Mythbusting for 203k Rehab Contractors

Morning, everyone, and thank you so much. My name is Kathryn hall, and we are here today to talk about Myth busting the top 10 myths about 203k contracting. And we want to thank you all so much for being here on the webinar today. I'm sure everyone is aware that, you know, you could be a lot of other places, you could be out doing construction projects, you could be working with your client. If you are a buyer, you could be doing your regular day job. The consultants who are with us today, you could be out working with contractors and clients. So 80% of success in doing anything is just showing up. And so I just want to acknowledge all of you for being here today, because this event, this training, is designed to help you understand that there is a lot of opportunity, tons of opportunity out there for individuals such as yourself. And the majority of the people on the call today are contractors from all across the country. We have contractors from Texas, Oklahoma, Florida, California, Georgia, Pennsylvania, New Jersey. Just in Delaware, I'm seeing people from Kentucky. We have people from all across the country because the world of FHA consulting is. Is a viable and a growing industry. And we here at the national association of FHA Consultants are dedicated to providing everyone with that opportunity of being able to have access to the information and the resources that are available to you. And so the other people that I want to acknowledge today are our fha, are our national association of FHA Consultants. I'd like to thank you all for being on the webinar today. As NFAC members. You actually have dedicated yourself to a level of quality and a level of skill and expertise in the industry of FHA Consultant that has set you apart from the rest of the industry.

And today I just want to, basically, I just want to actually send a special.

Applause out to, excuse me. Our members who are on the webinar today, who are representing some of the states of the individuals who have been invited. So I do want to point out the members who are here from Oklahoma and our members that are here from Texas and New Jersey and Pennsylvania. And thank you so much for the invitations that you sent out to contractors in your market so that you can help grow the industry that we have dedicated ourselves to. And that really is important for us to be able to have that ability to share the knowledge and be the change makers in the industry.

As members of the national association of FHA Consultants, we have a mission and we are dedicated to competency.

Consistency, community in the world of 203k consulting. And so if you are looking for a NAF. If you're looking for a qualified FHA consultant to work with. And I see there's some loan officers on the call as well today. Welcome to you. We're very honored to have you here. If you're looking for an FHA consultant to work with, there's no better place to find a qualified dedicated consultant than to come here at www.nfac.org and click the link for consultant to find a qualified consultant. And all of the consultants are trained by the 203k in a box FHA consultant training and Marketing System. So we just want to basically thank you all for being here and supporting the efforts that we have to be able to grow the business and to be able to provide qualified FHA consultants in our market. And so we just basically want to thank you all for being here today. So now, before we actually get started, before we actually start, I want to tell you what we're going to be doing today, what you're going to be learning about in the world of FHA consultants. And so before I want to tell you, but today what my goal is, is to help you know what a 203k loan truly is. There are a lot of myths out there about 203k consulting and I want to basically smash them all. I want to help you understand who uses them and why, why you as a contractor really should want to look for them. Look to align yourself and partner with the consultant who will be able to help you help buyers and homeowners out there. What it takes to become a 203k contractor. What is the process? There's a lot of myths and things around what it means to be a 203 contractor. We want to help you be able to understand just how easy it is and just how lucrative it is. And the most important thing, everybody listens to basically one radio station. And we all know what that is, don't we? It's the WIIFM channel. So the most important thing I want to make sure I help you leave today with an understanding is how to make a great income. That's guaranteed that the money is protected for you. And that is the most important thing that I can think that you'd be motivated to have, all while improving our neighborhoods one home at a time. So that's what we're going to be talking about today. But before I do that, it's one of my prime core beliefs that a person will not listen to someone's words until they know who that person is. And so if I have your permission I'd like to tell you a little bit about who I am so that you actually can know where I come from and why I'm actually feeling and why many people feel that I have a place where to be able to speak to this issue with you. So let me just tell you a little bit about who I am. My name is Kathryn hall and I am actually the owner of a nonprofit. Excuse me, I'm actually the owner of Value Home Inspections and Value Home Inspection is a multi inspection firm in the Delaware Valley of Pennsylvania. And our company has been dedicated to assisting home buyers and borrowers with the opportunities of homeownership for the last 25 years. And what that has meant is that we have dedicated ourselves to finding the opportunity to be able to work with home buyers and make it so that they can enjoy the homeownership experience in homes that are safe, sound and enjoyable. And as part of that activity, I'm actually also the vice president and Senior Training Director of the Keystone Real Estate Academy. It is a state organization that trains and educates and informs.

