Why Renovation Financing Is The Next Best Thing

mortgage ppt

1. WHY RENOVATION FINANCING? BASIC TRAINING 101

2. - Give you an idea/concept that you can implement into your business plan to grow your business - Equip you with time saving tips that will set you apart from your competition. - Make you more commission! $$$ MAIN OBJECTIVES OF TODAY’S SESSION

3. MULTIPLIER EFFECT More Partners More Referrals More Satisfied Customers Benefits of a Renovation Loan REALTOR LISTING OPPORTUNITIES BUYER PROSPECTS

4. Lack of Residential Re-Sale Inventory Affordability Index Top two obstacles in today’s industry

5. Multiple Over List Offers Acceleration Clauses are back in certain markets Realtor Home Buyer Referral Customers becoming dejected and frustrated with the whole Bid/Buy process. Could this mean less referrals in the future??? March 31, 2021 CNBC Diana Olick 10.6% Drop in Feb Home Sales 29.5% Drop in Supply of Residential Inventory Record Low Supply. Lowest in History Lack of Residential Re-Sale Inventory

6. The typical home that was purchased was 1,900 square feet, had 3 bedrooms and 2 bathrooms and was built in 1993 Heating and Cooling costs were the most important environmental feature for recent Home Buyers Overall, Buyers expect to live in their homes for a median average of 15 years. 21% said that they were never moving. 2020 Profile of Home Buyers and Sellers

7. If the average Home Buyers expects to live in their home for a median average of 15 years does the final purchase price really matter? Question

8. Property List Price = $370,000 Most recent sale comparison is $355,000 Final Accepted Offer Price = $390,000 Approximately 10% above most recent sales comparison Question: As the Agent (Listing or Sales) what is your #1 Concern? Scenario #1

9. Do you think $364,000 is a reasonable attainable Appraised Value? Does the potential Home Buyer have about $25,000 available for both the Down Payment and Closing? Scenario #1

10. $390,000 Final Accepted Offer Price $10,000 Simple “improvement” like Appliances $400,000 Total Acquisition Cost To Calculate the Required Minimum Appraised Value: $400,000 * 91% = $364,000 $364,000 * 110% = $400,400 FHA 203K 110% Solution

11. Lessor of 110% of After Improved Value OR Total Acquisition Cost $400,000 * 96.5% = $386,000 Base Loan To Calculate Maximum Mortgage

12. As long as the property appraises at $364,000 and the Buyer still wants to purchase the property you have a Closed Sale and Buyer only needs $14,000 Down Payment Compare to a regular 95% LTV Conventional Program that would require $44,200 Down Payment To Calculate Maximum Mortgage

13. The FHA 203K 110% Solutions opens up a larger pool of potential Homebuyers to purchase your Listings and if you are the Selling Agent, greater negotiating power for your Home Buyers Referral Customers. Why Not Help Your Home Buyers?

14. The FHA 203K 110% Solutions opens up a larger pool of potential Homebuyers to purchase your Listings and if you are the Selling Agent, greater negotiating power for your Homebuyers Referral Customers. Why Not Help Your Home Sellers?

15. MULTIPLIER EFFECT More Partners More Referrals More Satisfied Customers Benefits of a Renovation Loan REALTOR LISTING OPPORTUNITIES BUYER PROSPECTS

16. 3 Simple Questions #1 – Potential Offer Price #2 – Are Utilities Operating #3 – Estimated home Improvement Investment (Not cost) How Can I Estimate Total Acquisition Cost?

17. Potential Offer Price = $300,000 Are Utilities Operating = Yes Estimated Home Improvement Investment = $40,000 Tip: Don’t use the terms House, Renovate, Spend Use the following terms Home, Personalize/Customize/Invest Scenario #2

18. Step #1- Home Improvement Estimate $40,000 Step #2- Multiple by 113% + $1,000 $40,000 * 113% = $45,200 + $1,000 = $46,200 $46,200 = Total Renovation Cost Step #3 Add Total Renovation Cost to offer price $300,000 + $46,200 = $346,200 $346,200 = Total Acquisition Cost Scenario #2

19. Question: Explain the 113% + $1,000 Renovation Loans have a Contingency Reserve to protect the Homeowner against unforeseen additional repairs and/or cost overruns 10% of Construction Cost = 113% for when utilities are Operational 15% of Construction Cost = 118% for when utilities are NOT Operational Scenario #2

20. The Total Acquisition Cost determines: Required Minimum After Improved Appraised Value Maximum Mortgage Amount Down Payment Requirement And …it only took three simple questions: Offer Price Utilities Improvement Investment Scenario #2

21. Required Minimum After Improved Value $346,200 * 91%= $315,042 Maximum Mortgage Amount $346,200 * 96.5% = $334,083 Down Payment Requirement $346,200 * 3.5% = $12,117 Scenario #2

22. Realtor writes a normal sales contract based only on the offer price (do NOT include the renovation portion). Please give 60 days for closing/funding Buyer is qualified using normal FHA/FNMA Underwriting Guidelines Appraisal is only based on the AFTER IMPROVED value of the property. The Final Sales Price is considered the current As Is value. Renovation Lending Made Easy

23. Any property related repairs and/or the renovation improvements are completed after closing/funding Everyone gets paid at closing/funding Buyer is given 6 months after closing/funding to complete the improvements. Extensions can be given for extenuating circumstances. Once Improvements are completed Realtor and Loan Officer have a great opportunity to sponsor an Open House Party Show Casing the new home. Renovation Lending Made Easy

24. Home Buyer is qualified Realtor writes contract Home Buyer selects contractor and acquires the scope of work Lender orders the appraisal Once appraisal is completed loan is cleared to close Transaction closes Work is completed Referral/Referral/Referral Opportunity! Summarize the Process

