Full FHA Rehabilitation Loans

Bigger projects can be accomplished using the full FHA Rehabilitation 203k program. Minimum repairs of $5000 are required and can involve room additions, moving of load bearing walls, etc. A HUD consultant is required when using this program.

Conventional Rehabilitation Loan Options

HomeStyle Renovation Allowable Improvements:

There are no required improvements or restrictions on the types of renovations allowed, nor is there a minimum dollar amount for renovations.

Generally, improvements should be permanently axed to the real property (either dwelling or land), with the exception of certain appliances installed with kitchen and utility room remodels. The borrower may use HomeStyle Renovation to purchase appliances as part of an overall remodeling project that includes substantial changes or upgrades to the rooms in which the appliances are placed.

HomeStyle Renovation may be used to complete the final work on a newly built home when the home is at least 90% complete. The remaining improvements must be related to completing non-structural items the original builder was unable to finish. Such work may include installation of buyer-selected items such as flooring, cabinets, kitchen appliances, fixtures, and trim.

HomeStyle Renovation may be used to construct various outdoor buildings and structures when allowed by local zoning regulations. These buildings or structures must be in compliance with any applicable building codes for the local area. Examples of acceptable structures include, but are not limited to, accessory units, garages, recreation rooms, and swimming pools.

HomeStyle Renovation may not be used for complete tear-down and reconstruction of the dwelling.

Establishing Value:

One full appraisal is required.  A Property Inspection Waiver (PIW) is not allowed.

·         The appraisal must provide an “as completed” value (subject to repairs/plans and specs).

·         The appraisal must include a finalized copy of the plans, specs, contractor’s bid and project review if one is required.

·         Any appraiser required or recommended repairs must be added to the plans and specs.

·         Following completion of the renovation work, the borrower must obtain a certification of completion stating that the renovation was completed in accordance with the submitted plans and specs. The certification must be documented on the Appraisal Update and/or Completion Report (Form 1004D).

 Contingency Reserves                                                                                                  

The purpose of a contingency reserve is to cover required unforeseen repairs that are discovered during the renovation. The contingency reserve is a required renovation cost and is typically financed in the loan amount (Financed Contingency). Alternately, the borrower may bring funds to closing to fund the contingency reserve; however, any assets required to fund the contingency must be documented and verified above the amount required for down payment and reserves (Borrower Funded Contingency).

·         The contingency is calculated as a percent of the cost of labor, materials and soft costs.

·         A minimum of a 10% and maximum of 20% contingency reserve is required. 15-20% is required if the utilities are off, the home has been without utilities for an extended period of time, is uninhabitable or if there is water, mold or fire damage.

·         The contingency reserve may be released only if unforeseen required and necessary repairs or deficiencies are discovered during the renovation/construction.

·         Any work paid from contingency funds must be approved by Plaza in advance, documented as completed and having improved real property.

·         Unused Financed Contingency:

o    Rate/Term Refinance:  Up to the greater of 1% or $2,000 may be returned to the borrower on a rate/term refinance.  Any rate/term funds exceeding the greater of 1% or $2,000 must be used to reduce the outstanding balance of the mortgage or see Additional Improvements below.

o    Purchase:  Funds must be used to reduce the outstanding balance of the mortgage or see Additional Improvements below

·         Additional Improvements if contingency reserve funds remain at the completion of renovation:

o    May be used for improvements or repairs that are permanently affixed to the real property.

o    Funds may not be used to purchase personal property.

o    All work described in the plans and specifications must have been completed.

·         Unused Borrower Funded Contingency:

o    Funds will be refunded to the borrowers once the renovation work has been completed and the certification of completion has been obtained.