Real estate agents in the Delaware Valley of Pennsylvania. And we are soon going to be expanding into New Jersey. And actually, and we are going, we are actually have the ability, we actually have had the ability to be able to help train real estate agents in the understanding of what the two mostly about what the opportunities are that exist in the world of real estate. And so that's what I have done in that realm. Because of my experience in 203k consulting, because of my expertise in working with consultants around the country, I actually have developed the 203K in a box FHA consultant training and marketing system. And with that system, I have actually been honored to be able to have the members of the national association of FHA Consultants that you have here today be our members and be able to be trained by me in a manner that has become successful and the actual premier training academy in the country for 203k consultants. And as we all grew in our expertise, I actually am now the executive director of the national association of FHA Consultants. So you see, my whole background for the last 25 years over two decades has been in the realm of helping homeowners, homebuyers, real estate people and professionals such as you benefit from the opportunities of homeownership. And so that's me right there. And you can see just a little bit more about my bio. And again, the thing that I am most proud of is that I am known nationally as America's 203k Queen so if you click Google and type just 203k Queen, you will see that come up on the.

That will actually come up on the. And you'll see all about me there on Google. So let's get busy and let's start with our myth busting. So myth number one, 203k loans are for low income home buyers only. You have no idea how many times I've heard people say that to me. Well, not in fact, nationally, by and large, 203k mortgages are originated for a single family home up to $417,000. So in other words, you actually can buy a property and include rehab costs in it. As long as the property values and the borrower can qualify up to $417,000, that is hardly a low income mortgage. Secondly, purchase price, the 203k loan is used most often for people who are looking to buy a new home. They're looking to purchase a property and unfortunately the home is not ready to be sold. And with all of the homes that are in foreclosure, short sales, which are still not totally in great condition, we still are not a stable real estate economy right now. But we're making wonderful strides. And what we're finding is that in the world of real estate, and I'm sure many of you will agree, especially those contractors and particularly those buyers who are on the call today who are looking to buy new homes, here's the thing that you probably are finding is that you're finding a situation where you can't find homes to purchase that are not in poor repair because all the homes that were in good condition were snapped up before you got to the point of looking for a property. So in many cases, the only way you can buy a home and enjoy it is if you buy a home that you rehab as part of the purchase. And here's the most important thing that a lot of people, particularly contractors, are, aren't aware of. FHA 203k loans and other renovation loans are used about 40% of the time for people who are refinancing an existing mortgage because they feel that they want to stay in their home, but they want to make that home more enjoyable, that they want to benefit from the equity that they've built up in the home, but not just in adding another mortgage by adding a second loan or a home remodeling loan, which has high interest rates and is actually subject to a lot of credit requirements, but instead refinancing to a lower interest rate and including into that purchase into that refinance mortgage, all of the repairs, and really not having to come out of pocket for a single dime. You see, what a lot of people don't understand is when you refinance a mortgage into an FHA 203k loan, all of your closing costs and fees are built into the loan. And in most cases, you do not have to come to the table with a single penny. Now, obviously, with anything, there are qualifying conditions, and in the time we have today, I won't be able to go over all of them. But I do want to let you understand that most of the time, when we do a 203k refinance, and I'd say about 85%, if not more, the borrower does not have to come out of pocket with a dime. And it's for that reason that you will hear me refer to the clients that we work with in 200 3k loans today as borrowers, not as buyers. And the reason is because 40% of my clients are not buying the home. They're just borrowing new money. So please accept the fact that moving forward, you're going to hear me use the term borrower more than buyer. Okay? So thank you for that understanding. So I hope we've busted that myth right off the bat. So myth number two. And again, these are myths that I have heard from contractors and home buyers and borrowers around the area that I work in and from the consultants who I have working around the country, they hear phrases like, well, loan 203k loans can only be used if the loan is up to $35,000. Well, that also is absolutely not true. In fact, there are two different types of FHA rehab loans. There is the limited 203k, and yes, that loan is for repairs up to $35,000. And that's the one that most contractors have heard about and have tried to get involved in because they've been told, well, if you do a limited 203k, you don't have to worry about having a consultant involved. You are able to get the job done quickly, and it's an easier loan for you to work with. Well, most lenders, many lenders today are finding that due to conditions that complicated the process, that they are unwilling to have the 203k limited loan without consultant involvement. And there are other conditions that necessitate the use of a consultant. You see, many people believe that if the repairs are under $35,000, they can do the limited 203k and be able to not have to use a consultant and that they feel that they're saving themselves effort and they're saving themselves money and time by not by going around the use of a consultant. The truth is that when you use the limited 203k, the property, the repairs, yes, must be less than $35,000. But also the repairs must be small, minor, non structural in nature, and not complicated repairs. So you can't move walls if there's termite damage. It automatically eliminates the ability to use a limited 203K. And there are many other conditions that preclude the use of the limited 203k and requires the borrower to use the standard 203. Now, the standard 203 is an excellent product because with this loan you actually can incorporate a whole lot more into the purchase price of the property. And, and there's no restrictions on what can be done as far as the fees that are paid to the consultant. Those fees are actually reimbursed to the home buyer or borrower. Again, remember that refinanced borrower doesn't have to come out of pocket with anything because the fees that they pay to the FHA consultant prior to the closing on the refinance mortgage is actually deducted from their mortgage and actually applied to the closing costs that they would have to normally pay. And that's one of the reasons why they don't have to come out of pocket for anything when it comes time to go to closing because the fees they pay to the consultant are credited toward those closing costs. So Those are the two different types of 200 3K loans. There are also conventional renovation mortgages that are out there. The Fannie Mae Homestyle loan is an excellent resource that goes by the same standards as the 203k but but is used on conventional loans and not on FHA insured mortgages. And so I want to give you a brief understanding of what the process is.

