Posts Tagged ‘rehab loan’

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. πŸ™‚ 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!

Fannie Mae HomeStyle Renovation Mortgage

March 8, 2011

I know, I know, I know… a LOT of posts sounding eerily similar these days. First it was the Fannie Mae HomePath Mortgage for foreclosures. Then I discussed the Fannie Mae HomePath Renovation Mortgage (also for foreclosures). I even referenced the FHA 203K Streamline mortgage post I wrote in 2009.

Today, the rehab discussion moves to the Fannie Mae HomeStyle Renovation Mortgage. Think of the HomeStyle as being a cousin to the HomePath because they do share features:

  • all renovations must be completed by a state licensed contractor
  • structural repairs/additions can be made to a home
  • luxury items such as swimming pools, hot-tubs, fences, etc. are allowed
  • all renovations can be purely cosmetic (new paint, carpet, tile, appliances, etc.)
  • a 10% contingency reserve is required
  • program for primary residences and investment properties

They share features, but there are some really important differences:

  • there is a $5,000 minimum renovation requirement
  • the maximum renovation amount is 50% of the “after completion value”. If the value is $500,000, then up to $250K can be put into renovations. An amount of up to $100K can be put into a home completion value at $200,000
  • can be used to purchase a property or refinance one already owned
  • minimum down payments are increased (compared to HomePath) to 5% for a primary residence and 25% for an investment property
  • 620+ credit score required (a larger down payment may be required for scores under 680)

Using the HomeStyle program, buyers/home owners can make dramatic changes to a home. The program is ideal for individuals looking to add on another story, make a significant addition, or completely gut the inside of a home.

As with all loan programs, to get started, one must be prequalified. If the property is in the state of Georgia, I’d love to start the mortgage process with you. All you need to do is contact me. I can answer questions about the HomeStyle proram (or any of the rehab programs mentioned in this post), and we can get the prequalification process started!

Fannie Mae HomePath Renovation Mortgage

March 1, 2011

I know what you are thinking… “didn’t he recently write about the HomePath program?” Yes, I did recently put up a post about the Fannie Mae HomePath Mortgage program, but I didn’t mention anything about the Fannie Mae HomePath Renovation Mortgage. Think of the “renovation mortgage” as the sibling to the “mortgage.” Let me explain.

The HomePath Renovation Mortgage shares many of the same features of the HomePath Mortgage program:

  • available for primary residence, second homes and investment properties
  • need a minimum of 660+ credit score
  • only a 3% down payment required for primary residence (15% for investment properties)
  • no private mortgage insurance on the loan

The best part of this program is all of the $$$ a buyer can use to put some tender loving care into a home. There is no minimum repair cost associated with the Renovation Mortgage, and buyers can finance the lesser of 20% of the “after completion value” of the home OR up to $30,000.

To simplify things, for homes with an “after completion value” of $150,000 or more, the maximum renovation amount will always be $30,000. Any amount under $150,000 will be 20% of the value. One thing to keep in mind is the maximum renovation amount must include a 10% contingency reserve.

Let’s say you have $30,000 for renovations, what can you do:

  • unlike the FHA 203k streamline mortgage, structural repairs/additions can be made to a home. This means the buyer can knock out walls, add a room onto the home, etc.
  • luxury items such as swimming pools, hot-tubs, fences, etc. are allowed
  • renovations can include appliances
  • all renovations can be 100% cosmetic (no structural changes to the home), so new paint, carpet, tile, etc. is certainly a fine way to go too!

The Fannie Mae HomePath Renovation mortgage is a great way to purchase a home and make some repairs to it with no out of pocket costs to the buyer outside of the down payment on the loan.

Do remember that Fannie Mae designed this loan program to facilitate the sale of homes they own. In other words, they are foreclosed homes. There are numerous properties available, and they can be viewed here.

Those interested in making an offer on a home to use this rehab loan will need a prequalification letter, and that is something I can provide! If you are looking to get prequalified, learn more about interest rates for this program, total monthly payments, etc., feel free to call or email me. I would enjoy helping you through the mortgage process!

Fannie Mae HomeStyle Rehab Loan

May 21, 2010

I regularly receive requests for loan programs that will allow borrowers to make repairs on a home and roll those costs into the loan. Due to the financial crisis and the risky nature of these loan programs, conventional rehabilitation loans virtually disappeared.

The only consistent option was the FHA 203k program, which is a great loan program, but only allows cosmetic/non-structural repairs on a buyer’s primary residence. It would be great if there was a program that allowed both buyers and investors the flexibility needed to do more than just cosmetic repairs… and now there is!

Introducing the Fannie Mae HomeStyle loan program. This is a renovation program like the FHA 203k program, and they share some similar traits.

  • Both programs allow for cosmetic remodeling/repairs
  • The funds needed for the work on the property is rolled into the loan
  • Available on primary residences for purchases & refinances
  • Work must be completed by a licensed contractor

There are similarities, but definitely note the differences. Fannie Mae HomeStyle:

  • Available for borrowers (10% minimum downpayment) and investors (20% minimum downpayment) on purchases and refinances
  • Structural repairs/changes/improvements allowed
  • Luxury items such as pools, hot-tubs, fences, etc. allowed
  • minimum repair amount of $5,000 required

FHA 203k:

  • only 3.5% down payment required
  • No minimum repair amount required
  • Available for primary residence purchases & refinances only
  • No structural repairs/upgrades OR luxury items allowed
Who can benefit from either of these loan programs? Anyone looking for a loan program that will allow you to knock out a wall or two OR investors looking for a way to cover remodeling costs OR even someone looking for a way to pay for carpet and paint in their new home.
If this is you, program options are now available! Don’t hesitate to contact me to learn more or get prequalified for either of these great programs.