Lending Outside Your Comfort Zone

The mortgage industry has evolved a great deal since the crash of 2008. More than ever, we have a responsibility to look at the financial situation of each potential borrower and provide them with a product that will meet their needs. The first step in this process is educating ourselves on all of the available loan products and being willing to step outside our comfort zone in the origination process. 

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One loan program that is widely misunderstood and could help a lot of consumers is the FHA’s 203K Rehabilitation Program. In short, the 203K is a diamond of a loan that allows homeowners to renovate a property to fit their needs. Here are two reasons that make this loan more attractive now: low volume in housing and a large number of natural disasters across the country. 

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Consumers who want to purchase a home with specific features are having a difficult time finding them because of the limited inventory in most markets. The 203K loan will allow borrowers to purchase or refinance a home as well as make customizations and upgrades to make it their own. The FHA 203k program helps accomplish three major things:

>>It helps create inventory in areas that are outdated or distressed;

>>It will boost home values due to appraisals being based on After Completion value; and 

>>It will take a house you like and turn it into a home you’ll love all in one loan.  

Another type of loan that FHA has is the 203H which was created for natural disaster recovery. Hurricanes, wildfires and other natural catastrophes have also taken their toll on homeowners. In 2017, natural disasters cost the U.S. economy a record $307 billion, according to the National Oceanic and Atmospheric Association. There were 16 natural events last year that cost more than $1 billion each. This year we are at about 12 of those events. The near record number of natural disasters and fires has left hundreds of thousands of homeowners faced with rebuilding or recovering from damage to their homes.

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When uncontrolled events such as severe hurricanes, storms, wildfires and other catastrophes happen, an area can be designated as a “Presidentially Declared Disaster Area.” When this happens, the homeowners can qualify for a 203H or a 203K. The 203H loan provides the consumer the ability to complete home repairs, rebuild and make improvements to restore it back to its natural state. It is designed for single family homes and can help lenders as well as borrowers by preserving the home so the borrower does not have to relocate or purchase another home. 

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Many lenders could offer FHA 203K and 203H but do not. The challenge is that most loan officers do not understand the program and do not realize that FHA expands beyond the traditional FHA 203B. It is outside the comfort zone for lenders and requires loan officers to work with a borrower with a few extra steps during the loan process. A professional licensed contractor will provide information on the work needed as well as a HUD consultant depending on the scope of repairs. The repairs can take up to six months to be completed and the great thing with a FHA 203K is all the work takes place after the loan closes and funds, which helps close transactions fast and effectively. At the end of the process, the consumer is in love with the house and that is a long-term win for the lender. 

There are a few ways lenders can expand their offerings to include 203K loans. They can hire qualified loan officers who understand the product and the origination process around it. Lenders can also work with a correspondent lender on a delegated or non-delegated basis which is a way to expand their offerings without a large expense.

Products such as the 203K loan were created to give borrowers options and homeowners a tool to create the home of their dreams. It is our responsibility in the lending industry to make sure that consumers know about the loan and that we provide a service of educating ourselves so we can provide them with the services and loans they deserve that best meet their needs. 

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