Transcript Distressed Property Solutions A reconstructive approach to
Distressed Property Solutions
A reconstructive approach to financing homes
Distressed Property Solutions
John D. Adams, Jr.
NEFAR Instructor NMLS#442266 (904) 294-7311
1 © John David Adams, Jr.
– www.FL203k.com
– (904) 294-7311
Distressed Property Solutions
A reconstructive approach to financing homes Why are you here today? What do you hope to accomplish with this education?
Take a few minutes and write down the reasons you came to hear about Distressed Property Solutions 2 ______________________________________ ______________________________________ ______________________________________ ______________________________________ ______________________________________ © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes • • • • • • • • •
First Hour
Introductions Learning objectives Market overview Product need Consumers Perceptions Common Misconceptions Mortgage solutions Product application 3 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes
Second Hour
Non renovation solution: • Homepath Renovation Solutions • Homepath Renovation • Fannie Mae Homestyle • FHA 203k Streamline • FHA 203k Standard • Examples
203 what?
4 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes • • • • • • • • •
Third hour
The renovation process Needed inspections Hud Consultant Contractor validation Contractor bids Appraisals Renovation forms Draw process How to market Distressed Properties 5 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes 6 Learning Objectives • Identify distressed property • Identify consumer needs • Gain knowledge of specific programs to help consumers purchase distressed real estate • Outline the process for renovation • Know the “ins and outs” of the process • Strategies to help market your listings • Know all inspections and required documents • Understand timeframes • How to avoid common pitfalls © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes • • • • • • • • • Lending Requirements are More Stringent Equity Lending is Sparse Availability of Credit Cards – Not as Accessible Sellers unwilling to commit funds for Repairs Short-sales Overwhelming percentage of “As-Is” Listings No repairs prior to Closing More demanding buyers foreclosures 7 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes • • • • FNMA and FHLMC: -/+300% increase in Foreclosure 2008 - 2010 Origination of 203k – now seeing conventional type renovation financing Roughly half of existing buyer pool is government loan based Roughly 52% of home sales today are First Time Home Buyers 8 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes • • • Investors setting prices on distressed property 80% of US homes 20 years or older Ability to purchase and renovate homes to better standards 9 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes • • • • Could You Help More Consumers if: …you had a solution that allowed you to offer FHA and or conventional financing on virtually any property regardless of condition?
…you could cure property conditions after you closed on the property and/or make the home exactly the way the customer envisions it?
…the solution was simple for your customers to understand and to execute?
…the solution allowed you to close on a property in 45 days from execution of the contract?
10 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes Consumers • Consumers don’t know about habitability rules • Most do not know that solutions exist • Many want to buy distressed property but don’t know where to start • Most want the ability to turn a home into what they envision and in the area they want to live “Dream Home” 11 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes Consumers •Tax advantages •Create DREAM Home •build immediate EQUITY after renovation •Take advantage of ‘as-is’ market •Can finance up to 6 mtg. payments •Instant improvement to quality of life •No minimum work – appliances to pools from foundation to fabulous 12 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes • • • • • • • • Perception of Real Estate Agents Home in need of repair cannot go FHA The loan is too expensive Takes too long Too complicated Never closes Tried one before and it was a nightmare Loan officers are not competent to do this loan Loan is for blighted properties or structural damaged properties only 13 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes Truths in renovation lending • Renovation solutions are one loan • There is no “floating rate” • Repairs are done after closing • There is only one closing • There is only one appraisal • You only need one bid • No contractor list 14 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes Renovation Lending Solutions (Federal Nation Mortgage Association) FNMA • FNMA Homepath • FNMA Homepath Renovation • FNMA Homestyle Renovation FHA ( Federal Housing Authority) 203k • Streamline • Standard 15 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes FNMA Homepath Loans: Homes eligible for Homepath are exclusively FNMA foreclosures they can be found in MLS and posted by FNMA at www.homepath.com 16 © John David Adams, Jr.
