@Cecilia Arnulphi I normally suggest to hit up the state specific forum but Rhode Island is such a small state there might not be that much activity there. It still might be a good idea to ask this question there just in case. I'm not licensed there but are there any questions I can answer about the loan itself?
Hello @Andrew Postell . Thanks for the reply. How is this loan different from the 203K loan other than the fact that it is for investors and you are not required to owner occupy?
@Cecilia Arnulphi ah, so the 203K loan is an FHA loan product. The HomeStyle is a Fannie Mae product. In the lending world that is a HUGE difference and I could probably spend about an hour telling the differences between them. Instead, let me give you some highlights to the HomeStyle loan and see if it fits what you are looking for:
The down payment is 15% of the After Repair Value of the home.
You get your renovation bid, then give it to the appraiser, who the sees the work and bases the value on that.
The rate is a little higher than a traditional mortgage but it's about 1/2 the rate of hard money. The term is a 30 year fixed rate. So if you wanted to stay in that loan for 30 years you could. Each payment pays down the mortgage (no interest only payments).
It takes about 45 days to close the loan. Then the work will begin.
The HomeStyle loan is ONLY for Single Family Homes.
Other Important Items to Know about “Conventional” Renovation Loans
Maximum – Minimum Purchase/Upgrade Amounts:
Minimum: $ 5,000 (below this on an exception basis only)
Maximum: Limited to 50% of the “after improved” value
Occupancy: Primary, Second Homes, Investment Properties
- The renovation term for this program is a maximum of 180 days.
- The Borrower(s) is responsible for the work being completed within the escrow period. If the work is not 100% complete by the end of the Escrow period, extension may implement a .50% (on total loan balance) extension fee that will cover an additional construction term of 60 days. Borrowers will be provided an upfront disclosure detailing this information.
- A borrower must choose his or her own contractors to perform the needed renovation.
- All Contractors participating in the HomeStyle Renovation Program must complete a Contractor Profile Report. All Contractors are subject to the lender’s determination that the contractors are qualified and experienced, have all appropriate credentials required by the state, are financially able to perform the duties necessary to complete the renovation work in a timely manner, and agree to indemnify the borrower for all property losses or damages caused by its employees or subcontractors.
Multiple Specialized Contractors:
- Since this is a limited repair/renovation program, no General Contractor is required. However, A General Contractor will be required on all renovation projects over $25,000. Borrowers are not allowed to complete any of the work themselves as sweat equity.
Loan to Value Calculations:
The original principal amount of the mortgage may not exceed Fannie Mae’s maximum allowable mortgage amount for a conventional first mortgage.
- Purchase: For a purchase money transaction, the LTV is determined by dividing the loan amount by the lesser of the "as completed" appraised value of the property or the sum of the purchase price of the property and the total rehabilitation costs.
- Refinance Transactions: For a refinance transaction, the LTV is determined by dividing the original loan amount by the "as completed" appraised value of the property.
- There are no required improvements or restrictions on the types of repairs allowed. However, repairs or improvements must be permanently affixed and add value to the real property.
Costs and Escrow Accounts
- The costs of the renovations will be based on the plans and specifications for the work and on the Construction contract for all of the work requested by the borrower. The renovation costs may include a contingency reserve and renovation-related costs.
- Contingency reserves 10 % required for any unforeseen cost overruns that may occur during construction.
- Unused contingency reserves that were financed into the loan will be applied to the principal balance of the loan. If the contingency reserves were paid in cash, they may be refunded to the borrower.
- The contingency reserve may be considered as part of the total renovation costs or the borrower may fund it separately. The contingency reserve may be released only if required, necessary, and unforeseen repairs or deficiencies are discovered during the renovation. Unused contingency funds, unless they were received directly from the borrower, must be used to reduce the outstanding balance of the renovation mortgage after all of the renovation work has been completed and the certification of completion has been obtained.
- The loan is not re-amortized.
- The HomeStyle program has a maximum 4 draw process.
- The initial draw can be up to 25% of the total project and can be for materials for the project.
- The final draw will be at least 10% of the total project as retainage and funds will be released upon receipt and approval of final inspection, Certificate of Completion from Appraiser, signed All Bills Paid Affidavits and Lien Waivers.
Additional Draw Information:
- Signed Draw Request by borrower and contractor
- Signed All Bills Paid Affidavit
- review and approve the draw request and will release funds for disbursement
- A check will be issued in the name of the borrower and contractor and delivered to borrower via USPS
- An inspection of work to date will be performed at 50% complete
Final Draw Information:
- Signed Draw Request
- Final inspection/Completion Certificate will be required for release of final funds
- A Title Update showing property free from lien or encumbrance
- General Contractor’s Lien Waiver Affidavit
- Affidavit of Completion GMG will review and approve the draw request and will release a check in the name of the borrower and contractor.
Change Orders and Cost Overruns:
- Changes to the initial plan are not permitted unless prior approval by Gateway Mortgage. Any work outside the scope of the initial plan is not permitted as the loan amount cannot be increased.
- If the project encounters cost overruns, those cost overruns will be the responsibility of the borrower to pay.
Renovation Term Extension Fee:
- .50% of the total loan balance. This is a post-closing penalty charged by the Escrow Administrator to extend the renovation period beyond the maximum renovation term of 180 days in the event renovation is not completed within agreed upon terms.
Thank you @Andrew Postell for a very thorough response. This is very good information.
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