Written By: Bonnie Wilt-Hild
The 203k is a great program for any individual who wants to buy a handy man special or property being sold at foreclosure and fix it up, or a current homeowner who would like to complete some updates to their existing home however many lenders are still unwilling to offer the program.
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I am not sure if it is an overall lack of understanding where the program is concerned or the underwriting piece but in a market where originations are slim at best, I would say any new program offering that will generate new business can’t be overlooked. So as an underwriter, industry educator and well a few other things I’m not sure are appropriate for print, I thought I would share with everyone the most efficient way to originate this program and provide a checklist/cheat sheet of sorts for the underwriters to make it a little easier.
First, it is important that the originator make the borrower aware that they need to plan the rehabilitation piece and complete a feasibility study before they incur personal expenses such as employing an architect to complete plans for an addition or similar improvement. The first step is to determine if the fair market values of properties in the immediate market area are sufficient to support the renovations being made to the property because analyzing the as is value of the property is something that the lender will do in addition to making sure the after improved value of the property supports the loan amount being requested.
Next, make sure the borrower employs a contractor that is licensed to provide an estimate for the work you would like to completed as well as completes a comprehensive work write including the quality and type of material being used as well as specific information pertaining to the renovation. This is particularly important on the streamline 203k’s as the contractors estimate will be used to determine the loan amount. If the case is being completed as a standard 203k, then the use of a 203k consultant is required.
Once it has been determined that the after improved value will support the desired renovations, then I would say it’s safe to complete origination and by this I mean, having the borrower complete the application, provide standard credit documentation such as paystubs and W-2’s and of course, execute all federal and state applicable disclosures as well as the 203k required disclosure.
Originators, remember to disclose the 203k charges such as the supplemental origination fee, title update fees, inspections fees and the like on the GFE. Once the application process is complete and the contractors estimate or 203k consultant’s work write up as well as any supporting documentation is in hand, along with the property appraisal, the case can move into underwriting.
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For those of you underwriters out there that find you are somewhat timid with the rehabilitation piece, below is a checklist of some of things you want to look for when completing underwriting on the renovation piece. Credit, no problem, it underwrites like a 203b so LDP, GSA, CAIVRS all still required. Keep in mind all that the checklist below is exactly that, an abbreviated matrix to assist you whilst underwriting the renovation piece so if you determine you will be underwriting the product on a regular basis I would recommend reviewing the guidelines. Hope it helps, have a nice week!
About The Author
Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University (www.FHA-Classes.org) as well maintains a full-time mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans". If you're interested in becoming a writer for NAMP®, please email us at: firstname.lastname@example.org.