25. Will allow repairing, replacing, and modernizing, such as: Garage (attached/detached) Remodel Kitchen or Bathroom Energy conservation improvements Interior and Exterior painting Modernizing plumbing/heating/ air conditioning Installing or repairing roofing/gutters/downspouts Installing flooring/tile/carpet Types of Repairs that are allowed with FHA 203(k) Limited

26. Will allow repairing, replacing, and modernizing, PLUS building and construction, such as: Structural ALTERATIONS & ADDITIONS Garage (attached/detached) Remodel Kitchen or Bathroom Energy conservation improvements Accessory Dwelling Units (ADU’s) Modernizing plumbing/heating/ air conditioning Installing or replacing roofing/gutters/ downspouts Installing flooring/tile/carpet Major Landscaping Luxury Items such as pools, decks (FNMA Homestyle ONLY) Types of Repairs that are allowed with FHA 203(k) Standard & FNMA Homestyle

27. Contractor Selection: FHA 203(k) does not allow the contractor to be the borrower’s employer or a relative of the borrower FNMA Homestyle does allow the borrower’s employer and/or relative to be the contractor Both require the contractor to be licensed and insured based on the state/county/city regulations where the property is located FHA 203(k) vs. FNMA Homestyle

28. To protect the borrower against any unforeseen additional expenses during the construction process, Lenders are required to include a contingency reserve in the total escrow account The contingency reserve is a % of the estimated total renovation cost 10% of total cost if utilities are operation 15% of total cost if utilities are not operational PLEASE NOTE: on FNMA Homestyle one unit owner occupied transactions, the contingency reserve can be waived if the borrower has the required amount in post-closing reserves Contingency Reserve

29. The contingency reserve can be either financed into the loan or paid in cash by the borrower What happens if there are contingency funds remaining in the escrow once all the construction is complete Financed funds must be applied to principal balance Paid in cash funds can either be applied to principal or can be paid/refunded to the borrower FHA Limited only allows the use of contingency to satisfy any health, fire or safety issues FHA Standard, FNMA Homestyle allows use of contingency for improvement to the property Contingency Reserve

30. FHA 203(k) does allow the borrower to tear down an existing structure and rebuild a new structure providing they rebuild on the original foundation FNMA Homestyle does not allow the borrower to tear down an existing structure and rebuild a new structure Both allow for the construction of additions and detached structures such as garages and accessory units Tear Down Rebuild

31. FHA 203(k) Limited allows for 50% of contractors bid to be disbursed at closing FHA 203(k) Standards & FNMA Homestyle only allow the release of a materials draw Initial materials draw must be made prior to any other draw request and the amount released is 50% of the documented materials invoices signed by the borrower and contractor All checks are two party checks made payable to borrower and contractor Upfront Disbursement/Draw to Contractor

32. Both allow for the borrower to use a version of self-help with limitations based on the scope of work and borrower’s ability to prove the required previous construction/rehab experience FHA has no maximum dollar limit FNMA has a maximum dollar limit which is 10% of the After Improved Appraised Value NO sweat equity payments allowed. Reimbursements for materials only plus documented/validated specialty contractors Borrower Self-Help Situations

33. The property appraisal will be a hassle This will be too expensive for my client The loan process will be long and may not even close Common Misconceptions

34. There is only one appraisal Appraisal is completed as after repaired (subject to). The appraisal will take into consideration the repairs that will be done and not the current condition Repairs are made after closing On FHA 203(k) we can use 110% of the “after improved value” or FHA Loan limits if needed to meet loan requirements Notice: on purchase transactions we use the contract sales price as the “as is value.” This is important for you to communicate this advantage to your realtors The Appraisal Simplified

35. Higher Final Offer Prices Increasing Interest Rate Environment Total Cost of Homeownership is increasing Mortgage Payments Cost of Monthly Utilities Cost of Deferral Maintenance Affordability Index is decreasing

36. Mortgage Payment Monthly utility cost US Dept of Energy States: “An energy efficient home will keep your home comfortable while saving you money.” Families can lower their energy bills by 25-35% #1 Energy related tips Re-sealing existing duct work in the home is the most cost-effective improvement all homeowners should consider Regular deferred maintenance cost 48% of all American homeowners say unexpected home repairs cause their anxiety and stress 44% of homeowners stated they experienced unexpected repair costs within first year of homeownership 12% experienced this surprise in the first month of homeownership 31% of homeowners say they do not have the money set aside for home repairs and improvements Unexpected repair cost What is the real cost of homeownership?

37. Renovation Financing can lower the total cost of homeownership by reducing the re-occurring cost of monthly utility bills and significantly minimize the cost and stress of unexpected deferred maintenance expense. 2020 Profile of Home Buyers Average house built in 1993 Heating and Cooling Costs were the #1 desired environmental feature What is the real cost of homeownership?

38. Are Renovation Improvements an Expense/Cost or are they an Investment in the future comfort and enjoyment of the Homeownership Experience for our Customers? Ask yourself

39. Benefits for the Borrower

40. Increase foot traffic by showing the potential after improved condition of the property Larger potential pool of buyers Higher probability for increased net proceeds A faster sale! Benefits for the Seller

41. Benefits for the Real Estate Agent

42. Easy to understand Standard Agency Guidelines Listing agents can increase the number of showings and net proceeds Buyer agents can focus on homes in the perfect location even when the home is currently in less than perfect condition Home buyer gets a competitive 30-year loan plus personalized improvements with added comfort and enjoyment More satisfied customers= more referral business Closing Thoughts

43. Thank You! Cara DeStefano Regional Sales Manager