8/8/2019 Purchase Rehab
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T h e R e a l e s T a T e , B a n k i n g a n d C o m m e R C i
a l W e e k l y f o R m a s s a C h u s e T T
Reprinted with permission of Banker & Tradesman. This
document may constitute advertising under the rules of the Supreme
Judicial Court of Massach
A PUBLICATION OF THE WARREN GROUP
Established 1872 www.BankerandTradesman.c
By Ian B. Murphy
Banker & Tradesman sTaff WriTer
The foreclosure crisis has
started to let the cat out of
the bag on the best kept
secret in real estate: the Fed-
eral Housing Administrations
(FHA) 203k rehabilitation loan.
The 203k program allows
homebuyers to take out a mort-
gage for more than the value of
the home for necessary repairs,
as determined by a consultant
or contractor giving them in-
stant equity.
With a glut of distressed and
abandoned properties on the
market that need some dressing
up, the 203k program has seen
more loans endorsed nationally
in this fiscal year compared to
all of fiscal 2008, according the
federal Office of Housing and
Urban Development (HUD).
According to Jane King, vice
president of the renovation lend-
ing division of Freedom Mort-
gage in New York, the Northeast
has generated most of those
loans because the housing stock
is somewhat older and needs a
lot of work.
Even with the uptick in 203kendorsements, some of the pro-
grams biggest proponents cant
believe more people dont use
the product more.
It should be the number-one
loan product out there, said
Phillip Murphy of A.M. Consult-
ing in Malden, who has been
doing HUD consultations and
appraisals for 15 years. I cant
figure out why its not, to be
honest. I dont know if its to-
tally embraced by all the parties
involved.
The 203k program itself is
nothing new. Around since the
early 90s, the program saw
great success in its infancy. But
in October 1996 the FHA put a
still-standing moratorium on in-
vestors using the product, limit-
ing it to only owner-occupied
buildings of four units or fewer.
Combined with rising home
values and static FHA loan lim-
its, the program slowly fell out
of favor, and was all but forgot-
ten during the building boom
earlier this decade. The FHA
requires a fair amount of docu-mentation for the program,
and
during the gun-slinging times of
no-doc, no-verification loans,
mortgage brokers didnt bother.
Loan officers were doing re-
finances, and they were getting
paid quick, King said. They
didnt want to do something that
would take them longer, even
though it could be quite a bit
bigger.
Youd be surprised how
[few] real estate agents are even
familiar with the 203k program,
said Mark Alvarez of whole-
sale lender M&T Bank in Scitu-
ate. Its a great opportunity for
mortgage brokers to help their
Realtor clients sell properties.
nitt GittThere are two sets of loans in
the 203k program. One is more
involved, and requires a mini-
mum of $5,000 and up to the
maximum of the FHA loan limit,
and HUD consultants to review
the scope of the work planned
on the property after an ap-
praisal. The loan can be used forstructural work, or bigger
and
more expensive projects.
The more commonly used
product is the 203k streamlined
loan, which has a $35,000 loan
limit for cosmetic work. Instead
of requiring a HUD consultants
appraisal, the loan can be initi-
ated by contractor work esti-
mates.
The borrower then puts down
the traditional FHA 3.5 perce
minimum payment on the to
loan. The rehab funds are p
into an escrow account to
doled out to contractors for t
work, and an appraiser does
final review of the home to ma
sure the work is done satisfac
rily before freeing the money.
Interest rates are sligh
higher on the FHA loans co
pared to market rate.
Edctio Is KeMurphy said hes shocked th
more Realtors arent using t
program to pre-qualify ho
with estimates, and then bri
ing the packages to buyers.
They can move their produ
out a lot quicker when they
marketing this as a renovatio
Murphy said. Everybody w
in that game. But I dont thi
that its been totally embrac
These houses should be gett
scooped up and renovated, an
see some resistance in that.
Alvarez said the pro
does take longer than a tra
tional loan, but that shouldnt
enough to turn off Realtors.
They touch the file a fmore times than the regu
FHA process, he said. T
key is really setting the expec
tions with the Realtors and t
borrowers with the turnarou
time. Quite frankly, its just
matter of training the loan o
cers on the program.
E-mail:
[email protected]
Are Mortgage Brokers, Realtors Missing A Perfect Product?Loaner
arrangers
FHAs 203k Rehab Loans Picking Up Steam
: -
203(k) Endorsement History4/1/2009
0
4000
8000
12000
16000
20000
Loans 3115 3728 8448 17433 18825 14253 13020 10627 8668 7376
5028 4602 2952 2924 3391 6763 7202
FY
1993
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2000
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203k Endorsement History20000
16000
12000
8000
4000
0
