Why choose Home style Renovation?
Homeowners are renovating like never before. With a Home Style Renovation loan, they’ll have funds for a wide range of renovation projects, from repairs and energy updates to landscaping and luxury upgrades. A Home Style Renovation loan can make the difference between a house and a dream home, or help restore an older home to its former glory. The Home Style Loan Bases the Value of your home on the existing home plus the completed repairs/renovations.
Now this can give you or your customers (If you are a Realtor) the option to renovate and rehab a new or existing home by including financing in their conventional purchase or refinanced home loan. LTV is calculated taking the proposed project into account, giving them more purchasing power and more options to make their home their own.
Home Style Renovation Mortgages: Loan and Borrower Eligibility
Renovation-Related Costs
Renovation-related costs that may be considered as part of the total renovation costs include:
- property inspection fees;
- costs and fees for the title update;
- architectural and engineering fees;
- independent consultant fees;
- costs for required permits;
- other documented charges, such as fees for energy reports, appraisals, review of renovation plans, and fees charged for processing renovation draws; and
- up to six months payments (PITIA) if a principal residence property cannot be occupied during renovation
Property Requirements
The security property for a Home Style Renovation mortgage must be
- a one- to four-unit principal residence;
- a one-unit second home;
- a one-unit investment property;
- a manufactured home; or
- a unit in an eligible PUD, condo, or co-op project.
When the security property is a unit in a condo or co-op project, the proposed renovation work must be permissible under the bylaws of the HOA or co-op corporation, or the HOA or co-op corporation must have given written approval for the renovation work. The renovation work for a condo or co-op unit must be limited to the interior of the unit, including the installation of fire walls in the attic.
The renovation of manufactured homes is allowed under HomeStyle Renovation provided the improvements do not include structural changes (such as adding a garage or other attached element). Eligible, non-structural improvements include, but are not limited to
- improvements to kitchens and bathrooms;
- installing energy efficiency heating and cooling systems;
- changes to address mobility and aging in place requirements; and
- installation of new windows, doors, siding, or roofing provided these changes do not alter the structure of the unit.
Mortgage Terms
A Home Style Renovation mortgage may be either a fixed-rate mortgage or an ARM loan. The original principal amount of the mortgage may not exceed Fannie Mae’s maximum allowable mortgage amount for a conventional first mortgage.
Fannie Mae provides the Home Style Renovation Maximum Mortgage Worksheet, to assist lenders in calculating the maximum loan amount.
The maximum cost for renovations for various Home Style Renovation scenarios are described in the following table.
Transaction Type | The cost of renovations must not exceed… |
|---|---|
Purchase transaction | 75% of the lesser of
|
Refinance transaction | 75% of the “as completed” appraised value of the property. |
Manufactured homes | the lesser of
|
“Do It Yourself” Option
The “Do It Yourself” option is available for renovations made to one-unit properties by the borrower. This option is not available for manufactured homes. “Do It Yourself” renovations may not represent more than 10% of the “as completed” value of the property. The lender must review and approve the renovations in advance, and must inspect the completion of all items that cost more than $5,000.
A borrower may request reimbursement for his or her payments for the cost of materials or for the cost of properly documented contract labor, but not for the cost of his or her sweat equity (labor). When a borrower chooses this option, the lender must fully budget for the cost of labor and materials related to the renovation so that, should the borrower be unable to complete the work, a contractor can be hired to finish any of the “Do It Yourself” repairs.
LTV Ratios
All of the applicable LTV, CLTV, and HCLTV ratios for HomeStyle Renovation mortgages can be found in the Eligibility Matrix.
The LTV ratio calculation differs based on the applicable transaction type.
- For a purchase money transaction, the LTV ratio is determined by dividing the original loan amount by the lesser of the “as completed” appraised value of the property or the sum of the purchase price of the property and the total renovation costs.
- For a refinance transaction, the LTV ratio is determined by dividing the original loan amount by the “as completed” appraised value of the property.
Limited Cash-out Transactions
When a Home Style Renovation mortgage loan is originated as a limited cash-out refinance transaction, the loan amount may include
- the amount required to satisfy the existing first mortgage;
- the amount required to satisfy any outstanding subordinate mortgage liens that were used to acquire the property;
- closing costs, prepaid fees, and points; and
- the total renovation costs, including allowable renovation-related costs for the home improvements up to the maximum permitted LTV and CLTV ratios.
The borrower may not obtain any other funds from the transaction, including those that are generally allowed for a limited cash-out refinance transaction. Excess funds, if any, after renovations are completed, may be applied to the loan balance as a curtailment or may be reimbursed to the borrower for the cost of actual supplies or additional renovations for which paid receipts are provided. The value of sweat equity may not be reimbursed.
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