Q1. Must a property be habitable at the time of closing?
No, Fannie Mae HomeStyle does not require the property to be habitable at the time of closing. If the home is not habitable, the borrower may finance up to six months of principal, interest, tax, and insurance payments to cover these costs while the home is uninhabitable.
Q2. Does the contingency reserve need to be 15% of total costs?
No. A contingency reserve is not required for a mortgage secured by a one-unit property; however the lender may choose to establish one. A contingency reserve equal to 10% of the total costs of the repairs and renovation work must be established and funded for a mortgage that is secured by a two- to four-unit property to cover required unforeseen repairs or deficiencies that are discovered during the renovation. The lender may increase the contingency reserve to 15% if it determines the higher reserve is appropriate given the scope and scale of the renovation.
Q3. Are “tear downs” allowed?
No, HomeStyle Renovation loans may not be used to tear down and reconstruct a home. A tear down would include removing the entire shell of the dwelling down to the foundation. Major renovations such as additions or multi-room rehabilitations are eligible projects, provided they meet the applicable LTV requirements.
Q4. Must the improvements add value to the property?
No. Fannie Mae HomeStyle does not require that the improvements add value to the property. The appraiser must evaluate the proposed renovation during the appraisal process. The “as completed” value of the property with the improvements will reflect any contributory value of the renovation.
Q5. Do utilities need to be on at time of inspection for the appraiser to assess that utilities/appliances are functioning for a HomeStyle Reno loan?
No. However, the appraiser or lender may observe something that could make it necessary for utilities to be turned on to confirm there is no issue, or to confirm that the construction plans include all the work that needs to be done on the property.
Q6. Can the loan include a special assessment for sewer?
No. Funds for HomeStyle Renovation may be used only to complete new improvements to the property.
Funds cannot be used to pay off existing debt or special assessments.
Q7. Can lenders utilize HomeStyle Renovation financing on a manufactured housing property?
Yes, manufactured housing is eligible for HomeStyle Renovation financing, up to the lesser of 50% of the as-completed value or $50,000. The manufactured home must meet the applicable requirements. Special Property Eligibility and Underwriting Considerations are required.
Q8. Can an accessory unit be detached from the primary dwelling?
Yes, an accessory unit may be detached from the primary dwelling. All improvements related to accessory units must be in compliance with local and state codes and statutes. They also must meet the applicable guidelines.
Q9. Can the financing be used to build another residential dwelling on the property parcel?
No. Funds may not be used to construct another residential dwelling on the property.
Q10. Can landscaping costs be covered?
Yes, provided that the improvements are permanently affixed to the property.
Q11. If the appraiser signs off that the work has been completed, but is waiting for municipal/city inspections/health and safety, may the lender close the renovation phase?
All inspections must be completed when local code requires a post-completion inspection and/or a certificate of occupancy to be issued at the conclusion of the renovation. When these activities are required to satisfy local codes, the renovation phase may not be closed out until the lender has obtained evidence that these were complete.
Q12. If the appraiser checks off that the work is complete per the work order but the borrower is unsatisfied and engages in litigation with the contractor, may the lender close out the renovation?
If the work was complete per the work order and the property is safe, sound, and has no compromises to the structural integrity, the litigation will not prevent closing out the renovation. However, the lender must determine if the litigation is related to a matter that suggests the property does not meet our basic property requirements regarding safety, soundness, or structural integrity. To the extent the lender has specific loan scenarios in mind, they should contact Fannie Mae’s HomeStyle mailbox ([email protected]) to determine if additional steps are needed to close out the renovation.