Profile picture for quixote123

FHA 203K Refi Max Loan

My read of the FHA 203k guidelines is that the maximum loan amount is the lesser of:
1. Existing Debt + Rehab Costs
2. As-is Value + Rehab Costs
3. 110% of the After-Improved Value * LTV factor (which I assume is 96.5%?)

My lender claimed that this is what the FHA text says, but that the "After-Improved" value amount is only different than the the "As-is" value if I'm modifying the house in a way that lessens its value (i.e. removing units).  Therefore, they claimed the max I could finance was 110% of the "As-is" value.

This contradicts everything I've read on the FHA website and in these forums, so I'd appreciate some confirmation that my lender is mistaken (or that I and apparently many others are very mistaken). 

Some specific history in case this matters:
I want to refinance my SFH to add an additional attached unit and some space to the existing house.  Existing home value ~$400k, planned renovation work ~$100k.
My current mortgage is with Wells Fargo, and I purchased with an FHA 203k Streamlined loan about two years ago.  I applied for the new 203k loan with the same WF mortgage consultant who we worked with on the original purchase, who handled that process competently.
  • May 23 2012 - Silver Lake
  • 0
    0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Be a Good Neighbor. Be respectful and on-topic. No spam or self-promotion! See our Good Neighbor Policy.

 
 

Answers (4)

Profile picture for gsmith6673
Are you talking with the party who makes the decisions? Maybe...and then again, maybe not... 

Care should be taken when reading the Department's website and "expecting" the Mortgage Industry, as a whole, to follow it "to the letter". Lender's have the freedom to add overlays and adjust the guidelines to fit their particular business model. [hotlink removed by Zillow moderator] and...very often the investor (the loan purchaser) can be responsible for creating the overlay, and not your Loan Officer. 
  • May 24 2012
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Well, all three of your statements of your read of the FHA maximum loan limits are correct - to an extent.

Care should be taken to not read too much into one line of the guidelines as there is an underwriting process that takes into account the specifics of:
1) your current mortgage amount
2) the cost of your planned renovations
3) after improved value

IF you are trying to take out a loan for more than the amount of your current loan plus renovations, that would be considered a "cash-out refi" and fewer and fewer lenders are doing them these days.

IF you are just trying to get needed and desired repairs completed, pay off your existing 1st mortgage and get one new mortgage, then you could very likley get 100% of those costs financed - as long as the property meets appraised value guidelines and as long as you qualify for the payment.

Since FHA recognizes that if you make improvements to your property you will likely reduce maintenance costs as well as improve the value, there is a provision that allows the Lender to finance your loan as much as 110% loan-to-value.

Lenders may vary on their application of the 110% LTV, or any other FHA guidelines as Gary previously commented, there are such things as "lender overlays" in the mortgage business.

While this may be confusing and it is great to do as much research as you can on your own to better understand the system and the process, there is little substitute for finding a professional you can trust to guide you through your options.

A good loan officer who specializes in the FHA 203k program and a good HUD 203k Consultant are two people you will most surely need on your team.

If you would like a referral in your area, please send me a location and I will be happy to refer you to someone. You can certainly call or email directly if you prefer.

Best wishes,

Vito Simone
HUD 203k Consultant
[contact information removed by Zillow Moderator]
  • May 24 2012
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for quixote123
Thanks for your comments.  I was hoping the process would be easier if I worked with the same renovation loan consultant I used previously, but I guess I need to shop around a bit.

I understand that lenders have their own overlays (It would be very reasonable for a lender to say they'll only go to 100% not 110% of "After-Improved" value, for example), however my lender claimed that FHA placed this restriction on them and wouldn't insure the loan if we set the loan amount based on the "After-Improved" value being larger than the "As-Is" value.  The implication being that this requirement would apply to all lenders.

To clarify: I'm not intending to get any cash out; only want to finance the current mortgage + renovation costs.  I'm in Los Angeles (Silverlake area), and the comps for the "As-Improved" value of my home with an add'l unit and more square footage should easily exceed the $500k total of current debt + rehab costs (2-unit buildings in the area are usually $600k+).
  • May 24 2012
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

[Promotion and website removed by Zillow moderator. Please see our Good Neighbor Policy.]
  • June 16 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.