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Understanding Specific Requirements of Appraisal for FHA Loans in Wisconsin

The all-time low mortgage rates combined with affordable home prices have generated a huge growth in business for FHA mortgages. People considering their first home need to understand the specific appraisal requirements for FHA loans in Wisconsin.

FHA MortgagesBasics of FHA Appraisal

In a nutshell, an FHA appraisal is a conventional appraisal with additional requirements. The goal is to identify any potential repairs that would need to be completed within the next 24 months and have those items addressed before the loan is closed.

It is important to note that an appraiser does not review a home to the depth of a home inspector. A home inspection is still a good idea for a home, especially if it is 5+ years old.

FHA Appraisal Caveats

Only appraisers listed on the FHA approved roster are allowed to inspect homes and complete the evaluation. Before an appraiser is assigned to review a home a FHA case number will be assigned to the loan. The appraisal is valid for the next 90 days. The lender or borrower may change during that time period without the need for a new appraisal.

Any home that has undergone a conventional appraisal within the last 90 days will still need a FHA case number. In addition, the home must be re-inspected to verify FHA specific items. Here is a list of the items:

  • Confirm no existence of drainage or water damage
  • Ensure water pressure is adequate for the home without any leaks
  • Any exterior and interior lead-based paint must be inspected to identify peeling, chipping or cracking
  • Identify exterior access for each bedroom
  • Insure the minimum 18” egress and ingress from the lot line to the building
  • Test the heater to ensure proper working condition as well as air conditioner
  • Ensure electrical outlets are in every room and in working order
  • Test the fan/hood over the oven for proper working condition
  • Ensure screens are present on roof vents and no more than three layers of roof material
  • Determine that the electric box has at least 60 amp
  • Properly note existing wiring that is exposed as well as cover plates missing from electrical boxes
  • Do a brief inspection of crawl space and attic

Any issue found on the interior portion of the home needs to be either repaired or replaced. On the exterior part of the home any issue needs to be repaired or removed.

Specific Areas of Importance

Of the items mentioned above three seem to get the most attention; water problems or drainage issues, lead-based paint and the ingress/egress points. Concerning the ingress/egress points, common problems occur with homes that have a garage touching the lot line. This prevents the homeowner from accessing the exterior wall of the garage in order to paint. If this is the case the neighbor may be asked for an easement in order to grant the homeowner access.

Consultant Required for 203(k) mortgage

Buyers that are approved for a FHA 203(k) mortgage need to understand that the appraiser will be working with a consultant. The consultant must be approved by FHA. This individual will inspect the home and determine the necessary repairs and improvements and formulate an estimated cost. The appraiser will inspect the home and ensure that the consultant has properly identified all necessary repairs in order to conform to the FHA guidelines.

This communication is provided to you for informational purposes only and should not be relied upon by you. Rock Realty is not a mortgage lender and so you should contact a lender directly to learn more about its mortgage products and your eligibility for such products.
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FHA Rehab 203k MortgageUsing FHA 203K Loan to Purchase a Fixer-Upper

Across Wisconsin there are a large number of short sale homes available to buyers.  A short sale is a home being sold for an amount less than the existing mortgage balance.  These homes often have a few cosmetic repairs that need to be made in order to make the home more presentable, if not safe.  For years the issue of repairing a home prior to purchase was a catch 22.  The bank or seller was not willing to spend extra money on a home that they are selling.  The buyer could not make the repairs because they did not legally own the home.  The FHA 203k loan solves that problem with ease.

Two Kinds of Loans

The Federal Housing Authority (FHA) offers a loan called the 203k mortgage, named after the code section where the loan is found in the FHA guidelines.  This loan is offered as a Streamline version and the regular version.  The streamline was designed to offer lower amounts designated for repairs and slightly less paperwork.  Both loans are ideal for Wisconsin homebuyers who wish to purchase a home in need of some repairs.

How the Loan Works

The loan program allows buyers to purchase a home based on the sales price.  In addition, the buyers can borrow extra money to make the necessary repairs. Once the loan is approved and closed, the extra money is placed in an escrow account.  The contractor that is doing the work will receive payment once the work is completed. This protects the borrower and the lender against problems with the repair process.

The amount needed for repairs is added to the loan for the purchase and the homebuyer makes one payment, at one interest rate, on the entire loan.  Since mortgage rates are so cheap right now it is a wonderful way to buy a home that may be priced below market value due to some simple fix-ups.