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Whoops. Okay, so I'm going to slide past that slide because for some reason there is some sort of an audio behind it and I'm not sure what's happening with that. Let me see if I can actually go back to it and see if it does not put that up there because this is really an important slide that I want to share.

And. Okay, great. It looks like the audio is off. So perfect. You see, here's what the typical process is of understanding when to use which type of FHA loan. If the repairs are less than 32,000, not 35, and the repairs are non structural, not complicated, and do not require the services of more than three individual contractors, then yes, the loan can be used as an FHA 203 streamline or otherwise known as limited K. Many of you will hear the term FHA 203k streamline. That's what the name of the loan was up through September of 2015. But now the term for the loan is called the 203K Limited. And the reason why you see a difference, and it says 32,000 here with an asterisk and up to 35 here, is because with every FHA 203 loan and conventional loans, in most cases there's a mandatory contingency reserve of at least 10% added to the repair amount that covers unforeseen problems that might arise after closing. And we're going to talk more about that contingency reserve in a little bit. But with that being said, if you have a renovation, if you have repairs that are $31,000 and you add the additional 10% that's automatically required by lenders, then that FHA rehab amount that's added to the purchase or refinance of the mortgage is $34,100. So, so you see, you really have to stay under 32,000, even probably under 31. So now, with that being the case, if you can't, if the repairs are not less than.

32,000 or they are structural in nature, require more than three subcontractors, then a contractor would complete a bid and the borrower would then submit that information with their contractor's bid to a consultant who would then complete a work write up document, and then they would move forward with the standard 203k loan. Now, the bid does have to be provided on a Limited, streamlined 203k, but it is not as comprehensive a bid as if you're working with a consultant. And one of the important things to understand is that the consultant provides a bid for you to be able to fill out using a program called the Genesis 203K Rehab Reporting System. And again, we're going to talk about that very briefly in a few minutes. So what's the next step? So the myth that you can only get a 203k loan if the repairs are under 35,000 is absolutely wrong. And I hope we busted that one too. Now. So next myth.

Well, not many people are using the 203 loan. Well, that is absolutely not true. And it is so not true. And the situation is that HUD is actually putting out Public Policy Comments to try to grow the ranks of consultants to get more consultants to do the 203k loans because there are not enough consultants to handle the volume that currently is taking place nationally. FHA has stated that they expect more than 20,203 loans will be completed between now and and September 30th of 2017. Their fiscal year begins in October 1st. So they're just beginning their year and their projections are making it so that they find that there is a lack of consultants available to administer and oversee these loans. So they're actually soliciting consultants to do more FHA 203k loans. A matter of fact, we have several lenders on the webinar today who have specifically charged NFAC with the opportunity to help get more contractors and consultants in areas around the country to help meet the needs of home buyers and homeowners who have no way to be able to fund the purchase or renovation and refinancing of their mortgage because there's no consultants out there. And they need consultants because the average FHA 203k loan is $39,750. And so that means they're not doing the limited K. So this is important to understand that you are needed. And that's why we're spending time canvassing the country, speaking to contractors and home inspectors and consultants and borrowers like you to let them know that 203ks not only are alive and well, but viable and wanted everywhere in the country. So I think we've busted that myth. Myth number four.

Well, people have said, well I heard it's very hard to get qualified to get this type of loan.

And I can say not in a big way. A matter of fact, all FHA 203k mortgages are very easy to qualify for. A person only needs to have 3.5% down payment as a buyer. And if the buyer, if the person is refinancing, all they have to do is have up to 4% equity in the home to be able to allow them to be able to do this with no out of pocket expense. You can do a 203k refinance in a home that you've lived in for as little as six months. So you don't have to stay in a home for extended period of time. And if you bought a property at a reasonable, at a really discounted price six months later, you can refinance that mortgage with a 203 and make the repairs that you probably needed to do for getting that bargain. Contractors. This is a Great opportunity for you. Are you finding that people come to you shortly after buying a home to do upgrades like replacing kitchens and adding bathrooms and remodeling and enlarging rooms and other important improvements? Well, if there's available room in the equity of that property from the appraised value after you finish the repairs. In other words, when the home is worth more because of what you're doing, the borrower can borrow the difference between what their current mortgage is and what the after repaired value will be. And so this is an extreme opportunity to help that new homeowner to get a mortgage to fix the property and not have to use credit cards or out of pocket disposable income that could risk their ability to pay the mortgage. It also gives you an excellent opportunity to help them repair systems in the home that they may not have evaluated correctly before closing and are causing them concerns. As a 25 year experienced home inspector here locally in the Philadelphia Delaware Valley, we find it very sad when someone comes to us after they've bought the home to say, I bought a home and I didn't have it inspected and now the heater's not working, what do I do? Fortunately, in some cases, we're able to offer them the option of the FHA 203, because even though with a 203k loan, there is no minimum amount that a person can use to borrow with the 203k mortgage. So if they only need a $6,000, a $3,500 heater and some duct work or maybe some electrical repairs and all they need is $4,500 or $6,000, they actually can still refinance their mortgage, get that money if they don't have it, if the funds are available in the equity of the after impaired value and be able to get that completed with the limited 203k using contractors just like you, credit scores as low as 620 and down payment assistance. How many know what OPM stands for? Raise your hand if you know what OPM stands for.

