All Forum Posts by: Andrew Postell

@Maleshia Gilcrease thanks for the post!  Always great to hear from a fellow Texan.  I do write these loans and have many posts about them.  Reach out if you want to talk any specifics.  Here's the general outline for them:

Renovation loan programs can finance the purchase and renovation of a home in one loan. When the transaction closes, the purchase is funded, and we set aside additional funds in an escrow account to pay predetermined professionals to make any required or desired repairs or upgrades to a property AFTER the buyers settle on the purchase transaction. The loans are fixed rate programs, and the additional renovation financing is included into the one loan. The down payment is based off the total adjusted acquisition cost – the purchase price plus the cost of renovations. The down payment on owner occupied properties can be as little as 3% on owner occupied properties. These loans allow buyers to purchase a property “AS IS, WHERE IS”.

Renovation loans are available in 30, 20- and 15-year fixed rate terms and can be used to purchase owner occupied, second home and investment properties.

By time the renovations are completed, the home needs to be in move-in, live-in condition and conceptually ready to be resold without repair issues.

Other Important Items to Know about “Conventional” Renovation Loans

Maximum – Minimum Purchase/Upgrade Amounts:

Maximum: Limited to 75% 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, 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:

• Ø does not “approve” contractors or refer contractors. A borrower must choose his or her own contractors to perform the needed renovation.
• Ø 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:

• Ø 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 50% 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 receipt and approval of final inspection, Certificate of Completion from Appraiser, signed All Bills Paid Affidavits and Lien Waivers.

Additional Draw Information:

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

Final Draw Information:

• Ø Signed Draw Request
• Ø Final inspection/Completion Certificate will be required for release of final funds
• Ø A Title Update showing property free from lien or encumbrance
• Ø General Contractor’s Lien Waiver Affidavit
• Ø Affidavit of Completion GR 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 Guaranteed Rate. 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.

Other Important Items to know about FHA Renovation Loans

A FHA option to roll renovation/repair work into the loan. Down payment is based on the total of the purchase price + renovation costs. Loan can go slightly over appraised value if the need were to arise.

1. “Streamline Option” – or “Limited Repair Program”
   1. Total financed rehabilitation costs cannot exceed $35,000
2. Maximum Sub-Contracts is 3
   • If more than 3 are needed then a General Contractor will be required
3. Repairs are limited to cosmetic repair only. Structural repairs are not allowed, such as room additions, foundation repairs, etc. Pools are also not permitted with Streamline Option

1. Full Repair Option
   1. Minimum of $5,000 in improvements
2. 203k Consultant is required

FHA Approved Single Family "construction manager" who oversees and inspects the rehabilitation work from start to finish

1. Nearly any type of repairs is allowed (luxury items are not). Pools are permitted.

Contractor Approval

• Contractor must be accepted by Renovation Department prior to final approval and be responsible for the entire project. Multiple sub contractors with multiple separate contracts are not allowed..
• Repairs/Improvements must be completed by licensed contractor(s) as required by local/state municipalities
• Repairs cannot be completed by a related or interested party (i.e. relative, real estate agent, seller, broker, etc.)
• Borrower selects contractor

Contingency Reserves

• Minimum 10% is required. Can be financed.
• With “Full” version – 20% reserves if renovation is major – foundation, room additions

Draw Requests

• “Draws” are funds paid to the contractor after work is completed.
• For “Streamline” – pictures of completed work is permitted
• For “Full” – Consultant inspects work
• Work must be completed within 6 months of loan closing
• No upfront draws permitted

VA RENOVATION LOAN

Contractor certified by VA

HUD Consultant is required

15% contingency

$50,000 renovation max

So with the 15% contingency…that means about $42,000 renovation max because of the 15% contingency

@Faris Wright NACA is one of many down payment assistance programs that exist. NACA specifically does target "underserved" communities but there are other options out there as well. With NACA, you have to pay to take their course and that's the only way to gain access to their program. Other programs don't have that requirement. You can simply google NACA and find their website and information to learn more about it.

