The Homestyle Renovation Loan process is similar to the FHA 203k Loan process. For both of these loans, you do not need to have an inspector create a work write-up for the work to be completed if the renovation budget is under $35,000. If the renovation budget is greater than $35,000, AnnieMac requires that a HUD consultant or a certified inspector gets involved to help create the schedule of work. This consultant plays a critical role in the renovation phase as well as the closing phase after the loan has been funded by AnnieMac.
The HUD consultant or inspector is assigned to your file by our renovation department. The lender must also approve the contractor as well as the work completed. A part of this process includes approving the timeline for the work. Generally, you have a maximum of 12 months for completion. In addition, contractors must start within 3 days of the loan closing date. The fund disbursement depends on the ability of the contractor to adhere to the predetermined schedule.
The lender will not disburse any funds until they verify the specified work is completed. If the contractor runs into a problem and needs additional funds, he or she can request more funds by contacting AnnieMac’s Draw Department, or can contact the HUD consultant/inspector to create a change order. As long as the contractor adheres to the scheduled timeline and a Certificate of Completion is obtained, the final disbursement will occur within the specified time frame.
AnnieMac – Your Experienced Homestyle Renovation Lender
AnnieMac is not only approved to do this loan product, but also has an entire dedicated team that specializes specifically in the Homestyle Renovation Loan, as well as additional renovation products. We will be with you throughout the entire process, starting with the initial application all the way through the completion of your renovation project. We also have our own specialized Draw Management Team which allows your contractor to get paid directly through AnnieMac without having to go through additional obstacles to get the funding for the project. AnnieMac is a lender who understands the process, works well with borrowers, and fills you in on every detail moving forward. Questions regarding this product are always encouraged. AnnieMac excels in making the customer feel comfortable with the entire process.
Minimum Renovation Loan Amount
You cannot qualify for the Homestyle loan unless the home needs some type of repairs. However, Fannie Mae does not require a minimum dollar amount and does not restrict certain renovations. They do require that the renovations are a permanent fixation to the property. They also state that the renovations must also add value to the property.
There are different types of inspections needed when purchasing a home. For the Fannie Mae Homestyle Renovation Loan, you are not required to have a HUD consultant or certified inspector unless your renovation budget is over $35,000. A regular home inspection, however, is always recommended. These different types of inspections will help you see exactly what work the house needs.
Typically, 1-2 weeks is allocated for the inspections. It is recommended to use an inspector that is familiar with the Homestyle Renovation Loan process. AnnieMac typically uses HUD consultants because they already understand the renovation procedure and are approved to do Scope of Work documents (also known as Specification of Repairs) via the FHA 203k program.
It is important to know everything that is wrong with the property so that it can be included in the repair costs. You and your contractor will use this inspection to create the Scope of Work document, and this is what AnnieMac will use to determine your eligibility for the loan as well as the loan amount.
Documentation Requirements for Homestyle Loan Eligibility
Once you have an executed sales contract or pre-approval to refinance your home, you start the loan process. You must provide the lender with your typical loan documents. The most common include:
- Last 2 pay stubs covering at least 30 days of employment
- W-2s from the last 2 years covering all jobs held
- Tax returns from the last 2 years if you were self-employed or worked on commission
- Asset statements showing any reserves or money for a down payment
- Personal identifying information including social security number to pull your credit
- Executed sales contract
- Potential repairs/renovations you want the loan to cover
At this point, AnnieMac will determine your eligibility for the loan. This includes sending your documents to underwriting and then ordering the appraisal. This is one of the most important factors of the Homestyle Renovation Loan. The appraisal works differently in this scenario. Rather than providing a current value of the home, the appraisal provides the current and future proposed value. The appraiser provides the proposed value based on the Scope of Work document.
Underwriting and Closing
Once the underwriter has all documents, he or she can finalize the underwriting process. At this point, the underwriter may ask for more documents to satisfy any outstanding conditions. Once you provide all documents required by AnnieMac, the loan moves onto the closing process.
At the closing, the seller or first lien holder receives payment. The remaining funds go into an escrow account and you take possession of the home. The work on the home must begin as stated in the lender-approved contract. As a general rule, Fannie Mae requires you to take occupancy of the house upon closing. However, if the renovations will interfere with your ability to live there, you are free to live elsewhere until the home is livable. If the home is a second home or investment property, occupancy does not matter. Fannie Mae also allows you to finance up to six mortgage payments while the home is not livable so that double payments, such as rent on top of a mortgage payment, is not being paid while you are waiting for renovations to be completed.
Throughout the building process, the AnnieMac will conduct inspections. Funds will not be disbursed until each inspection is completed and the work is determined satisfactory. The final disbursement does not occur until the Certificate of Occupancy is obtained and there is proof of clear title. This means all contractors and anyone else with a lien on the property receives payment and removes their lien. The bank will not disburse final funds if there is any type of lien on the property as this would put the bank in a subordinate lien position.