Other people's money. And this is critical because with the FHA 203k and any FHA insured mortgage, a borrower can have the down payment that they have to bring. The 3.5%, 100% gifted by a family or friend. And so this makes this loan even more advantageous than conventional loans that require in some cases 10, 15, and in some cases up to 20% down payment. So I hope we've busted that myth right away.

Number five, borrowers are only allowed to fix the FHA items. Now, it is true that FHA now this. It is true that FHA will require a borrower to repair things that are unsafe and cause the home to be considered unsound. But it is not true that they only have to fix those items. FHA requires that all homes, in order to get the insurance, must meet minimum property standards. These are the mandatory repairs that all FHA insured mortgages must meet. So if a person is buying a home with an FHA insured mortgage and they have an FHA appraisal and that appraiser identifies something that is is considered a minimum property standard deficiency, the home, it's a roof leaking, or it's improper electrical wiring, or there's no heat provided to one of the bedrooms, or there's hail damage to the roof, or there's upheaved concrete causing significant tripping hazards at the sidewalks, or there's mold or moisture entry into the home. These are just a few of the items that failed to meet the minimum property standards. Yes, those items must be corrected as part of the 203k loan. However, recommended repairs that might be suggested by a consultant or you, the contractor, are able to be included in that loan and are encouraged by the lender to be included. And these are the typical things that most home buyers and borrowers are going to utilize when they put together their work item list. But the fun part is the desired repairs. This is where people can actually take a home and get it to look like the way they want it to look like. You're not just required to replace the electrical panel that's faulty or the roof that is defective. If there's funds available in the rehab loan, you actually can actually add things like kitchen upgrades, new flooring, new appliances even. There's opportunities that exist. And most cases, people will find that the interest rate that they're paying on the additional funds that they add to their mortgage is far less by a long shot than the interest they pay on the credit cards to stores like Lowe's, Home Depot, JCPenney and others. What are those credit rates right now? What are those interest rates? 22 to 24%. What is the typical interest on an FHA loan? Now, I have to give a qualifier and say that I am not a lender and therefore I'm not allowed to quote rates. But it is usually under 3.5%. So. And all that interest that you're paying on these extra repairs is 100% tax deductible. So I want to point that out to you as contractors that when you are offering options to your customers on repair needs and how to fund them home equity loans. Those loans have much higher interest rates and in many cases don't allow the borrower to qualify. The borrower cannot qualify to borrow up to the after repaired value of the home based upon your completed repairs, but can only borrow based upon what is currently available in the equity of the loan. So you can take a kitchen that looks like this. Whoops.

Now. And so you can actually go from a kitchen that looks like this that has.

No redeeming value and you don't have to just look to do. You don't just have to whoops. I don't know what's with this audio. My apologies. There you go. You actually can go to this. So now you can see this kitchen is not simply a basic kitchen. This is not just a couple of cabinets and a sink which is the FHA minimum requirement. The only thing that HUD requires in a kitchen is a sink base of 6ft and a range and an outlet above that sink base. HUD does not require beautiful 46 inch cherry wood cabinets or mirrored tiles. It does not require them to put in a microwave oven, dishwasher, beautiful faucets or islands with granite countertops and ceramic tile floor. All of these things were the desired improvements that the borrower requested to have with their 203k loan. And this is another myth I hope we've busted. Six.

Contractors must be on an approved list. Many contractors have said to me that the reason why they did not explore the option of becoming a 203k contractor was because they were under the impression that they had to be on a federal list. Well, ladies and gentlemen, that is absolutely the biggest myth of all. There is no approved HUD contractor list out there. In fact, there is no list of all that you must be on to be able to do FHA 203k consult contract contracting. Except this one. You must be. If you are working in a market that has homes built before 1978, you must be an EPA Lead Safe Remodeler. And that is a certification that all contractors should have and have been required to have for six years now, since 2010. And you can easily identify whether if you are not already a member of the if you are not already a certified EPA Lead Safer modeler, all you have to do is go to your computer and just type in lead EPA Lead Safe Remodeler certification and you'll be able to find the classes and certification process in your own specific area. That is a requirement that HUD has that anyone doing repairs on homes that are built before 1978 must be compliant with this regulation. Additionally, of course, you have to have all of your state and local requirements. And then all you need to do is submit an application package to the lender working with your borrower, and you are independently individually validated for that loan for that borrower. And now you are able to be put on that lender's list for future opportunities. So there is no list that you have to get on. All you have to do is be individually validated based upon your qualifications in your state to performance to perform contracting work for 203k processing. And your subcontractors. Why, yes, they need to be qualified to do work in your state as well, because all permits that must be used for the renovation projects must be pulled prior to the first disbursement payment, which we're going to go into in a minute. So myth number seven, contractors must fund the entire project up front. No, not true. In fact, if you are working with the limited 203k, the lender will provide you with the ability to get up to 50% for materials added advance to you prior to closing, actually as soon as the loan closes. And so what that means is you're able to get the mortgage money, you're able to get from the mortgage money, the cost of your repairs added to the purchase price.