@Stuart Cairns this should be pretty easy.  We just have to get you in the right place.  Bigger Pockets is a great resource but if you need a plumber, electrician, title company...or even lender - then we need local expertise.  Try some local real estate meetup groups. Meetup.com is a good resource for those but some of the groups will also post here on Bigger Pockets Marketplace too. You have several in Ohio.  Even facebook might have some good local groups for you. Some of those facebook groups have thousands of members. Eventbrite too. But post locally for this. That’s the best bet.

@Cassandra Alessio what are you doing with the property?  Meaning, are you rehabbing it into a single family home?  Is it going to be a gas station?  What's the end goal for this property?

@Stanton Ward thanks for the post here!  Always great to hear from a fellow Texan.  I wish more people would use their primary home as an investment property later - it's one of the best techniques out there.

Now, to help with some things:

1. Ownership - If you buy an investment property you do NOT have to add your spouse to title.  It is a requirement on your PRIMARY home here...but not on an investment property.

2. Buying a 2nd Primary Home - You can absolutely buy a second primary home at any time after you fulfill your current commitment.  Meaning, if you committed to live in a property for 12 months, and you have done so...then you can buy a smaller/larger home at any time.  It's when you move BEFORE you fulfill your commitment is when everyone starts needing reasons. Don't get me wrong here, we still want you to be 100% ethical with what you are doing, but once you fulfill your obligation, it's your right to move.

3. FHA and "nuances" - Now, here's where it gets a little annoying and complicated with some Texas laws.  We are a community property state.  That means you own your primary home with your spouse - EVEN IF YOU DIDN'T SIGN ON IT. There are many and numerous court cases that will reinforce this. If you are married and you aren't on title....you legally own that home. The minute you get married - spouses have rights (according to Texas law). Now, if you have an "iron clad prenuptial agreement"...ok, I don't know on those (you would have to go to court)...but in just about every other scenario, spouses have rights to the primary home. So, when you go apply for your first FHA loan...and you already have ownership rights in a property with a FHA mortgage...even if you didn't sign on it...then FHA will have something to say about it. FHA can make it complicated when getting a second primary home in that scenario. HOWEVER - conventional loans don't have these same complications.  You can get as many conventional primary home loans as you like!  So, it would be easier to just go a conventional route when the time comes.

*WHEW*  Who knew there would be so much to this?  Little details do make a difference.

Feel free to reach out with any questions and maybe we'll cross paths out there!  Thanks again!

@Luis Herna this is a refinance.  So, refinances don't require "downpayments" per se.  They do require equity in the property to refinance.  They also usually require "reserves" to refinance (most loans do at least). How much equity?  How much reserves?  That's why you need to get prequalified ahead of time.  Getting prequalified tells you all of those numbers.  It is entirely possible to not need any money out of pocket to refinance a property.  Just get prequalified with a good lender and they should be able to tell you those numbers ahead of time.

Hope all of that makes sense.

@Judd Nutting thanks so much for the post!  Very happy that this strategy worked out for you.  It's been around for many years at this point and it has certainly helped many people.

Now, as far as profitability - there are THOUSANDS of businesses that don't show a profit.  So, showing a profit isn't a problem.  Are you required to generate income though?  I have a feeling I need to defer on that part of the question though.  Certainly recommend speaking with a CPA on it or maybe just posting that question by itself in the Tax Forum.  Probably a few people in there that can help with it.

Thanks again!

@Johana Villamil yeah, I'm confused too...why are we talking to them about how long you will own a property?  We are just inquiring about being a GC, right?  If you have other questions about different things...please don't ask them.  They aren't a legal department.  They aren't title.  They aren't lending.  Yes, there are OTHER things to home ownership but we just want you to be a GC...right?  GC's work on all sorts of properties.  Not just their own homes. Try it from just that angle.  If you are still getting stuck, reach out to some San Antonio Real Estate groups and get with another GC or something.

And I want to be clear on what I am saying - I'm not saying what you want to do is the best way to do it.  I'm just answering your question - how to be a GC.  

Hope that makes sense. 

@Jamie Warcken well, I was going to ask why you didn't go the renovation loan route or get a HELOC but if you are unemployed then you wouldn't be able to get those. Unless you find a lender that would give you a loan with no income then you would be limited to friends/family/or current resources.

@Don White thanks for the post. @Kyle Mccaw have any contacts down there?