Looking for a great Utah Renovation Loan?
What if there was a mortgage loan that would allow you to purchase a house AND make the necessary renovations to it? Imagine only needing the minimum downpayment, and having your mortgage loan transform any fixer-upper into a comfortable, upgraded home!
What if you could even refinance your current home (without having too much equity), and the new loan would include the cost of adding an extra bathroom, therefore increasing your property value?!
Good news: a Utah renovation loan like described above does exist, and you can APPLY ONLINE for it right here on my website.
Here is more information on the Fannie Mae HomeStyle Renovation Loan – a Conventional loan program to be used on primary residences, second homes and investment properties
What is the HomeStyle Renovation Loan?
The HomeStyle Renovation Loan is a Conventional mortgage loan, offered only by a few select lenders. For an FHA product alternative and more details on the actual process, see the FHA 203(k) Renovation loan.
This specialty loan product enables you to either:
- Purchase a new home that may need repairs
- Refinance your current mortgage, and include the costs of home improvements into the loan balance.
The final loan amount will be based on the “after improved” value of the home, rather than the present value.
This home renovation loan is an excellent alternative to second mortgages and home equity lines of credit. It probably beats borrowing money from your spouse’s parents as well.
Note that the maximum cost of repairs is limited to 50% of the subject property’s “after improvements” value.
Who can benefit from using the HomeStyle Renovation Loan?
The HomeStyle Renovation Loan program can be used on 1-4 unit primary residences, 1 unit second homes, and even 1 unit investment properties. It will most benefit borrowers who cannot afford the cost of home renovations out of pocket, and sellers who want to sell their homes but cannot do so because of repair contingencies.
A single mortgage is typically more cost-effective, providing access to a lower interest rate and only one-time closing costs.
How do I qualify for the HomeStyle Renovation Loan program?
Borrowers can purchase properties as a primary residence, or for investment purposes.
The requirements are the same as for the Utah Conventional Loan. The minimum credit score required for the Fannie Mae HomeStyle Renovation loan is 620 (restrictions may apply for lower scores).
The minimum down payment for each transaction type is as follows, and for primary residences, it can come from gift funds or downpayment assistance programs.
For conforming loan amounts (under $424,100 as of January 1st 2017):
For high balance loan amounts ( over $424,100 in designated high-cost areas):
What types of improvements are allowed on the HomeStyle Renovation Loan?
- Major structural alterations and additions
- Converting a single family to a multi-family unit dwelling or vice-versa
- Upgrades to central air/heat, plumbing, and electrical systems
- Minor repairs to existing septic systems
- Repair termite or moisture damage
- Remodeling of kitchen and baths
- Energy conservation improvements
- New permanently affixed appliances
- Addition or replacement of exterior decks, patios, and porches
- Major landscaping and permanent hardscapes such as driveways, walkways, retaining walls and fences.
What types of improvements are NOT allowed on the HomeStyle Renovation Loan?
- Items that will not increase the value of the subject property
- Improvements that are not permanently attached to the property
- Improvements for business or commercial purposes
- Energy efficient repairs which would require additional inspections per Fannie Mae (specific “energy efficient mortgages” are available for that purpose).
In addition to the above-mentioned restrictions, homes are not to be raised, demolished down to their foundation, or physically relocated from one location to another.
Do I need to use a General Contractor for my renovation work?
The Fannie Mae HomeStyle Renovation Loan requires the use of a fully licensed and insured General Contractor. “Self Help” is not allowed (few lenders will allow it, and if they do, funds will only be released for materials, and labor will not be covered).
The General Contractor will carry over all the subcontractor’s bids onto his/her bid, and will be responsible for disbursing all funds to the subcontractors when funds are released from escrow.
The contractor bid must be detailed and itemized, noting if any permits will be required.
On repair amounts $35,000 and up, it is important to note that the General Contractor must perform the work with their own funds, to begin with. The lender will approve and disburse scheduled draws only upon inspection of the work performed.
When do I need a HUD Consultant on the HomeStyle Renovation Loan?
A certified HUD Consultant is required on all Utah HomeStyle renovation loans with construction budgets of over $35,000, or where the repairs are structural.
These are the same HUD Consultants used on the 203K FHA Renovation Loan, and here is the official HUD link to locating one near you. Just choose your state and press search.
