We strive to take the guess work out of Renovation Lending. Our products can turn any home into your dream home. From small cosmetic updating to major projects such as adding square footage or foundaiton repair, we have a product to help. Below you will find some answers to questions we are frequently asked but if you don’t find the answer to your question below please do not hesistate to contact us!
Can the 203k program be used on only single-family homes?
This program is eligible for use on single family homes as well as 1 to 4 unit buildings; including the conversion of a building from a larger number of units down to 4 or less. Following specific guidelines, the 203k mortgage can also be used on a condominium unit for improvement of the interior only.
How is the home appraised?
The appraiser is given a copy of the contractors bid documents to identify the repairs and remodeling to be done along with their costs. The appraiser then determines the value of the home after completion, “subject to” the improvements to be made. In some cases, up to 110% of this value may be used for loan approval purposes.
Can a 203k be used to purchase a HUD-owned property?
A 203k loan can be used to purchase a HUD-owned property that is determined by HUD to be eligible for a 203k.
Is the 203k program allowed for use by investors?
A 203k loan can be used only by owner occupants, local governments or eligible non-profits. However, an owner occupant can use a 203k loan to purchase and renovate up to a 4-unit building as well as multi-use building in conformance with certain guidelines.
What renovation loans are available for investors?
The Fannie Mae HomeStyle loans allow investors to purchase and renovate. Certain down payment and other restrictions may apply to please call for details.
Can an Energy Efficient Mortgage (EEM) be used in conjunction with the 203k?
Yes – the FHA allows the use of an EEM, which provides funds beyond the FHA loan limits and the buyers approved loan amount for improvements that increase the energy efficiency and lower the utility costs of the home. An energy audit must be conducted by an approved home energy rater to assure that the energy savings over the useful life of the improvements will exceed their costs. The total amount of an EEM mortgage can be up to 5% of the value of the property.
How are loan funds disbursed for the purchase and renovation?
At the loan closing, funds are disbursed for the home purchase and, based on previously submitted and accepted contractor bids, renovation funds are placed by the lender in an escrow. These renovation funds are then paid in draws to the contractors as the work proceeds with final payments following inspection at completion. The actual disbursement schedule, inspections and paperwork required are determined by the lender for each project and in conformance with FHA guidelines. No funds are released at the time of closing.
Is a borrower allowed to do the rehabilitation work?
While this is allowed under FHA and Fannie Mae’s guidelines, most lenders do not allow “self help.” This ruling was put into place to mitigate the risk associated with the loan.
What if there are extra funds after renovation?
Any funds left over following completion of the renovation can be used to make additional allowable improvements to the property. If not used for this purpose, left over funds will be applied to pay down the principal balance of the mortgage.
Is there a time limit for the renovation?
The renovation must begin within 30 days of the closing of the loan and must be completed within the time frame established in the loan agreement. The total time for renovation must not exceed 140 days.
What if the home is not habitable during renovation?
The Standard 203k loan does allow for up to three mortgage payments to be included in the renovation funds to cover the period when the home is uninhabitable during renovation. The habitability status of the home is determined by the 203k Consultant. A Streamline 203k, however, cannot be used if the home will not be habitable at any time during the renovation.
Do I need a 203k Consultant for my project?
If you are using the full version of the FHA 203k loan than the answer is yes. The full version will be used when structural issues such as foundation repairs are involved or when the total renovation amount exceeds $35,000.00.
What is a contingency fund and why is it added to my renovation amount?
The contingency will range from 10% – 20% of the amount of the bid. These funds are collected along with the amount listed on the bid from your general contractor and kept in escrow should something unexpected happen along the way. Should your general contractor needs the funds he/she will file a change order and upon review we will release the funds. If nothing unexpected occurs and you are nearing the end of the project it may be possible to use the funds for elective items.