Excuse me, let me rephrase that. I got distracted by the fact that my computer froze and I can't get to the next slide. Hang on for a second, see if I can get this to work.

Okay, let me rephrase that. The limited 203k allows a borrower, their contractor, to submit proposals, purchase orders mostly, or a contract proposal broken down into material and labor costs. And they in most cases are able to get anywhere from 30 to 50% of those costs dispersed to them prior to them beginning work on the Limited 203K. Now remember, we're talking about projects that are under $31,000 typically. So you're talking about getting anywhere from 10 to 15,000, 10 to $12,000, 10,000 to $15,000 disbursed to you for you to purchase the materials. Now remember I mentioned the fact that many lenders are no longer permitting the limited 203k product. It's because, unfortunately, there were abuses.

Borrowers and contractors. And because a borrower does not have to have a consultant, and in fact a borrower can act as his own gc, we all cringe. They actually could get the money themselves. And unfortunately, borrowers and contractors abused this, didn't take care, didn't take the use of the funds correctly, and it turned into a situation where the home was foreclosed on by the new lender for failure to complete the repairs because the money was not used for the actual reason specified in the work write up. And this is why many lenders are turning to the oversight of a 203k consultant. With the 203k consultant involved, there is no upfront money. That is true. But a contractor can request draw payments as often as they need, up to a maximum of 6. And since most 200 3K projects are 6 months or less, the contractor can have those fees added to the purchase price of the mortgage. And they're paid by the loan, not by the borrower directly. And they are paid to the consultant by the lender out of the proceeds of the loan because they're added to the escrow. And so you get to get your draw payments made as soon as you request it. The first draw must include all permits for all categories of improvements where permits are required. But most people can order a draw within two weeks of closing on the loan. So this is where you can get money as frequently as you need it. Now, I mentioned earlier about a 10% contingency reserve. That 10% contingency is there to help fund change orders that might be needed moving Forward with the 203 process. I don't know a single 203 project, or any renovation project for that matter, that didn't require some form of change order to be requested after the job began with a 203k loan. However, when the job has begun, the mortgage has been executed, the money has been set aside in escrow, and there's no way to go back and get more money out of the program for this loan. The loan is already closed. So to protect the interests of the borrower, to protect you as the contractor, and to protect the integrity of the program, HUD Requires that all FHA 203k loans have a minimum of a 10% contingency reserve added to the repair amount. And when that reserve, and in most cases the lenders are requiring it to be 15%. So what's the benefit of this change order process? Well, what I want to do is to demonstrate that to you. I'm actually going to show you the, in my opinion, the best 203k software on the market that assists contractors and buyers.

And lenders with the rehab process. And that is the Genesys Rehab reporting system. So now what I'm going to show you here. As you can see, I'm going to log in on my own local company site and as you can see here.

I can enter as a contractor. Contractors, we've made it easy for you to manage the projects because we give you the access to the information electronically from your smartphone or your tablet. Any device can access this web enabled program. So I'm going to log in as the consultant.

And I'm going to take you to a project and show you exactly what happens when the work exceeds the repair amount. So here I'm going to go here to.

This project here.

And here you can see where notice the word change orders.

You see there is in this specific project there is a contingency reserve of $4,317.20. And I'm going to show you the previously submitted changes.

Well, first of all, when we initially decided what the work was going to be done, we had thought that there was going to be a need for a plumbing permit. After closing, it was determined that the work was not going to require as much, was not going to need as much as it originally planned. So there was not going to be a need for the permit. So that $400 is being moved back into the contingency. Also, there was no permit required for the heating repairs, so that money got moved to the contingency reserve. So that increased the contingency. Then we actually had the borrower had found that they needed to replace the roof after closing. It was identified that there was some damage to the roof that was causing some leaks. And in order to make it a safe and a successful mortgage, the borrower decided with the advice of the contractor that they were going to take the funds out of this renovation change order and they were going to use it to replace the roof. So the contractor submitted a change order invoice that is actually created through the Genesis system and makes it easy for you to do. And they actually are going to replace the roof. So this now is money that is actually going to be used to put a new roof on. So that's more money in the contractor's pocket for this new additional repair. But it didn't come out of the borrower's pocket because it came out of the contingency. And so as you can see, even after that roof replacement has been completed, we actually have still left $327.20 for other repairs that the borrower is going to do. And in fact her plan is to use that money to install a dishwasher into the kitchen. So you See, the change order process is designed to protect you as a contractor from having a situation where you find things need to be done, but you're not given the opportunity or the resources to know how to fix them. And that actually is one of the best advantages of working with a qualified 203k consultant because they know how to prioritize the work, they know how to help you understand what needs to be done, and they know how to submit the paperwork to the lender that gets it approved. And so now.