The role of the HUD Consultant is to:
- Provide the “Specification of Repairs” Report determining the scope of the work, number of draws required and total estimated costs
- Adds an extra layer of protection for both the lender and borrower by evaluating the merit of the offers submitted by the General Contractor, assisting throughout the construction process, and verifying the work is satisfactorily completed.
- Is responsible for interim and final inspection reports in order to approve disbursements to the General Contractor.
The HUD Consultant fee schedule is as follows:
For properties in need of major repairs, a HUD Consultant can provide an optional feasibility study analysis in regards to the cost involved in renovating a property so that it meets HUD minimum property standards.
This is highly recommended before submitting a purchase offer on a property, as the seller will be more likely to negotiate and adjust the selling price according to the 203K consultant feasibility report.
The cost of a feasibility report upon visiting a property is somewhere around the $250-$350 range.
* Different HUD consultants have slightly different prices on their services, and they may require the inspection fee to be paid up front. As a borrower, you are free to choose which HUD Consultant you want to work with.
Is the appraisal process different on the HomeStyle Renovation Loan?
The property appraisal process takes place as usual, with one major difference. The appraiser will review the General Contractor bid to determine that it falls into the usual and customary range for similar work, and will prepare the appraisal report based on the “after improved value”.
What is different on the HomeStyle Renovation loan process?
Your Utah renovation loan will close and fund as any other loan would, with some additional steps to be taken as soon as you’ve settled on a desired property. These steps are very important as they are the most time consuming. This is the main reason why the timeframe for closing a renovation loan is close to 45 days, which can be a deal breaker with some sellers.
Once your offer on a home is accepted (expected repair costs do not need to be included at this point), you will need to do three things in a timely manner. The faster you get them done, the faster your loan will close.
- Contact a HUD Consultant if one is required, and schedule to meet him/her at the property for an inspection. You might need to pay for the cost of the inspection up front.
- The HUD Consultant will prepare the Specification of Repairs (SOR) that outlines all of the planned renovations to the subject property, the total estimated cost of repairs and the number of draws required.
- Shop around for a licensed and insured General Contractor (if you don’t already have one in mind).
- He will be required to provide you with a detailed bid on the renovation work expected to be performed. Please contact me for additional information on the bid format and documents to be filled out by your General Contractor.
- Provide me with the SOR and the Contractor Bid and I will get your application started just like I would with any other type of loan. Income and asset documentation to be provided as usual.
* The SOR and Contractor Bid are the most common cause of delay with Utah Renovation loans. If you are organized and have a good, experienced General Contractor, there is no reason why your renovation loan shouldn’t close within 30 days.
When your loan funds, the total renovation cost will be escrowed and will include the following:
- Estimated costs of Repairs/Improvements
- Contingency Reserve of 10-20% based on the HUD Consultant’s recommendation (this is an emergency fund for unexpected costs)
- Draw Inspection Fees based on the HUD Consultant recommendation
- Up to 6 months of mortgage payments if the property is uninhabitable during rehab
- 1 property Title update of $150
- Consultant, Architectural and Engineering fees (if applicable)
- Permits (if applicable)
From here, there are two possible scenarios, based on the type and repair amount:
Scenario 1: If the repairs are under $35,000, and no structural changes are to be made to the property:
- The General Contractor receives the first of two draws (up to 50% of the cost) at the funding of the loan – this is to be used to purchased required materials and start the renovations.
- A HUD consultant is not required, and the renovation work should begin within 30 days of closing and be finished within 6 months.
- Mortgage payments are to be made by the borrower as scheduled.
Scenario 2: The repair costs amount to $35,000 and over, or the property is scheduled to have structural changes.
- The only renovation fees to be disbursed at the closing/funding of the HomeStyle Renovation Loan are the Consultant fees. Permits, Engineering and/or Architectural fees – based on the appropriate invoices.
- No funds are ever given in advance to the General Contractor. Draws to the contractor are made as work progresses and phases are completed based on the HUD Consultant’s write-up schedule and his draw inspections.
- A maximum of 5 draws/disbursements are allowed.
- Construction should commence immediately or within 30 days of closing, and is due to be completed within 6 months.
- Borrowers will make the regular mortgage payments unless they are escrowing them due to the home being uninhabitable.
After the final inspection is confirmed and approved, the contractor receives a final disbursement.
Any and all unused remaining funds in the escrow will be used to reduce the principal balance of the loan – no cash back to the borrower is allowed on the Utah HomeStyle Renovation Loan.
Enjoy your new upgraded home!