Loan Amounts

The Streamline 203k loan will allow Wisconsin homebuyers to borrow a minimum of $5,000 and a maximum of $35,000 to be used towards the repairs.  The regular 203k loan allows much more as a percentage of the sales price and the estimated appraised value after the proposed repairs have been made.  The regular 203k loan will need the involvement of an appraiser, home contractor and loan officer from the very beginning to make sure the loan and repairs meet the guidelines of the program

What Can be Done with 203k?

Wisconsin homebuyers often ask about the types of repairs that can be done with the Streamline 203k program.  The following list shows some of the more popular tasks accomplished using this type of loan

  • New gutters and a new roof
  • New Heating and air conditioning system or repairs to the existing system
  • Plumbing updates and repairs
  • Electrical updates and repairs
  • Bath and kitchen remodels, to a lesser extent
  • New flooring of any type; wood, carpet, tile
  • Painting for both exterior and the interior
  • New windows and doors
  • Energy efficient appliances

The 203K loan allows many types of repairs and improvements that can greatly enhance the value of a home and give buyers a chance to purchase a place at a savings. This loan is ideal for Wisconsin short sales or foreclosures.

Original Post - Using a FHA 203K Mortgage for Rehab

This communication is provided to you for informational purposes only and should not be relied upon by you. Rock Realty is not a mortgage lender and so you should contact a FHA lender directly to learn more about its mortgage products and your eligibility for such products.
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Using a FHA 203k Loan to Purchase Foreclosures

This is an excerpt from a book I am writing called "Buyers Guide to Foreclosures"  (generic title but to the point).

Financing can be a major hurdle for some buyers wanting to purchase a foreclosure because of the condition of the home, which may keep it from qualifying for conventional or traditional FHA loans. The 203k is a great option. I encourage all agents to familiarize themselves with this loan program.

There are two types of FHA 203k loans. There is the Streamline and the Standard.
The Streamlined is used for homes that need minor repairs such as replacing a roof or flooring, interior and exterior painting and HVAC system replacement or upgrades (doesn’t really sound like minor repairs). This loan has a maximum rehab limit of $35000 with no minimum. Therefore, you can make repairs that cost as much as $35000 or $5 - but you really wouldn’t need the loan if you only plan to make $5 worth of repairs. The rehab funds are placed in an escrow account with half dispersed to the contractor up front and the remaining funds released after the repairs are completed and inspected.
The Standard 203k is for homes that need major repairs such as structural and/or foundation repairs, adding a room to the home and major landscaping improvements. With this loan, the total rehab cost must be greater than $35000. There is a $5000 minimum of eligible repairs or improvements required, such as structural repairs, termite damage, etc. After the initial $5000 is met, the remainder can be used for cosmetic repairs and upgrades. Again, rehab funds are placed in escrow and are released as repairs are completed and inspected. The Standard also allows up to six months of your mortgage payments to be included in the rehab costs if the Housing and Urban Development (HUD) consultant determines that you must be displaced during the repairs.
The 203k loans can be used to purchase a 1 to 4 unit residence. To qualify the borrower must occupy the home as their primary residence. Maximum loan limits are based on property type and location. Also, luxury items such as installation of a swimming pool, hot tub or barbecue pit are not eligible.
 
New Year, New You. www.livefitandhappy.com
 
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Renovation Loans/Rehab 203K Financing

If you've been passing up homes that require repairs, there’s renewed interest in the 203(k) FHA loan program that lets qualifying candidates borrow a single loan with a 3.5 percent down payment to cover both the home’s selling price and the cost of licensed contract work to improve the property.Popularity in the 203(k) FHA loan program, or Rehab loan as it is often called, has nearly doubled since last year due to the large inventory of REO homes. This years, demand is on pace to double again.The main advantage of this program is it allows buyers to purchase a home that needs work and not have to come out of pocket with cash to complete the repairs. The biggest disadvantages is most lenders aren't experienced with Rehab loans and show little interest in promoting them because they can take up to 60 days to close.Even though the application process is long and it is difficult to find a lender versed in doing them, the FHA Rehab loan may the rare modern-day wild card loan that keeps the industry afloat. Helping our Buyers get the best deals, often in area they otherwise couldn’t afford, and helping us close on more deals. . . sounds like a win-win to me!FYI – I have an REO with Wells Fargo right now that is a perfect candidate for this financing. I’ll let you know how it goes.

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