HomePath Renovation Mortgage Loans
By Gustan Cho
Construction loans are extremely difficult to obtain for a new homeowner. Second mortgages and home equity lines of credit are also extremely tough to qualify for for a new homeowner if he or she does not have equity in their homes. Most home buyers only put a minimum amount down. FHA loan borrowers only put a 3.5% down payment down and conventional loan borrowers put 5% down payment so most home buyers do not have too much equity in their homes to qualify for either a construction loan, second mortgage, or home equity line of credit. HomePath home buyers can now purchase a Fannie Mae home plus have up to $35,000 in a repair escrow to remodel their newly purchase home under Fannie Mae’s HomePath Renovation Mortgage Financing Program. Fannie Mae’s HomePath Renovation Mortgage Financing Program is similar to FHA 203k Mortgage Loan Program. The advantage of the Fannie Mae HomePath Renovation Mortgage loan program is that you only have to put a 5% down payment on the as completed appraised value of the property and you have no monthly mortgage insurance premium. One catch!!! You need to purchase a Fannie Mae owned property and qualify under Fannie Mae HomePath Renovation mortgage lending guidelines.
HomePath Renovation Mortgage Lending Guidelines
Fannie Mae has an inventory of foreclosed homes that many home buyers can purchase under market value. However, many foreclosed home do require work. Fannie Mae created and implement the Fannie Mae Renovation Mortgage program so home buyers of Fannie Mae foreclosed homes can have the construction funding to remodel the foreclosed Fannie Mae home purchase and remodel it to good condition. This is a win win situation with both Fannie Mae and the home buyer. The home buyer gets a sub-par condition home at sub-market value price with the construction funding and gets their dream home and Fannie Mae unloads its inventory off their books and revitalizes the neighborhood because the home buyer does work to it.
To qualify for a HomePath Renovation Mortgage loan, the home buyer needs to put a 5% down payment on the after improved value of the property. Unlike the normal standard Fannie Mae HomePath mortgage loan program where no appraisal is needed, an appraisal is required on a HomePath Renovation Mortgage loan. The appraiser will appraise the home as is and as complete. The appraiser will note the work that needs to be completed to meet code and living condition requirements as well as the home buyer’s scope of work.
The mortgage loan applicant can borrow up to 35% of the as completed appraised value but no greater than $35,000.
If you were to purchase a home that an after repair value would be $90,000, 35% of the $90,000 is $31,500 and this amount is less than the maximum $35,000 allowed so you will qualify for the $31,500 renovation loan amount.
HomePath Renovation Mortgage loans are offered to owner occupied homes, second homes, and investment homes unlike FHA 203k Loan programs where it is only offered to owner occupant properties.
For owner occupant homes, the home buyer needs to put a 5% down payment on the after improved value. For example, if the home buyer purchases a home for $70,000 and the renovation cost is $30,000 and the after improved value of the property is $100,000, the home buyer needs to put 5% down payment of the $100,000.
How Does Fannie Mae HomePath Renovation Mortgage Program Work
A home buyer needs to choose a HomePath property. Once the home buyer picks a Fannie Mae owned home, the home buyer then submits the scope of work bids from the general contractor to the mortgage lender. The mortgage lender then orders the home appraisal on an as is as complete appraisal order. The appraiser will need the score of work bid from the general contractor. The mortgage lender will fund the aquisition of the Fannie Mae property and will escrow the construction escrow. The general contractor does the work and submits draw requests after each phase of the construction work has been done. Once the job has been completed, the general contractor will submit the final draw request which will be funded once a final home inspection is done. If there are any funds left over from the construction escrow, it gets applied to the principle of the mortgage loan balance. The homeowner picks on which contractor to use. General contractors needs to be licensed, bonded, insured, and cannot be a relative of the homeowner.
Types Of Work Allowed With HomePath Renovation Mortgage Loans
A homeowner can do both interior and exterior remodeling. No structural work is permitted. Work such as painting, windows, siding, roofing, new windows, fixed appliances, kitchens, bathrooms, basements, attics, fences, decks, electrical, plumbing, and HVAC are all allowed. No swimming pools, saunas, tennis courts, room additions, outdoor kitchens, or luxury ammenities are allowed with the HomePath Renovation Mortgage loan program.
Related> Fannie Mae Renovation Mortgage Fact Sheet