Conventional HomeStyle Renovation Loans. Down Payments As Low As 3%!

Conventional HomeStyle Renovation Loan Program Guidelines

Loan Purpose

• Purchase
• Refinance: Limited Cash Out Refinance

Credit Profile

• 620 minimum middle credit score for all borrowers on the loan
• Desktop Underwriting findings must be "Approved/Eligible"
• Waiting period after a major negative credit event:

  Conventional Loan Type	BK – Chapter 7	BK – Chapter 13 Discharged	BK – Chapter 13 Dismissal	Foreclosure*	Short Sale, Deed-In-Lieu, Pre-Foreclosure*	Modified Mortgage*
  Standard	4 years	2 years	4 years	7 years	4 years	2 years
  With Extenuating Circumstance	2 years	2 years	5 years	3 years (requires 10% down)	2 years	No waiting period

*If a property was included AND surrendered (i.e. property wasn’t retained and the debt wasn’t reaffirmed) in a Chapter 7 Bankruptcy, the borrower may potentially be able to defer to the Chapter 7 waiting period Vs. the Foreclosure waiting period.

Amount of Repairs

• There is no minimum renovation budget
• Total renovation cost must include a repair contingency budget from 10% to 15% of the contractor invoice, based on the scope of the repairs
• If repair type is structural in nature or the renovation costs exceeds $35,000, a HUD Consultant will be required
• Maximum amount of the renovation budget:
  • Purchase: 75% of the lesser of the sum of the purchase price of the property plus renovation costs, or the after-completed appraised value of the property
  • Refinance: 75% of the after completed appraised value of the property

Construction Time

• No more than six (6) months from closing

Contingency Escrow Reserve

• 10% to 15% of the Contractor Proposal, based on:
  • When renovation funds exceed 50% of the as-is property value or the combined purchase price and renovation budget 15% reserve will be required
  • The type and extent of the repairs
  • Underwriters discretion

Draw and Title Update Costs

• Based on the scope of the project, time required to complete, and whether the property is habitable during the construction process, there are two types of draw tpes:
  • Limited, which allows/requires:
    • No structural work and a $35,000 maximum repair budget
    • General Contractor will receive an initial draw of 50% of the agreed upon estimate at funding to purchase materials and start the renovation process
    • Upon completion, with verification from the Appraiser that the works has been done, the General Contractor will receive the final draw of 50%
    • Construction must start within 30 days of closing and be completed within three months
    • Borrowers will make their normal mortgage payments during the renovation process
  • Standard, which allows/requires:
    • Renovation can include structural work and/or be over $35,000
    • At closing, only the Consultant Fee, permits, Engineering/Architectural Fee may be disbursed. Requires an invoice
    • No funds are ever provided to the General Contractor in advance
    • Draws to the contractor are made as work progress based on the Consultants write-up. The Consultant will verify that the work has been completed
    • Maximum of 5 disbursements/draws are allowed
    • Construction my start within 30 days of closing and be completed with six months
    • Borrower will make their regular mortgage payment throughout the construction process, unless they are escrowing them due to the house being uninhabitable during the process

General Contractors

• Only 1 General Contractor (“GC”) allowed
• GC can’t be related to the borrower(s) or an employee/employer of the borrowers
• GC must be insured, licensed, and bonded
• GC must provide a detailed contractor estimate itemizing all repairs that are to be completed with costs broken down by material and labor and if applicable permit costs. See sample contractor estimate
• GC will carry all sub-contractor’s bids onto their proposal. The GC must insure that the sub-contractor has adequate state licenses based on the type of repairs (i.e. an Electrician must be carry a state Electricians license)

Role of the HUD Consultant

• Construction budgets greater than $35,000 or requires repairs that are structural will require a HUD Consultant. The HUD Consultant assists the transaction by:
  • Providing a “Specification of Repairs” Report, which determines the scope of work, number of draws required, total estimated costs
  • Determining both the required and desired repairs and providing a comprehensive Consultant's Report
  • Providing the interim and final inspection reports to approve disbursements to the General Contractor
  • Adding a layer of protection to the borrower by evaluating the merit of the General Contractor’s renovation budget proposal, approving draws, and verifying all work is satisfactorily completed

Loan Amount

• Loan amount not to exceed 2018 conventional loan limits of $484,350 or if the property is in a High Balance area the FHFA Conforming Loan Limits

Ratios

• As determined by Automated Underwriting System. Requires a Desktop Underwriter "Approved/Eligible" findings

Property Type

• Owner-occupied 1- or 2-unit properties
• 1 Unit second home
• 1 Unit investment properties
• Fannie Mae approved condos
• PUD's (i.e. Townhomes)
• Log cabin homes provided Appraisal Report lists other comparable log cabin homes that have recently sold in the area
• Unacceptable property types include:
  • Non-warrantable condos
  • 3 to 4 Unit primary residence
  • 2 to 4 Unit non-owner-occupied residence

Property Valuation

• Appraiser to provide an "as completed" or "after-completed value"
• Property valuation for a:
  • Purchase loan transaction: the lessor of the combined purchase price plus renovation budget or the after-completed value
  • Refinance loan transaction: the after completed value
• Final inspection must be completed by a Conventional Appraiser once property is 100% complete

Documentation

• All loans must be fully documented per Agency Guidelines
• For Self Employed borrowers, in addition to Agency Guidelines, two years of the tax returns (personal and business) along with a year-to-date profit and loss (unaudited)

Down Payment/Closing Costs - Purchase

• Minimum down payment on a purchase transaction and equity position on a refinance transaction, based on transaction type:
  • Primary residence:
    • conventional loan limits: 3% (requires that all borrower(s) occupy the property and for purchase transaction that at least one borrower must be first time homebuyer)
    • high balance loan limits: 5%
    • conventional loan limits – two-unit property: 15%
  • Second home: 10%
  • Investment: 15%
• Seller contribution toward buyers closing costs and escrows up to 6% of the purchase price

Terms

• Amortization period: 15 and 30-year fixed rate