Eem 203 K Hq

Energy Efficient Mortgages 203K & Streamline 203K

Energy Efficient Mortgages 203K & Streamline 203K

TOPICS of DISCUSSION

• Energy Efficient Mortgage (EEM)• 203k Standard• 203k Streamline• 203k Underwriting

Energy Efficient Mortgage (EEM)

Energy Efficient Mortgage BenefitsAn energy-efficient home is more affordable due to

the reduced operating costs. Cost-effective energy improvements result in― lower utility bills, ―conserve energy and, thus, ―make more income available for the mortgage

payment.

Energy Efficient Mortgage (EEM)

Energy Rating

A Home Energy Rating System (HERS) summary is required to determine the cost benefit of the energy items– Contact a HERS rating official to obtain a

rating report

Energy Efficient Mortgage (EEM)

Energy Efficient Mortgage Challenges

Access to a HERS or RESNET Energy Rating Services can be problematic as some states have very few raters. 

Delays in providing an energy audit on a residential property - urban & suburban areas. Rural areas will take longer due to a lack of raters in the area.

Training of certified raters & certified retrofit contractors (approximately $1200 for a one day course)

Energy Efficient Mortgage (EEM)

Energy Rating

• The home energy rating– is a standard measurement of the home's energy efficiency– involves an on-site inspection by a home energy rater – is determined by insulation levels, window efficiency, wall-

to-window ratios, the heating and cooling system efficiency, and the solar orientation of the home

Energy Efficient Mortgage (EEM)

TOP TEN EEM STATES Volume as of May 2009CA 150

IL 129

NJ 82

FL 73

VA 64

PA 59

TX 58

WA 37

IN 35

MD 35

Energy Efficient Mortgage (EEM)

Underwriting Standard underwriting procedures apply

• 3.5 percent down payment (max 96.5% loan-to-value for a refinance)

• Closing costs are not included in the 3.5% down payment

• Financeable upfront mortgage insurance premium• 1-4 unit, existing and new construction properties

are eligible 

Energy Efficient Mortgage (EEM)

Maximum Loan Amount

The maximum amount for the portion of the EEM for energy improvements is the lesser of 5% of:– The value of the property, or – 115% of the median area price of a single family

dwelling, or – 150% of the conforming Freddie Mac limit

Energy Efficient Mortgage (EEM)

Example

– $380,000 (value) x 5% = 19,000 – 488,750 (max loan limit for Stockton county for 1-

unit) x 5% =24,437– 417,000 (Freddie Mac cap) x150% = 625,500 x

5% = 31,275

Energy Efficient Mortgage (EEM)

The FHA maximum loan limit for the area may be exceeded by the cost of the energy efficient improvements.

Maximum loan limit for a 1-unit property in Stockton, CA is $488,750

Energy Efficient Mortgage (EEM)

EEM & 203k Combination

The EEM may be used in conjunction with the FHA’s Rehabilitation “203(k) and Streamline K” loan programs

203(k) – Rehabilitation Loan Program

What is a 203k?

• One loan to finance both acquisition & rehabilitation of a property (or refinance and rehabilitation)

203(k) – Rehabilitation Loan Program

Purpose of the 203k• Restore and preserve the nation’s housing

stock• Expand homeownership opportunities• Help community revitalization

203(k) – Rehabilitation Loan Program

Loan Amount

• The loan amount is based on projected value after the work is completed

203(k) – Rehabilitation Loan Program

FHA has two types of rehabilitation loans

1. Standard 203k Rehabiliation – includes more complex repairs (i.e.structural) and requires a minimum of $5,000 in repairs

2. Streamline 203k Rehabilitation – covers uncomplicated repairs up to $35,000 with no minimum dollar threshold– no structural repairs allowed

203(k) – Standard Rehabilitation Loan Program

Eligibility Property must be at least one year old1-4 unitsCondos (interior only)Manufactured HomesNew construction on part of the original

foundation

203(k) – Standard Rehabilitation Loan Program

• Eligible Properties Continued–Existing house moved to a new foundation–Mixed use residential properties (rehab

residential portion only)• 25% commercial – 1 story• 49% commercial – 2 story• 33% commercial – 3 story

203(k) – Standard Rehabilitation Loan Program

Improvements

• Minimum $5,000 rehab costs– Must increase the marketability and value of the

property (“must have” repairs not “wish list” repairs)• Repairs & Improvements must comply with HUD HB

4910.1 – Meet local building & zoning codes– Corrections of code violations– Energy improvements

203(k) – Standard Rehabilitation Loan Program

Continued…

structural alterations and reconstruction

modernization and improvements to the home's function

elimination of health and safety hazards

changes that improve appearance and eliminate obsolescence

203(k) – Standard Rehabilitation Loan Program

Continued…

reconditioning or replacing plumbing; installing a well and/or septic system

adding or replacing roofing, gutters, and downspouts

adding or replacing floors and/or floor treatments

major landscape work and site improvements

enhancing accessibility for a disabled person

making energy conservation improvements

203(k) – Standard Rehabilitation Loan Program

Ineligible Improvements

–Luxury items are not eligible• Swimming pools, saunas, barbecue pits,

satellite dishes, etc.)