I'm going to go in as a contractor.

So I can show you.

Let's see. Hang on.

Not sure I remember the password. And I didn't. Okay, so I'm not going to be able to show you that. I was going to show you how you can look at your jobs as a contractor in the 203 portal. But what you do need to know is that in order to access the Genesys portal, you need to go through a qualified consultant. A NAPAC consultant will then give you your will register you through their company login. So you can't just sign into Genesys, you have to know the consultant that you're working with and get their consultant company id and then they give you a contractor login to help you get into that program. I just wanted to share that with you. And with this being done, you actually have the ability to know what you're doing when you're working with your 200 3K projects.

So as you can see, the change order process is meant to protect you from so that you are not at risk for any outside pocket funds. Now here's something that many consultants don't even know NFVAC consultants do. Because at the national association of FHA Consultants, we educate our members often with what they need to know to be successful 203k consultants and thereby helping you be successful 203k contractors. What many people don't understand is sometimes the repairs that are needed are very significant and could never have been evaluated prior to closing. And sometimes those repairs exceed the funds that are available in the contingency reserve. What happens then? In that case, HUD provides for that consultant to request of the lender and get approval to divert funds from desired repairs to the mandatory repairs to ensure that all those items that must meet minimum safety and soundness are completed. So you see if the bar. So if the borrower wants to get an upgraded kitchen and wants to have a full appliance package put in to the tune of $5,000 plus installation. So let's say it's a total of $7,000 for the appliance package installed. But then we open up the wall and found that in the basement, behind the drywall, there was extensive termite damage in the ceiling that had to be repaired. And the cost of that termite damage was going to be $3,000. Well, the five, six, $7,000 appliance package would be scaled back, and if the borrower still wanted to have that, they'd have to come out of their pocket for the cost for the appliance package. Whatever the amount, we could not incorporate because that $3,000 had to be redirected to structural repairs. So, you see.

Knowing a competent consultant who understands how to do these things is your surest way to be able to make sure that you are successful and that you are profitable as an FHA consultant. So I hope we busted that one. Here's the one that I hear a lot. It takes a long time to get paid. I never get paid on time. I've heard that contractors don't get paid quickly or effectively.

Once again, not.

This is absolutely untrue. As I said before, with the Limited 203K, you get your material cost up front, and then once you've completed the repairs, you request. You request an inspection, and they come out and inspect, and you get the balance due in one installment because you're only allowed up to two disbursements. With the 203k, working with a full standard K loan, as I said before, you get to have. Oops. This is the same slide I just did. I'm sorry. I'm going over the same thing. Okay, myth number nine. That's what I was trying to get to. Consultants interfere with the work getting done. Again, this is something that I have heard people say. I'd rather not have to have that consultant because I know what my client needs. I can do it better. Well, what you need to understand is that the consultant is your partner. The consultant is the liaison that connects you with the mortgage lender and in many cases, acts as your advocate to help borrowers have realistic expectations of what the work is that they're going to have done. The 203 consultant is there to make sure that the paperwork is processed correctly. And if you're working with a qualified 203 consultant who is able to address the needs that you have for the program quickly and effectively, and they're using the Genesys Rehab reporting system, then you are lucky because you don't have that situation where you're dealing with a slow process. Many consultants that are not members of the national association of fha. Consultants, are not using software as sophisticated as Genesis and are actually using things such as.

Handwritten forms. They don't have electronic delivery of the documents. And without that electronic delivery of the documentation, you don't have the ability to have the process done as effectively as available to you.

