Loan advice for househacking Tulsa area

[Jon Wimmer]

Hello BP!

I was wondering what type of loan I should expect from a lender if I have a good credit score, working as an engineer, and am looking to live in a small multifamily in the Tulsa area. I want to be able to wrap the repairs into the loan if possible. A small downpayment will also be nice but not required. 

After living in the first small multifamily for about 6 months or a year and fixing it up should I look at refinancing? What rates or other variables should I be looking for in this?

For those in the Tulsa area, do you have any recommended lenders I can start building a relationship with?

[Andrew Postell]

@Jon Wimmer I know a good lender in the Tulsa area. Just for reference the Fannie Mae HomeStyle can also be used up to 85% of the ARV on a 2 Unit.

You can read the actual Matrix Sheet from Fannie Mae HERE

Other Important Items to Know about “Conventional” Renovation Loans (these rules aren't hard rules but most lenders will follow these rules)

Maximum – Minimum Purchase/Upgrade Amounts:

Minimum: $5,000 (below this on an exception basis only)

Maximum: Limited to 50% of the “after improved” value

Occupancy: Primary, Second Homes, Investment Properties

Renovation Term:

• The renovation term for this program is a maximum of 180 days.
• The Borrower(s) is responsible for the work being completed within the escrow period. If the work is not 100% complete by the end of the Escrow period, lender may implement a .50% (on total loan balance) extension fee that will cover an additional construction term of 60 days. Borrowers will be provided an upfront disclosure detailing this information.

Contractor(s) Acceptance:

• Loan does not “approve” contractors or refer contractors. A borrower must choose his or her own contractors to perform the needed renovation.
• All Contractors participating in the HomeStyle Renovation Program must complete a Contractor Profile Report. All Contractors are subject to the lender’s determination that the contractors are qualified and experienced, have all appropriate credentials required by the state, are financially able to perform the duties necessary to complete the renovation work in a timely manner, and agree to indemnify the borrower for all property losses or damages caused by its employees or subcontractors.

Multiple Specialized Contractors:

• Since this is a limited repair/renovation program, no General Contractor is required. However, A General Contractor will be required on all renovation projects over $25,000. Borrowers are not allowed to complete any of the work themselves as sweat equity.

Loan to Value Calculations:

The original principal amount of the mortgage may not exceed Fannie Mae’s maximum allowable mortgage amount for a conventional first mortgage.

• Purchase: For a purchase money transaction, the LTV is determined by dividing the loan amount by the lesser of the "as completed" appraised value of the property or the sum of the purchase price of the property and the total rehabilitation costs.
• Refinance Transactions: For a refinance transaction, the LTV is determined by dividing the original loan amount by the "as completed" appraised value of the property.

Eligible Renovation:

• There are no required improvements or restrictions on the types of repairs allowed. However, repairs or improvements must be permanently affixed and add value to the real property.

Costs and Escrow Accounts

• The costs of the renovations will be based on the plans and specifications for the work and on the Construction contract for all of the work requested by the borrower. The renovation costs may include a contingency reserve and renovation-related costs.

Contingency Reserves:

• Contingency reserves 10 % required for any unforeseen cost overruns that may occur during construction.
• Unused contingency reserves that were financed into the loan will be applied to the principal balance of the loan. If the contingency reserves were paid in cash, they may be refunded to the borrower.
• The contingency reserve may be considered as part of the total renovation costs or the borrower may fund it separately. The contingency reserve may be released only if required, necessary, and unforeseen repairs or deficiencies are discovered during the renovation. Unused contingency funds, unless they were received directly from the borrower, must be used to reduce the outstanding balance of the renovation mortgage after all of the renovation work has been completed and the certification of completion has been obtained.
• The loan is not re-amortized.

Draw Schedule:

• The HomeStyle program has a maximum 4 draw process.
• The initial draw can be up to 25% of the total project and can be for materials for the project.
• The final draw will be at least 10% of the total project as retainage and funds will be released upon Gateway Mortgage Group’s receipt and approval of final inspection, Certificate of Completion from Appraiser, signed All Bills Paid Affidavits and Lien Waivers.

Additional Draw Information:

• Signed Draw Request by borrower and contractor
• Signed All Bills Paid Affidavit
• review and approve the draw request and will release funds for disbursement
• A check will be issued in the name of the borrower and contractor and delivered to borrower via USPS
• An inspection of work to date will be performed at 50% complete

Final Draw Information:

• Signed Draw Request
• Final inspection/Completion Certificate will be required for release of final funds
• A Title Update showing property free from lien or encumbrance
• General Contractor’s Lien Waiver Affidavit
• Affidavit of Completion, will review and approve the draw request and will release a check in the name of the borrower and contractor.

Change Orders and Cost Overruns:

• Changes to the initial plan are not permitted unless prior approval by lender. Any work outside the scope of the initial plan is not permitted as the loan amount cannot be increased.
• If the project encounters cost overruns, those cost overruns will be the responsibility of the borrower to pay.

Renovation Term Extension Fee:

• .50% of the total loan balance. This is a post-closing penalty charged by the Escrow Administrator to extend the renovation period beyond the maximum renovation term of 180 days in the event renovation is not completed within agreed upon terms.