www.FL203k.com
(904) 294-7311
Distressed Property Solutions
A reconstructive approach to financing homes FNMA Homepath Loans • No Appraisal – can be purchased “as-is” • No monthly mortgage insurance premiums • No Upfront mortgage insurance premium • Less costly than FHA • Up to $417,000 loan amounts • All Occupancy types okay • As little as 5% down on owner occupied financing • As Little as 10% down on investor • Specific to FNMA Owned REO • Streamline approval for condo certifications 17 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes Repairs with Homepath Renovation and 203k • • • • • • • • • Roofs, gutters and downspouts HVAC systems Exterior wall re-siding Window and door replacements Painting both interior and exterior Wood Rot Plumbing and electrical systems Tile, carpet and flooring Minor remodeling (such as kitchens or baths) 18 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes Repairs with Homepath Renovation and 203k • • • • Appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers, microwave ovens Weatherization: such as storm windows, doors, & insulation Exterior decks, patios, porches Improvements for handicap accessibility 19 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes FNMA Homepath Renovation Loans • Up to $35,000 allowed for renovations • No monthly mortgage insurance premiums • No Upfront mortgage insurance premium • Less costly than FHA • Up to $417,000 loan amounts • All Occupancy types Okay • As little as 5% down on owner occupied financing • As Little as 15% down on investor • Specific to FNMA Owned REO • Streamline approval for condo certifications 20 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes 21 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes • • • • • • • • Larger scale Construction Raze home and rebuild on existing foundation Build out buildings or put in a pool Add a Bedroom, Bonus room, Bathroom or Garage Move a home to a new lot Completely gut existing structure and reframe Convert a building to single or multi-family Convert a building to mixed-use space where allowed Finish a home that may have incomplete construction 22 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes • • • • • • • • • • Conventional FNMA Homestyle Less Costs than FHA No limit on repairs Can include luxury ticket items contingency reserve required Loan amounts up to $417,000 Any home is eligible For investors, Second-home, and Primary residence Feasibility study not required under $15,000 Increase size and footprint of home Complete a home without prior C/O 23 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes FHA Streamline 203k • Program will allow for up to $35,000 in repairs • No minimum amount for repairs • Allowed up to 110% of after improved value • No minimum limit for repairs • Primary occupants only 3.5% down payment • No structural damaged property • No luxury items • Up to 4 unit multi-family mixed use properties allowed 24 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes Standard 203K (Full K ) • No limit on repairs (minimum of $5,000 in repairs) • Move or raze a home • HUD Consultant Write-Up required • Structural repairs okay • Contingency reserve required • No luxury items • Lend up to 110% of after complete value • Increase size and footprint of home 25 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes • • • • Standard 203K (Full K ) - continued Primary occupants only 3.5% down payment Up to 4 unit multi-family mixed use properties allowed Up to 6 months to complete renovations Borrower can finance up to 6 months of mortgage payments 26 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes 27 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes
Conventional ( summary)
• Loan Amount - up to county loan limit of $417,000 • Primary residence, 2nd Homes, Investment properties • Property – SFR, 1-4 units, condos, etc.
• Credit – 620 or automated approval • Up to 95% LTV 28 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes
FHA 203K ( summary )
•Loan Amount - up to county loan limit •NO minimum repairs (Streamline) •NO Maximum dollar ammount on repair (Consultant K) •Primary residence only •Credit – 620 and up •Property – SFR, 1-4 units, mixed-use, mobile homes, etc. •HUD 100 dollar down 29 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes Primary Occupancy Program Purchase price Rehab amount financed amount Cash required* Traditional Conv. $ 100,000 $ 30,000 $ 95,000 $ 35,000 Homepath $ 100,000 $ 30,000 $ 95,000 $ 35,000 Homepath Reno $ 100,000 $ 30,000 $ 123,500 $ 6,500 Homestyle Reno $ 100,000 $ 30,000 $ 123,500 $ 6,500 Investor Occupancy Program Traditional Conv. Purchase price Rehab amount financed amount $ 100,000 $ 30,000 $ 75,000 Cash required* $ 55,000 Homepath $ 100,000 $ 30,000 $ 90,000 $ 40,000 Homepath Reno $ 100,000 $ 30,000 $ 110,500 $ 19,500 Homestyle Reno $ 100,000 $ 30,000 $ 104,000 $ 26,000 *Cash necessary for cost of repairs as illustrated with down payment. Closing costs and prepaid expenses are not reflected in these estimates
Distressed Property Solutions
A reconstructive approach to financing homes Primary Occupancy Program Purchase price Rehab amount financed amount Cash required* Traditional FHA $ 100,000 $ 30,000 $ 96,500 $ 33,500 FHA 203k streamline $ 100,000 $ 30,000 $ 125,450 $ 4,550 FHA 203k Standard $ 100,000 $ 50,000 $ 144,750 $ 5,250 *Cash necessary for cost of repairs as illustrated with down payment. Closing costs and prepaid expenses are not reflected in these estimates HUD 100 dollar down payment program available 31 [email protected]
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Distressed Property Solutions
A reconstructive approach to financing homes • • • • • • • Prequalify your buyers and property Identifying a renovation project Customer looking to buy exclusively short sales or bank real estate owned property Any home could use a renovation solution Homes being sold “as-is” Sometimes offered as “cash only” Bank REO or listings where repairs are not negotiable Short sales where seller cannot afford to make the repairs 32 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes • • • • Contract Add contingency for renovation financing Select Conventional or FHA “AS-IS” Allow 45 days for closing Example 33 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes Property Condition Solution • Obtain inspections • Make sure utilities are on • Get home inspections • Get HUD Consultant Write-Up if needed • Obtain Estimates • Make sure the renovations make sense • Run comparable for price • Finalize bid • Order appraisal/Consultant SOR Report 34 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes Consultant Process (203k Consultant K) • When you will need a HUD Write-Up • What is the consultant write up and SOR • Consultant meets with borrower and contractor at property to discuss FHA required repairs • Consultant will complete the Work Write Up • Will Perform Draw Inspections after closing • How much it costs – is financed into the loan 35 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes • • Feasibility study on Homestyle What is the Feasibility study How much it will typically cost 36 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes Contractor Validation •Provided applicable licenses and insurance •Provide references •May involve credit check •Home Owner Contractor Agreement •Contractor Notice 37 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes Contractor Bids – Bad Bid 38 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes Contractor Bids – Good Bid 39 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes • • • • • Contractor Selection Licensed and insured? Experience with this type of transaction?