With Genesys, you are going to be able to see that you actually can log in to your Genesys portal and submit your request for a draw and your change orders electronically, notifying the consultant and the borrower. The numbers are automatically forwarded to the consultant who's able to import them in the system and once the inspection is done, automatically creates the electronic reports that get sent to the lender. So you see, the consultant is there in many cases to help a borrower understand just exactly what you're doing. You all know the story as contractors that borrowers have champagne tastes and beer budget. And I'm sure you all can raise your hand to the phrase that borrowers don't realize that the cost of what they're trying to do is usually not reflected in the amount of money that they have budgeted for the work. Everyone wants to have a crystal chandelier in the dining room, but the amount of money that was budgeted is for a ceiling mounted fixture from the Home Depot aisle. These are the things that a consultant will help convey to your borrower. In many cases, we're here to help them realize that the work you've done is the work you're supposed to do. Situations have arisen where a borrower was expecting a contractor to do more than what they were supposed to do according to the terms and conditions of the contract that was worked on, that was created prior to closing. And this is something that is identified by the consultant to assist with the program. So knowing a consultant, knowing a qualified NFVAC trained and certified consultant is your best success for being able to not only get paid promptly, but get paid accurately the amounts that are due you and to be able to quickly complete the renovation project. And that's what the benefit of working with a qualified NFAC consultant. So please don't hesitate to look at the consultant as your partner. Most of us are contractors or have been in the past and all are currently required to be qualified home inspectors. So we can talk your language, but more important than talking your language, we can translate your language into terms the borrowers can understand. And the lender and disbursement lender can understand as well. So think of the consultant not as your, as an Interfering as interference or as a person causing conflict. Think of that consultant as the person who's going to effectively help you find projects, create the bids, and be able to negotiate through the actual process of getting the bids and then assist to make sure that expectations are managed on all fronts moving forward with the 203k project. So I hope you realize that this is also now a myth. Busted.

Last myth on my list of things to bust. There's no profit in doing 203k loans. Actually, totally not true. I think I've shared with you the fact that 200 3K loans can be done for as, yes, as little as 6,000, 4,000, $1,000. There's no bottom on a 203k loan anymore, but it can be done for up to loans of $4,700. The rehab project is not up to the equity in the property as a home equity loan or a renovation loan is, but is up to the maximum limit of the after repaired value. So what that means is if a client's buying a property that's $200,000, but the repairs that you're going to put into the home are going to make the home worth $300,000, and they can afford a $300,000 mortgage, and the neighborhood has other homes that are appraising for 300,000, then they can add $100,000 in repairs or more. You, as the contractor, you price the project. You create your own profit margin. You decide what the repair cost is going to be for the loan. It's up to you to put in what you feel are your prices for the project. And while a lot of people, again, think that a renovation consultant interferes with their success, that's absolutely not true. Because when we go out and assist a borrower, we actually tell them what they should expect the contractor's bids to be. And when we do that, we help give them those reasonable expectations so that when your bids come in, they understand that this is what the cost is supposed to be for the rehab project. And so as we go forward, what we do is we help you understand that when you are working with the contractor, our job is not to thwart your effort to make money. Our job is to help you be profitable. In fact, the lender wants you to be profitable as well. Lenders will not interfere with your ability to be profitable in any way. In fact, if it looks like there's a situation that a borrower is trying to prevent you from being able to earn a profit, the lender will say, we can't do that the contractor needs to have a profit on this, and so that helps make it so that you're able to get what you deserve for your projects. When you're talking about the pricing of the projects, you are the one who needs to make sure that you incorporate enough funds to give you your profit margin over the cost of your subcontractors. Now, we actually have a great program that we actually can teach you how to be a successful 203k contractor. And that program is called contractor 101. And I'm going to talk more about that in a minute and where you actually can access contractor 101. But what I want to show you is here you can see on the screen, trying to get it to come up.

There you go. And there it is. This is a sample contractor page for the Genesys program. And here you can actually see that the contractor is submitted draws requests to be able to process a draw. And there you can see the draw that he submitted. And you can always see the draws that you want to work on so that whenever you're working on a project, you're always no further away from the loan, from the work that you're doing, than your nearest computer. And when you're working with the 203k project, you create your own profit margin. And if you have an overhead, you put that in there. People don't understand that you're in business to make money, and we know that, and we respect that for you, and we want you to be as successful as you possibly can as FHA contractors. And so we go out of our way to give you that ability to be successful in this industry. So what are some of the way. What are some of the projects that you can do as a 203k consultant and have an enormous amount of success? Well, let me show you this one here.

Here's a property. And this was before. Whoops. We keep doing this. This is the before and after picture a property. And this is in the Philadelphia Delaware Valley. This property was actually sold for only $80,000. In a market where the homes are being sold for 300,000, the borrower received a $210,000, actually $180,000, plus 15% contingency rehab loan. Okay. And so because we had unforeseen problems that arose after settlement, and because we had extra funds to spend on desired improvements, we had that $180,000 loan. And then we had the 15% contingency added, which was an additional $27,000. So in reality, the contractor actually earned $207,000 in construction expense that he earned for this project and was able to move forward and be able to make an enormous profit on it. Even if you only have a 10% profit margin, that's $20,000 right there on the $207,000 loan.

