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Home » Renovation Loan » Conventional Renovation Loan » Guideline

Conventional CHOICERenovation® and HomeStyle® Renovation Loans.

Down Payments As Low As 3%!

The CHOICERenovation® and HomeStyle® Renovation Loan Can Help With Your Purchase and Refinance Rehab Projects

Guidelines

Calculators

Conventional CHOICERenovation® and HomeStyle® Renovation Loan Program Guidelines

Loan Purpose

Purchase
Refinance: Limited Cash Out Refinance

Credit Profile

620 minimum middle credit score for all borrowers on the loan
Desktop Underwriting findings must be “Approved/Eligible”
Waiting period after a major negative credit event:

Conventional Loan Type	BK – Chapter 7	BK – Chapter 13 Discharged	BK – Chapter 13 Dismissal	Foreclosure*	Short Sale, Deed-In-Lieu, Pre-Foreclosure*	Modified Mortgage*
Standard	4 years	2 years	4 years	7 years	4 years	2 years
With Extenuating Circumstance	2 years	2 years	5 years	3 years (requires 10% down)	2 years	No waiting period

* If a property was included AND surrendered (i.e. property wasn’t retained and the debt wasn’t reaffirmed) in a Chapter 7 Bankruptcy, the borrower may potentially be able to defer to the Chapter 7 waiting period Vs. the Foreclosure waiting period.

Amount of Repairs

There is no minimum renovation budget
Total renovation cost must include a repair contingency budget from 10% to 15% of the contractor invoice, based on the scope of the repairs
If repair type is structural in nature or the renovation costs exceeds $35,000, either a HUD Consultant Report or a Feasibility Report from PHI Home Inspections will be required
Maximum amount of the renovation budget:
- Purchase: 75% of the lesser of the sum of the purchase price of the property plus renovation costs, or the after-completed appraised value of the property
- Refinance: 75% of the after completed appraised value of the property

Construction Time

No more than six (6) months from closing

Contingency Escrow Reserve

10% to 15% of the Contractor Proposal, based on:
- When renovation funds exceed 50% of the as-is property value or the combined purchase price and renovation budget 15% reserve will be required
- The type and extent of the repairs
- Underwriters discretion

Draw and Title Update Costs

Based on the scope of the project, time required to complete, and whether the property is habitable during the construction process, there are two types of draw tpes:
- Limited, which allows/requires:
  - No structural work and a $35,000 maximum repair budget
  - General Contractor will receive an initial draw of 50% of the agreed upon estimate at funding to purchase materials and start the renovation process
  - Upon completion, with verification from the Appraiser that the works has been done, the General Contractor will receive the final draw of 50%
  - Construction must start within 30 days of closing and be completed within three months
  - Borrowers will make their normal mortgage payments during the renovation process
- Standard, which allows/requires:
  - Renovation can include structural work and/or be over $35,000
  - At closing, only the Consultant Fee, permits, Engineering/Architectural Fee may be disbursed. Requires an invoice
  - No funds are ever provided to the General Contractor in advance
  - Draws to the contractor are made as work progress based on the Consultants write-up. The Consultant will verify that the work has been completed
  - Maximum of 5 disbursements/draws are allowed
  - Construction my start within 30 days of closing and be completed with six months
  - Borrower will make their regular mortgage payment throughout the construction process, unless they are escrowing them due to the house being uninhabitable during the process

General Contractors

Only 1 General Contractor (“GC”) allowed
GC can’t be related to the borrower(s) or an employee/employer of the borrowers
GC must be insured, licensed, and bonded
GC must provide a detailed contractor estimate itemizing all repairs that are to be completed with costs broken down by material and labor and if applicable permit costs. See sample contractor estimate
GC will carry all sub-contractor’s bids onto their proposal. The GC must insure that the sub-contractor has adequate state licenses based on the type of repairs (i.e. an Electrician must be carry a state Electricians license)

Role of the HUD Consultant

Construction budgets greater than $35,000 or requires repairs that are structural will require a HUD Consultant. The HUD Consultant assists the transaction by:
- Providing a “Specification of Repairs” Report, which determines the scope of work, number of draws required, total estimated costs
- Determining both the required and desired repairs and providing a comprehensive Consultant’s Report
- Providing the interim and final inspection reports to approve disbursements to the General Contractor
- Adding a layer of protection to the borrower by evaluating the merit of the General Contractor’s renovation budget proposal, approving draws, and verifying all work is satisfactorily completed

Loan Amount

Loan amount not to exceed conventional loan limits of $806,500 or if the property is in a High Balance area the FHFA Conforming Loan Limits

Ratios

As determined by Automated Underwriting System. Requires a Desktop Underwriter “Approved/Eligible” findings

Property Type

Owner-occupied 1- or 2-unit properties
1 Unit second home
1 Unit investment properties
Fannie Mae approved condos
PUD’s (i.e. Townhomes)
Log cabin homes provided Appraisal Report lists other comparable log cabin homes that have recently sold in the area
Unacceptable property types include:
- Non-warrantable condos
- 3 to 4 Unit primary residence
- 2 to 4 Unit non-owner-occupied residence

Property Valuation

Appraiser to provide an “as completed” or “after-completed value”
Property valuation for a:
- Purchase loan transaction: the lessor of the combined purchase price plus renovation budget or the after-completed value
- Refinance loan transaction: the after completed value
Final inspection must be completed by a Conventional Appraiser once property is 100% complete

Documentation

All loans must be fully documented per Agency Guidelines
For Self Employed borrowers, in addition to Agency Guidelines, two years of the tax returns (personal and business) along with a year-to-date profit and loss (unaudited)

Down Payment/Closing Costs – Purchase

Minimum down payment on a purchase transaction and equity position on a refinance transaction, based on transaction type:
- Primary residence:
  - conventional loan limits:
    - 3% – requires that borrower(s) income listed on the loan application is less than Fannie Mae 80% Area Median Income limits or low income census tracts
    - 5% – no maximum income restrictions
  - high balance loan limits: 5%
  - conventional loan limits – two-unit property: 15%
- Second home: 10%
- Investment: 15%
Seller contribution toward buyers closing costs and escrows up to 6% of the purchase price

Terms

Amortization period: 15 and 30-year fixed rate