The Fannie Mae HomeStyle® Renovation Mortgage program helps qualified borrowers buy a home and make renovations, repairs or improvements – all in one loan. Here are a few the basic features of this type of renovation loan:

  • The renovation funds can represent up to 50 percent of the value of the property after renovation is completed.
  • Funds can be used for any projects that are permanently part of the property and that add value to the property.
  • The program can be used by homebuyers, second home purchasers and investors.  Underwriting guidelines such as credit score and down payment requirements vary depending on type of property and whether the property will be a principal residence, second home or investment property.

Once the loan closes and the repair phase begins, the borrower, the general contractor and the lender take on certain responsibilities. There are some important things to understand if you are the new owner of a home that’s being renovated.

First, as the homeowner you are responsible for selecting a contractor, as well as negotiating agreements and warranties with the contractor. You are also responsible for overseeing the renovations and making sure they are completed as specified in the Construction Contract.

If the work stops for a long period or there are problems that will result in significant delays, it is the homeowner’s responsibility to contact the lender. You must make the mortgage payment each month, even if the work is not satisfactorily completed. This may scare borrowers away rather than encourage calls.

When the repair phase begins an interest-bearing Renovation Escrow Account is opened. The lender deposits funds from the HomeStyle Renovation Mortgage transaction into this account.

The borrower, contractor and lender agree on a schedule of when funds, which are drawn from the escrow account, will be paid for the each phase of the renovation work. (These are often referred to as “draws.”)  The borrower submits a “Draw Request Form” to the lender. Once an inspector confirms the work has been done, the lender makes a check payable in the names of the borrower and the contractor.

When all of the renovation is complete, the borrower and the contractor sign a Construction Completion Form. The lender provides a full accounting of the distribution of funds from the Renovation Escrow Account. If funds remain in the account, the homeowner may elect to do more remodeling or the money can be applied to the principal balance of their mortgage loan.

This is a short, simplified review of the home renovation process and the relationship between homeowners, contractors and lenders. What is one thing homeowners should take away from this review of the process?  Work with a renovation lender with a lot of experience, like HomeBridge, and work with a contractor who provides references, as well as information about licensing and financial background. When you buy and renovate a home, you are going to spend a lot of time working with these professionals.  Choose people who want to be a part of the team that turns your property into the home of your dreams.

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