Listing Codes For HUD Foreclosures

IN – Insurable:
All properties listed as “INSURABLE” are eligible for FHA financing. All requests for insurance will be under Section 203(b) of the National Housing Act Program. An interest rate will be charged on the loan and is negotiable between the purchaser and lender. The mortgage may include some mortgage insurance payments.

IE – Insurable with Escrow Repairs:
Properties listed as “INSURABLE WITH ESCROW REPAIRS” means that certain repairs (not to exceed $5,000.00) are required to meet Minimum Property Standards for an FHA mortgage. These properties can qualify for FHA Section 203(b) mortgages if the purchaser and lender establish a repair escrow at the closing for the completion of repairs within 90-days of the closing.

UI – Uninsured:
Properties listed as “UNINSURED” means that certain repairs and or improvements are required to be eligible for an FHA 203(k) mortgage. The required repairs on most of these properties exceed $5000.00. Purchasers of these properties have the option to purchase “as-is” with cash or conventional financing. These properties are also eligible for an FHA 203(k) mortgage if the required repairs and or the improvements are completed within 90-days of the closing.

What does “FHA Financing Insurability” mean?

An independent FHA-approved appraisal and inspection are usually completed within two weeks of HUD acquiring the property and the condition will be noted on the listing. These listing condition codes not only describe the condition of the property to a degree but also determine what type of FHA loan may be used by the new purchaser. If the property is “insurable (IN)”, then there’s no obvious repairs needed to qualify for an FHA insured loan and FHA 203(b) financing may be used. If the property is “insured with escrow (IE)”, then for FHA 203(b) financing to be used, certain repairs must be made and an escrow account is established to make sure they are made. The needed repairs will be listed with the property and the cost will be repaid by the borrower. If the property is designated as “uninsurable/uninsured (UI)”, then the property requires extensive repair and cannot be financing with FHA 203(b) financing. If cash or conventional financing is used, then none of this is relevant. Be aware that this gives you an idea of problems that have been found but it’s still recommended that you get your own inspection.

HUD – How to Use FHA 203K Renovation Loans to Create Massive Equity

These days HUD foreclosures are everywhere. They are everywhere because the path to ownership for a lot of these homes was quite low initially. This is good for you because HUD homes represent some of the absolute best bargains on the market these days. Purchasing a HUD home is a little different from purchasing a traditional foreclosure though. That is why it is important you get a good knowledgeable HUD Realtor to help you out. How is it different? First of all, HUD has an automated bidding system, an easily manipulated one at that. HUD’s system, and what you should bid, is based a formula derived from days on market and number of times the price has dropped. A good HUD Realtor can usually get you within a few thousand of the lowest bid that the system will accept in the absence of other bids. This means HUGE discounts for you if you know the right Realtor. When you are perusing HUD listings you need to be aware of some of the caveats and what they mean to you. One of the things you need to pay close attention to when purchasing a HUD home as a primary residence is the FHA insurability. Homes with less than $5000 in repair are usually classified as FHA Insurable. HUD will escrow the repair money in an account for you to fix what the appraiser has noted needs fixing after you close. HUD Houses with over $5000 needed generally are FHA 203K Insurable. This means if you want to buy with traditional FHA financing you can’t, you need a FHA 203K renovation loan (or another type of renovation loan like the Fannie Mae Homestyle). Finally, you will see some homes that are not FHA 203K insurable. These are essentially teardowns.

If you really want the sweet deal on a HUD Home it is good to find one that has dropped in price once or twice and that needs some repair. It isn’t unusual for us to see 30% discounts to as-is value on these types of properties. Keep in mind to, that if you are going the way of the renovation loan you will be using after-repair value and that you can often sculpt a house that you love with 50% equity the day you move in. Invest in kitchens and bathrooms along with giving the home some curb appeal will generally provide you the best returns and the most instant equity. Don’t let the news media scare you into indecision, savvy home buyers are solidifying their family’s future with the deals available in this market.

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Q: Can I pick my own contractor to do the work on a 203K loan?

A: You may decide on your own contractor, and they should be brought into the process in the beginning stage of the loan process. Check out the credentials of the contractor thoroughly, making sure he is knowledgeable in all aspects of rehabilitation work.

The home improvements or repairs need not be made before moving into the property, depending on how extensive the repairs are and whether the house is habitable while the repairs are being made. The home improvement loan provides the ability to include up to 6 months of mortgage payments in the improvement escrow, should you not be able to occupy the property and have to pay rent during rehabilitation.

