November 21st, 2007 3:18 PM

 

Certain Lenders are approved for Fannie Mae's rehabilitation loan, where a borrower can finance rehabilitation costs based on the value of the home after the renovations are finished. 

 

The Homestyle Renovation Mortgage is a cost-effective and convenient way to combine home purchase or refinance with the cost of renovating or repairing the home in one loan and more importantly with one closing.  When utilizing this Fannie program the borrower's can utilize up to 50% of the "as completed" value of the property for rehabilitation. There are no required improvements or restrictions to the types of repairs, nor is there a minimum amount of repairs required. Unlike many self help programs,there are no income limits.

 

This program will be of particular interest for parents who want to provide housing for their physically handicapped or developmentally disabled adult children. (Children who are unable to work or who have income that is not sufficient for them to qualify)

 

This program allows the purchase or refinance of a single-family home for such children and have it be considered a principal residence, even though the parent-borrower will not be the occupant of the property. This is significant since this extendes the benefits of owner occupied loans to this class of housing. This same flexibility will be extended to children who want to provide housing for elderly parents (who are unable to work or have insufficient income to qualify for a mortgage on their own).

 

The Homestyle loan product features several required safeguards as follows:

* No prepayment penalty

* Fully amortized fixed rate 15, 20, and 30 year terms (ARM's are also available) to a maximum loan of $417,000.

* Cost of the rehabilitation must be based on an estimate by a licensed general contractor or architect.

* Borrower's may be permitted in certain situations to perform a portion of the work, not to exceed 10% of the loan amount. This work cannot include improvements that typically would be completed by a licensed professional.

* The Rehabilitation contract must include a draw schedule for the work to be completed. No funds are disbursed prior to the completion of work for each phase.

All parties must agree to the master draw schedule.

* A mandatory contingency reserve equal to 10% of the total cost to cover unforseen repairs or deficiencies that are discovered during the rehabilitation. This reserve may be financed in the loan or the borrower may fund it separately. Any unused reserve funds will be applied to principle reduction.

* To avert the potential hardship caused by two housing payments (rent & purchase) during the time of renovation, full mortgage payments of up to six months may be included as part of the total costs and financed. (Only for truely owner occupied home loans.)

* Maximum allowable term for the rehabilitation period is six months.

This program could greatly enhance the lives of those that need to customize their homes to accomadate accessibility, additional space, and any other special needs.

 

 

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