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FAQs

What are renovation loans and who offers them?
Renovation loans include home mortgages for purchase or refinance that allow borrowers to include the cost of repair or renovation in the same loan.  The providers of these renovation loans include:

  • FHA provides the 203(K) loan for purchase or refinance transactions
  • FannieMae provides:
    • HomePath program for the purchase of its foreclosure/REO properties
    • HomeStyle program for the purchase or refinance of all other properties
  • FreddieMac offers the Renovation Mortgage program for purchase or refinance
  • Private Investors also offer purchase and refinance programs that accommodate renovation costs

 

203(K) LOAN OVERVIEW

What is a 203(K) loan—and what are the rules?
Through the Federal Housing Administration (FHA)203(k) mortgage insurance program, borrowers can purchase or refinance their home and include the cost to rehabilitate and repair it in the same loan. 

  • Standard FHA guidelines apply
  • Opportunity to borrow against the value of the home after improvements – Up to 110% of Future Value!!
  • Low down payment requirements ‐ 3.5%
  • Gift Funds “OK”
  • Flexible credit qualifying
  • 6% Seller Concessions allowed on FHA
  • Owner‐occupied 1‐4 unit properties, PUDs, condos and REO properties
  • Loan size is determined by the limit set by the FHA for your area; repair budget is calculated based on the appraisal, your credit limit and the purchase price of the property

RENOVATION LOAN APPLICATION PROCESS

What differences are there vs. a typical loan application process?
In addition to the typical Credit Underwriting of the homebuyer, 203(K) loans also have a Property Underwriting process.  RenovationReady™ has partnered with your mortgage company to assist in making this process easy to understand, quick and easy.  We will guide you through the process and make certain you understand and make the choices and decisions necessary to meet the closing goal of 45 days. 

RENOVATION IMPROVEMENTS & BUDGET

What are the guidelines for renovating the property—and what repairs are eligible?
The program requires that at least $5,000 in “required improvements”—those that eliminate health or safety hazards—be included in the renovation budget.  Beyond that minimum, repairs or improvements may include:

  • structural alterations and reconstruction
  • modernization and improvements to the home's function (kitchens, baths, etc.)
  • changes that improve appearance and eliminate obsolescence
  • reconditioning or replacing plumbing; installing a well and/or septic system
  • adding or replacing roofing, gutters, and downspouts
  • adding or replacing floors and/or floor treatments
  • major landscape work and site improvements
  • enhancing accessibility for a disabled person
  • making energy conservation improvements

How do we develop the budget and get it approved?
RenovationReady™ will assist you, the Construction Consultant, and your contractor in developing and reviewing the renovation budget. 

  • The FHA requires that a standard budget format be used—and the Construction Consultant you choose will be familiar with this format and help guide its development.  The first step is to meet onsite at the property with the Construction Consultant to walk through the home and discuss required and optional renovation items.
  • Once you have selected required and optional renovation items, the contractor you select will submit budget amounts to the Construction Consultant for review and revision. 
  • Our experienced staff at RenovationReady™ will then review and approve (or request changes to) your renovation budget before submitting it to the mortgage company for final approval by the Appraiser.

What information does my contractor need to provide to be “accepted” to complete the renovation project?
RenovationReady™ has a decade of experience in collecting and reviewing information for the contractor acceptance review.  We will provide you and the contractor the necessary financial, reference, licensing, and insurance forms to determine the contractor’s eligibility and soundness to perform the work as a safeguard to you as the property owner and borrower.

Can we do some of the work on the property ourselves to save money?
Yes—but the work performed and the pricing for it will be reviewed like all other costs.  In addition, with our assistance you will be required to provide a Borrower’s Self-Help Agreement as part of the approval process.

Once the loan is approved, what safeguards are in place to make sure the work is completed, finished correctly, and proper payment amounts are made to the contractor?
RenovationReady™ will work with you and the Construction Consultant to make certain all work is completed properly before any payments are made.

  • The Construction Consultant will make a thorough onsite inspection to ensure all work for which payment has been requested has been completed properly.
  • RenovationReady™ will review the inspection for quality control and then make a payment recommendation to the lender to disburse funds.  We will also collect all required lien waivers and/or other documents required by your state before a payment is made.
  • A portion of the payment will be retained by the lender until the project is totally complete to ensure the contractor completes the entire project.
  • The Construction Consultant will also perform a final inspection once the project is completed before final payments and “holdback” monies are released.  This inspection will also be quality control reviewed by RenovationReady™ before a payment recommendation is made.

Have questions? Learn more about how RenovationReady™ helps homebuyers and homeowners navigate the renovation process.