HomeStyleRenovation Mortgage

Close Now, Fix It, Move In!

(UpdatedFebruary 27, 2018)

If you are working with a client who is looking to obtain financing for home improvements when purchasing an existing home or a new construction property, then this program is a perfect match for your buyer. This program also is great when working with borrowers looking to make improvements on an existing home they own.

Benefits and Features:

  • Perfect program for those properties that may just be missing the LTV benchmark – increasing the property value.
  • Example for a Purchase: LTV is calculated based on 75% of the lesser of either the purchase price plus cost of renovation, or the “as-completed” appraised value of the subject property
  • Perfect for properties that may have been givenvery low marks on quality and condition ratings.
  • Sell and close on more purchase transactions because you can now market to borrowers, properties that are less attractive, have repair contingencies and may not yet be ‘market ready’.
  • The contractor costs can be built into the loan.
  • Program works for all occupancy types, including owner-occupied 1-4 family properties,one-unit second homes, and one-unit investor properties, including condos and PUD’s, and beginning on February 27, 2018 manufactured housing will be an eligible property type.
  • No need for a second mortgage to repair the property. All costs are built into the first mortgage, whichmeans lower closing costs.
  • Any type of repair is eligible, as long as it is permanently affixed to the subject property.
  • Available on both Fixed Rate Mortgages and Adjustable Rate Mortgages.
  • Financing on limited cash-out refinances and purchases as high as:
  • 97% for Fixed Rate on one-unit principal residence (previously limited to 95%)
  • 85% for Fixed Rate on two-unit principal residence
  • 75% for Fixed Rate on 3-4-unit principal residence
  • 90% for Fixed Rate on one-unit second home
  • 85% for Fixed Rate on one-unit investment property purchase money loan
  • 75% for Fixed Rate on one-unit investment property limited cash-out refinance
  • Borrower may choose own contractor.
  • Payment reserves of up to six months PITI permitted when borrower must vacate (or not move in) until work is completed; may be financed in loan if value will support the amount needed.
  • Create a ‘niche’ market and sell more homes.

Requirements

  • Borrower must have a construction contract with a contractor
  • Fannie Mae provides a model Construction Contract for use
  • Lender must review the contractor hired by the borrower to determine they are adequately qualified to perform the work – Contractor Profile Report can be used to assist in this process for the lender
  • Plans and Specs must have been prepared by a registered, licensed, or certified general contractor, renovation consultant, or architect
  • Plans and Specs must fully describe all work to be done and state when stages of completion will be scheduled, including both the job start and completion dates
  • Any changes to original Plans and Specs must be accompanied by a HomeStyle Change Order Request
  • Borrowers will be required to obtain Hazard and MI (if applicable) at the “as completed” value at time of loan closing

Limitations:

  • Manufactured Homes are an Eligible Property Type!
  • If considered a refinance, the borrower is not eligible to receive any cash back at closing
  • Renovation costs are limited to 75% of the “as completed” appraised value of the home (Previously limited to 50%) –
  • For manufactured housing, the costs are limited to the lesser of 50% or $50,000 of the “as-completed” appraised value.
  • Renovation Costs may include:
  • Labor and materials
  • Soft costs (architect fees, permits, licenses, inspection fees, independent consultant fees, engineering fees, fees charged for processing draws, fees for energy reports (HERS), review of renovation plans)
  • Contingency reserve of up to15% of the cost of labor, materials and soft costs) – this is optional unless property is a 2-4-unit property
  • Payment reserves of up to six months PITI if eligible (if borrower cannot occupy at time of closing)
  • Contingency reserve may be financed or funded separately by the borrower
  • Funds must be placed in an interest-bearing custodial account
  • Contractor bid must be given to appraiser to determine “as completed” value
  • If using this loan for Energy Related Improvements, a HERS Energy report must be provided to the lender and appraiser except under certain conditions/exceptions
  • When work is completed, the lender and borrower must sign the HomeStyle® Completion Certification
  • If funds remain after all work is performed,theywill be applied to the loan
  • When a borrower uses the HomeStyle Renovation Mortgage for financing an investment property or second home, the borrower is limited to a maximum of four financed properties