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Q: What are the qualifications to be able to obtain a FHA 203-k loan?

A: The qualifications requirements are the same as a typical FHA mortgage loan. The only additional item that the borrower needs is either enough cash reserved to pay for materials and labor until they are reimbursed through a draw, or a credit card with an adequate available balance. If there is to be a contractor involved, the contractor may choose to cover these costs.

The interest rate on a typical FHA 203k mortgage loan is a little higher than a standard FHA or conventional 30/15-year fixed-rate loan. The cash requirements are the same as an FHA loan, 3 percent to 5 percent, which is less than a typical conventional loan. There are a couple of additional fees which pertain to the construction aspects of the FHA 203k loan.

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Q: What are some of the repairs that qualify for the first $5,000 on 203K Loan?

A: Structural alterations and reconstruction: (Repair or replacement of structural damage, chimney repair, additions to the structure, installation of additional bath(s), skylights, finished attics and/or basements, repair of termite damage and the treatment against termites)

Elimination of health and safety hazards.

Changes for aesthetic appeal:
(New siding, adding a dormer, covered porch, attached garage).

Air Conditioning or replacement:
(plumbing, heating, air conditioning and electrical systems).

Installation of well, septic system or connection to public utilities.

Roofing, Gutter Downspouts, Flooring, Tiling and carpeting.

Major landscape and site improvement.

Improvements to improve accessibility and functions for the disabled.

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Q: What is the minimum amount of repairs required on a FHA 203k?

A: There is a minimum $5,000 requirement of eligible home improvement loan projects on the existing structure of the property. Minor or cosmetic repairs may be included after meeting the first $5,000 worth of repairs.

FHA 203K Loan – Eligible Property

To be eligible for the FHA 203k mortgage loan, the property must be a one- to four-family dwelling that has been completed for at least one year. The number of units on the site must be acceptable according to local zoning requirements. All newly constructed units must be attached to the existing dwelling. Cooperative units are not eligible.

Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place.

In addition to typical home improvement loan projects, the FHA 203-k mortgage loan program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling. An existing multi-unit dwelling could be decreased to a one- to four-family unit.

An existing house (or modular unit) on another site can be moved onto the mortgaged property; however, release of loan proceeds for the existing structure on the non-mortgaged property is not allowed until the new foundation has been properly inspected and the dwelling has been properly placed and secured to the new foundation.

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FHA 203K Loan – How the Program Can Be Used:

This program can be used to accomplish rehabilitation and/or improvement of an existing one-to-four unit dwelling in one of three ways:

· To purchase a dwelling and the land on which the dwelling is located and rehabilitate it.

· To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.

· To refinance existing indebtedness and rehabilitate a dwelling;

To purchase a dwelling and the land on which the dwelling is located and rehabilitate it, and to refinance existing indebtedness and rehabilitate such a dwelling, the mortgage must be a first lien on the property and the loan proceeds (other than rehabilitation funds) must be available before the rehabilitation begins.

To purchase a dwelling on another site, move it onto a new foundation and rehabilitate it, the mortgage must be a first lien on the property; however, loan proceeds for the moving of the house cannot be made available until the unit is attached to the new foundation.

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203K Loan – Rehab Program Overview

The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD), administers various single family mortgage insurance programs. These programs operate through FHA-approved lending institutions which submit applications to have the property appraised and have the buyer’s credit approved. These lenders fund the mortgage loans which the Department insures. HUD does not make direct loans to help people buy homes.

The FHA 203k loan program is the Department’s primary program for the rehabilitation and repair of single family properties. Basically a home improvement loan. As such, it is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities. Since these are the primary goals of HUD, the Department believes that FHA 203k loan is an important program and they intend to continue to strongly support the program and the lenders that participate in it.

Lenders have successfully used the FHA 203k loan program in partnership with state and local housing agencies and nonprofit organizations to rehabilitate properties. These lenders, along with state and local government agencies, have found ways to combine the FHA 203k loan with other financial resources, such as HUD’s HOME, HOPE, and Community Development Block Grant Programs, to assist borrowers. Several state housing finance agencies have designed programs, specifically for use with FHA 203k loan and some lenders have also used the expertise of local housing agencies and nonprofit organizations to help manage the rehabilitation processing.

HUD also believes that the FHA 203k loan program is an excellent means for lenders to demonstrate their commitment to lending in lower income communities and to help meet their responsibilities under the Community Reinvestment Act (CRA). HUD is committed to increasing homeownership opportunities for families in these communities and Section 203(k) is an excellent product for use with CRA-type lending programs.

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