203(k) – Standard Rehabilitation Loan Program

Preliminary Feasibility Analysis

• Purpose –Prevent wasted time & finances–$100 financeable fee–Optional

203(k) – Standard Rehabilitation Loan Program

Participants & Responsibilities• Borrower• Lender• 203k Consultant• Contractor• Real Estate Appraiser

• Best practice: borrower, consultant & appraiser all meet at the property to discuss repairs

203(k) – Standard Rehabilitation Loan Program

203k Consultant• HUD Approved

–3 years experience as general contractor, remodeling contractor, or home inspector

–State licensed architect or engineer–On FHA 203k Consultant Roster–Selected by lender (ML 00-25)

203(k) – Standard Rehabilitation Loan Program

Consultant Responsibilities

• Complete a home inspection• Obtain & review Architectural Exhibits• Prepare Write Up & Cost Estimate• Provide line item unit-cost breakdown• Duties listed in ML 95-40

203(k) – Standard Rehabilitation Loan Program

Consultant• Can’t be the contractor or appraiser, but can be the

energy rater• Work write up clearly indicate the required items vs.

“wish list” items – If using EEM, the work write-up must include

Energy Package

203(k) – Standard Rehabilitation Loan Program

Work Write Up• Specifications of Repairs Form

– 35 categories (HUD HB 4240.4 Rev-2, Appendix 1) – Detail work to be completed– Break down labor & materials– All health & safety issues must be addressed first (and part

of the first $5,000 minimum threshold) • Consultant & Buyer agreement signed by both parties

– (ML 95-40)

203(k) – Standard Rehabilitation Loan Program

Forms & Exhibits • Property report (existing)• Termite/Well/Septic Report(s)• EEM Rating or Analysis• Proposed Plot Plan (new additions)• Proposed Floor Plan (wall changes) • Other reports as necessary• Work write up – description of work • Cost estimates - detailed

203(k) – Standard Rehabilitation Loan Program

Contractor Selection• Lender must ensure

– acceptable contractor is hired• Contractor credentials, • work experience, • licensing information/bonding or insuring, • type of work performed and client references

– execution of Homeowner/Contractor Agreement• ML 00-25, 98-11, 94-11

203(k) – Standard Rehabilitation Loan Program

Who Does the Work?

• Experienced general or specialized contractor• No self-help

203(k) – Standard Rehabilitation Loan Program

Appraiser Responsibilities• Appraisal made “subject to completion per

plans & specifications”• Appraisal must contain copy of plans, specs,

work write up and other conditions upon which value is based –4150.2 & HOC Reference Guide

203(k) – Standard Rehabilitation Loan Program

• 203k mortgage must be based on the lowest sales price in the last year–ML 00-25

203(k) – Standard Rehabilitation Loan Program

• Release of Funds • Consultant performs inspection on behalf of

lender • Maximum 4 draws plus final draw • 10% holdback on every intermediate draw• Funds cannot be released for incomplete work

203(k) – Streamline Loan Program

203(k) – Streamline Loan ProgramAcquisition and up to $35,000

The Streamlined (k) program is intended to facilitate uncomplicated rehabilitation and/or improvements to a home.

The Streamlined (k) program includes the discretionary improvements and/or repairs shown below:

 Repair/Replacement of roofs, gutters and downspouts Repair/Replacement/upgrade of existing HVAC systems Repair/Replacement/upgrade of plumbing and electrical

systemsRepair/Replacement of flooring

36

203(K) Streamline Continued

Minor remodeling, such as kitchens, which does not involve structural repairs

Painting, both exterior and interior Weatherization, including storm windows and doors,

insulation, weather stripping, etc.Purchase and installation of appliances, including free-

standing ranges, refrigerators, washers/dryers, dishwashers and microwave ovens.

Accessibility improvements for persons with disabilities

203(k) – Streamline Continued

Lead-based paint stabilization or abatement of lead- based paint hazards

Repair/replace/add exterior decks, patios, porches Basement finishing and remodeling, which does not

involve structural repairs Basement waterproofing Window and door replacements and exterior wall re-

siding Septic system and/or well repair or replacement

203(k) – Streamline Continued

• Ineligible Work Items • Major Rehab• New Construction (including room

additions)• Repair of structural damage• Repairs requiring detailed architectural

exhibits, drawings, etc.

203(k) – Streamline Continued

Ineligible Work Continued…• Landscaping or similar site improvements• Repairs requiring a work schedule longer than

6 months• Repairs arising form the appraisal not on the

list of eligible work items• Repairs causing borrower to be displaced more

than 30 days

203(k) – Streamline Continued

Required Exhibits for Eligible Work

• Pre-purchase home inspection (if performed)• Borrower’s planned repairs• Appraisal report indicating list of proposed

repairs and costs

203(k) – Streamline Continued

Who Does the Work

• Specialized Contractor/Contractors• Self-help

203(k) – Streamline Continued

Underwriting

• Considerations–Supplemental Origination Fee–Customary Charges

203(k) – Streamline Continued

203k Worksheet (HUD92700)• Mortgage Amount

–Maximum – statutory limit for the area or 110% of “after-improved” value

• Case Number• ADP Code• Repair Escrow Amount • 203k Consultant ID Field

203(k) – Streamline Continued

Documentation • Drawings & Specifications• Rehabilitation Cost Estimate• Contractor’s Cost Estimate(s)• Homeowner/Consultant Agreement(s)• 203k Loan Agreement• 203k Rider• Borrower Acknowledgement

203(k) – Streamline Continued

Process Overview • Borrower’s application • Consultant• Order Case Number• Order Appraisal• Processor Responsibilities• Property & Credit Package

203(k) – Streamline Continued

Process Overview • Direct endorsement underwriter’s

responsibilities• Conditions• Loan Closes• Repair Escrow Account • Repairs/Inspections/Draws

203(k) – Streamline Continued

Completion & Payments • Number of payments• First Payment• Permit Fees• Final Payment• Payment Schedule• Issuance of Payments• Lender’s Compensation• Inspections• Final Release

INFORMATION SOURCE: WWW.HUD.GOV, ML 2005-21, ML 2009-18

Roxanne Campanella, Account Liaison

Federal Housing Administration

Sacramento, CA

Questions