Timeline on start / completing this project? Are you familiar with the draw process on these type of loans and are you comfortable with submitting the permits/paperwork to the lender to get yourself paid?
Make sure your contractor can afford to take your project 40 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes • • • • • Appraiser will not detriment property for defects that have been addressed in the work bid such as: WDO Unfinished construction Health Hazard or Safety Issues Septic, Well or Structural issues Inability to get the utilities on or working properly 41 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes • • • Time for closing Once the customer is satisfied with the bid the appraisal is ordered with the scope of work provided by the contractor for a “Subject To” valuation Once the appraisal order is received, it is reviewed for any additional work required by the appraiser. If necessary, the contractors scope of work will be modified to include the additional repairs The Loan Closes and Renovation Begins 42 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes • • • • • Important customer points with lenders: How does the draw process work?
Who will service my loan once the loan is closed?
How fast are the funds available after closing?
Can I get money for my contractor for materials up front in the process?
How comfortable are you with this process?
43 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes Other important renovation documents • Maximum Mortgage Worksheets • 203k Acknowledgement • Contractor Validation • Summary Notices 44 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes Draw Process FHA 203k Streamline K and Homepath renovation • 35% of contractor’s bid funded 5-7 days after closing • balance released when work completed, after final inspection & title update 45 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes Draw Process FHA 203k Consultant K and FNMA Homestyle • Funds released per Consultant’s line item breakdown and completion • Up to 5 draws • • 10% holdback on each draw Holdback released after final inspection & title update 46 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes • • • • • • • • Renovation Key Points Allow 45 days for closing Make sure utilities are on at time of inspection Get all inspections done early Septic, Well, WDO, Mold , Roof, Etc..
If you don’t know - Consult Add contingency for renovation financing Select contractor or National Home Improvement Vendor Finalize a quote you like - Nail down the details 47 © John David Adams, Jr.
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Distressed Property Solutions
A reconstructive approach to financing homes 48 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes • • • • • Interested in increasing you client base and referral network? Turn every house into the customers dream home Increase customer satisfaction Provide options for consumers to purchase homes that otherwise wouldn’t be eligible for financing Include purchase price plus repairs in one loan, one closing, one payment 49 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes • • • • • How to Market Distressed properties Add “renovation financing available on this property” in MLS Pre-bid minimal work for FHA compliancy and upload in MLS Change from cash only to accept FHA, Conventional, and now there is a 203k financing option in MLS Be informed of lending options Add marketing for renovation financing 50 © John David Adams, Jr.
– www.FL203k.com
Distressed Property Solutions
A reconstructive approach to financing homes FLYERS/PROPERTY TENTS – Highlight how the Special Financing program can work to a homebuyer’s advantage.
Place in homes for sale; attach to your listing flyers and attach to MLS document set YARD SIGNS – “Special Financing” yard signs may help increase traffic and calls on listings.
MLS INFO – Advertise with your listings: “Customize this
home with Special Financing. Contact Your Renovation Specialist for more information about renovation loans”
WORD of MOUTH – Nothing is more powerful than telling your buyers, sellers & colleagues the opportunity Renovation / Special Financing presents.
51 © John David Adams, Jr.
– www.FL203k.com
Thank you for your time today.
John Adams NMLS # 442266 (904) 294-7311 www.johnadamsloans.com
[email protected]
52 © John David Adams, Jr.
– www.FL203k.com