aConsultant that has demonstrated previous poorperformance based on reviews performed by theMortgagee.
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203(k) Consultant Fee Schedule: WorkWrite-Up
$25 per additional Dwelling UnitMileage Fee at the current IRS mileage rate when the consultant’s place of businessis more than 15 miles from the property.
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The Work Write-UpThe Work Write-Up must:• Be prepared in a categorical manner that addresses each of the 35 point
checklist items;• Detail the work being performed per the project proposal, including
architectural exhibits and certifications;• Identify each Work Item;• Identify each Work item to be performed by the Borrower;• Indicate which Work Items require permits;• Indicate if the Work Item is required to meet a MPS or MPR, or is a
Borrower elective Work Item; and• Address all health and safety concerns and any appraiser requirements
first before the addition of any Borrower elective Work Items.
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Borrowers Doing Own Work (Self-Help)
• The Mortgagee must:– Ensure all permits are obtained prior to
commencement of work;
• The Borrower must not be reimbursed for laborcosts.
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Borrowers Doing Own Work (Self-Help)Cost Estimates
• The Mortgagee must:
– Include the costs for labor and materials for eachWork Item to be completed by the Borrowerunder a Rehabilitation (Self-Help) LoanAgreement.
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Standard 203(k) Financeable Repairand Improvement Costs and Fees
• The following repair and improvement costs and fees may befinanced:
–Costs of construction, repairs, and rehabilitation;–Architectural/engineering professional fees;–The 203(k) Consultant fee (limited to the 203(k) Consultant
Fee Schedule - 9. Section 203(k) Consultant);–Inspection fees performed during the construction period,
provided the fees are reasonable and customary for the area;–Title update fees; and–Permits.
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Review of Contractor Qualifications
• Prior to closing, the Mortgagee must ensure thata qualified general or specialized contractor hasbeen hired and by contract has:
– Agreed to complete the work described inthe Work Write-Up for the amount of theCost Estimate; and
– Within the allotted time frame
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Appraisal Reports• An appraisal by an FHA-approved roster appraiser is
always required to establish the after-improved valueof the property.
• Except in cases of Property Flipping and refinancetransactions, the Mortgagee is not required to obtainan as-is appraisal and may use alternate methods perthe 203(k) policies to establish the Adjusted As-IsValue.
• If an as-is appraisal is obtained, the Mortgagee mustuse it in establishing the Adjusted As-Is Value.
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203(k) Resource Documents
• 203(k) Resource Documents :
http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/sample_documents
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Conditional Commitment (Form HUD-92800.5b)Direct Endorsement Statement of Appraised
Value
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Repairs Noted by the Appraiser
• When an appraisal report identifies the need forhealth and safety repairs that were not includedin the Consultant’s Work Write-Up, Borrower’swork plan, or contractor’s proposal, theMortgagee must ensure the repairs are includedin the Consultant’s Final Work Write-Up or theBorrower’s final work plan.
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Limited 203(k)• The Limited 203(k), as stated earlier, may only be
used for minor remodeling and non-structuralrepairs.
• The Limited 203(k) does not require the use of a203(k) Consultant. However, the Borrower canelect to hire a Consultant but the fee cannot befinanced.
• The total rehabilitation cost must not exceed$35,000
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Rehabilitation Period
• Work Commencement Requirement
• Standard: Consultant Responsibility –Stoppages or Deviations from the Work Write-Up
• Project Management
• Extension Requests
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Release of Funds for Structure beingElevated or Moved: Standard 203(k)
• For an existing Structure moved to a new foundationor a Structure that will be elevated, the Mortgageemust not release loan proceeds for the existingStructure on the non-mortgaged property until:
• –The new foundation has been properly inspectedand the Structure has been properly placed andsecured to the new foundation.
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Maximum Number of Draws
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Discoveries During Rehabilitation
• Health and Safety Items
• Change Order Request: Standard 203(k)
• Change Order Request: Limited 203(k)
• Contingency Reserve Funds WhenRehabilitation is Not Complete
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Helpful Links
FAQ Site:http://portal.hud.gov/hudportal/HUD?src=/FHAFAQ
Single Family Lender’s page:www.hud.gov/lenders