So where do you go from here? What is your next steps? Well, first of all, I hope you understand that your next step should be first and foremost believe that 203s will work for you. And the best way to get to the point where you can believe and trust that 203ks can work for you is by reaching out and connecting with a NFAC member FHA consultant. Those of you who were invited by a National association of FHA consultant member contact them, scheduled to be able to sit down with them, to be able to talk about upcoming opportunities and bids that they may be getting ready to put out. You will find that that consultant will connect you with the lenders that they are working with so that you actually can submit your validation packet to those lenders even before you have your first project. Get pre validated, submit your paperwork. In most cases it's your copies of your licenses, your EPA lead SAFE remodel registration and some credit and banking history get validated by the lender and then be on the list so that when you are invited to bid, because you will also now be put on the consultant's bidders list, you'll quickly be able to submit bids and be approved to be the selected contractor to close on the loan and work with the consultant to get registered to use the Genesys203k.net software. With this software you actually are able to log in and and complete the bid that the consultant generates for you. You don't have to worry about handwriting a bid or doing anything except filling in your labor and material number in the lines that the consultant will be already creating for you. And that will be the easiest and most effective way for streamlined, clear and concise bidding. No more math that you have to add up. No more worrying about how to calculate my margins. There's ability for you to be able to add your markup right there in the program. But Genesis 203k net software is only available through a NAFAC certified consultant. No other consultants out there can use it. And if you are already an FHA consultant who would like to be able to benefit from the Genesys software, then have the consultant that you're working with contact navac, call us or reach up to us through our website to become a member of our organization and they can then use the Genesys software and allow you to have access to it as well. Where do you go next? Secondly, plan to attend the live and streaming training that we're going to be holding next Monday. Contractor 101. We're going to be in Oklahoma City, Oklahoma. There at the invitation of one of our members, OKC inspections. And that consultant is on the call today. We want to thank Ms. Kimberly McCauley who is a qualified FHA consultant and a very experienced and successful home inspector in the Oklahoma City area. And because of the volume of business that she's experiencing, I'm actually going to go and be her guest as we present the contractor 101 educational session. This is a two hour training and we actually are going to be streaming it live. So if you can't come to Oklahoma city for Monday, October 1st, the class will begin at 9:00am if you can't register, if you can't come to Oklahoma City, which we strongly recommend that you do if you're anywhere in the area. Because we're going to give you hands on training with the Genesis software. We're going to give everyone a chance to practice using it, all the contractors who are present. But if you can't, plan to stream it live through your computer and have your laptop Handy. Monday the 17th. Correct. Oops. Aha. It does. I will fix that slide right now. Thank you for letting me see that, Samantha. Yep. Monday, 17th. Yes. Okay. Monday the. Yeah, Monday. Monday isn't even the first, actually. All right, there you go. Thank you for correcting my typo. All right, so let's put that back up on the screen now correctly. And here we go. So let's fix that so everyone can see that I'm saying. There we go. Monday, October 17th. There we go. We got it correctly up there. Thank you, Samantha. We're going to be sending everyone who has registered to this event the link where you can actually register to attend this live streaming webinar. Again, it is going to be a live event. Streaming has its challenges. I'm sure you all are aware of. If you do register but you find that you are having a problem with the technology on your end, or we find that we have a technology glitch on our end, we will still be recording it and we will send the recording out to everyone who has registered for the event in case there is some sort of a streaming problem. This is a free training. There is no cost to you. And if you are a contractor who wants to get more interest in 203k for your business. Maybe you might want to invite some real estate agents that you know or even some lenders that you know to participate in this event. They'll learn how you will be learning how to be a successful, qualified and competent 203 consultant, easily able to make money while helping people rebuild their homes. And they will see the quality and caliber of the success that you're demonstrating by investing in this education. So again, this is a completely free webinar and we're going to send you an email link to it. But if for some reason you don't get that link, just go to our website@nfac.org and actually you'll find a blog entry this afternoon where you can click that link to be able to register or send us a contact request to be added to the registration list. If you don't get the email sent over to you this afternoon. For some reason, we want everyone to be either live or streaming in this amazing event. And after you finish, I promise you, you will enjoy 203k contracting. You will embrace it and you will seek it out. And in some cases, this might be the actual key part of your business success as a contractor. Because most people, when they do a project.

Not only do they use you for that project, but long afterwards, you're going to be their first and only call for any future repairs, not to mention referrals to family and friends. Third and last but not least, download the book Insights of a successful 203k consultant for free. We're making this accessible to everyone on this call today by simply going to the NFAC.org website. There you'll find a link that says Insight Book. Click the link, enter the information and download this free book. This book will help you understand from the perspective of a buyer, a real estate agent, a lender, and most importantly contractors, how to have or run a trouble free FHA renovation project. So this is my way of giving back to you to thank you all for being on this webinar today. And I truly do thank you all on behalf of the entire national association of FHA Consultants and the consultants represented here today. We want to say, as I always like to say, until I'm able to support you in the future, be outstanding. For questions that you might have, please go to our website nfac.org and send the questions through our contact us or email us@c hallafac.org and that's my personal email. So thank you so much for being on the webinar today. Good luck to all of you contractors. Remember, 203k consulting, 203k contracting, 203k loans can help you get through the lean winter months with guaranteed revenue escrowed by the lender, paid out to you as you complete the work. So enjoy your winter instead of just scraping by with 200 3k loans. Have a great day and thank you all for being on this webinar. Good night, Good morning.