Posts Tagged ‘renovation’

Contingency Reserve Requirements on Renonvation Mortgages

March 15, 2011

I’m staying with the “renovation” theme from my last several posts. This week I want to address a common question I get regarding one of the requirements on the Fannie Mae HomeStyle Renovation Mortgage, Fannie Mae HomePath Renovation Mortgage, and the FHA 203k Mortgage… “Why do these programs require a 10% contingency reserve?

The first thing I should do is define a contingency reserve. Fannie Mae and HUD (FHA loans) require a 10% contingency reserve on these renovation mortgages for unforeseen costs associated with the project.

The last thing anyone wants is to get into a renovation project on a tight budget with no additional assets and an unexpected problem occurs. Some potential issues that arise during a renovation cannot really be accounted for until the process is underway. That is why the 10% contingency requirement exists.

The contingency reserve is not an option. Since this is the case, a better question becomes “what happens to the 10% contingency reserve if it isn’t used?

As anyone who has gone through a renovation project on a home knows, most of the times costs end up going over budget, so it probably won’t be a problem. 🙂 In the event there are funds remaining, usually one of the following occurs with these three programs (203k, HomeStyle, HomePath):

  • additional work on the home – in some cases, the contingency reserve could be used to fund additional work on the home. If this isn’t allowed, then the other option is a…
  • principal reduction – the remaining funds are used to pay down the loan balance. Depending on the renovation program (and lender originating the loan), the borrower could request a recast of the mortgage. In other words, re-amortize the mortgage to lower the monthly payment
  • receive the contingency reserve as cash back – this is typically not an option for the borrower

Contingency reserves can be annoying, but they are definitely needed. As previously stated, the last thing anyone wants is to get near the end of the project and run out of money. What happens then? That is a scenario you never want to face!

Tools for viewing foreclosures

November 29, 2010

With all of the foreclosures and great deals on the market having the right tools on hand when looking at a property can save you lots of time and money. By knowing the tools and by having them on hand, you will be able to properly evaluate a home on the first visit, resulting in being able to make an offer afterwards, without the assistance of an inspector or engineer, and without needing to return for a second or third visit prior to making an offer.  This alone will allow you to make offers more quickly and will result in more deals going under contract.

A Flash Light
I can’t tell you the number of times would be buyers show up with a pin light on their key ring to look at property.  A heavy duty flash will allow you to examine attics, crawl spaces and basements.  In many case houses do not have utility service on, so no power and no lights.  Additionally, a heavy duty flash light can provide a defense to any one who may be in a home who should not be there.

A Collapsible Ladder
This should be a no brainer.  Many of the collapsible ladders will fit in a trunk, and when extended will provide access to many ranch, split level and split foyer roofs. In addition they are great for entering small attic accesses which do not have pull down stairs.

Binoculars
This is a great tool to have.  It allows you to see from the ground many of the things that you can not see unless you actually get on the roof.  Additionally, it allows you to take a very close look at soffits, gutters, window sills, and of course chimneys.  Just be careful and don’t be looking too closely at the neighbors homes or you may get in trouble.

A Probe
The one I like to have is home made.  Crafted (if you can call it that) from an extend-able painters pole.  Cut the roller holder portion of the paint roller off with a hack saw, and straighten it, you will then have an extend-able probe with approximately a 12-14 inch heavy steel pointed rod on the end of it.  This makes probing around foundations to detect soft spots or cavities in soil a breeze.  Additionally, it provides the ability to extend your reach to test for damaged siding and wood as well as first story gutters.

Camera or Phone for Photos
If you’re like I me, sometimes if I look at several homes I may get them confused.  Taking a few photos will help me recall the property and remember some to the more critical items associated with each property.

25’ & 100’ Tape Measures
Ok the 25’ tape will be used the most. for items such as counter tops, floor covering, windows, and the list go on and on.

The 100′ tape comes in handy for roofs, gutters, some decks, fences and driveways.

An Old Credit Card or Flexible Putty Knife
Talk about a time saver, this is huge.  I can’t tell you how many times I have gone out to look at house and there was no lock box, which means no key. By having one or both of these tools you will more than likely be able to push the edge between the door and door frame so that as you slide it down it will compress the door latch, allowing for the door to open.  Talk about a time saver, another trip out could be at least two hours and another day, and might cause you to miss the cut off time for an offer.

A Marble & a 4’ Level
OK, I know it sounds stupid, but using a marble is a great way to quickly determine if a floor is not level.  Believe me, you set it down on tile or hardwood and if it takes off, you better take a closer look at the structure below.

As for the 4’ level, it too is great for determining if floors are level and if door frames and walls are plumb.  I find it very helpful in checking out block or poured wall foundations for deflection or leaning.  Oh yea, it is great for determining if chimneys are pulling away excessively from exterior walls.

A Couple of the Basics
Don’t’ forget a pair of pliers and a can of WD-40.  The pliers are great for pulling up edges of carpet to see if hardwoods are underneath, and the WD 40 is great for spraying door knobs and keys so that they will actually unlock the doors.  You can’t depend on anything working the way it should.

Have fun with the tools we have discussed.  And do know, I am not suggesting or advocating your use of these tools in the ways I have described, however if you choose to use them in a similar way, I can assure you, you will save time and money.