Renovation loans are a great way to purchase a property that requires rehabilitation or renovation prior to occupancy.  Buyer’s can use a renovation loan to update, rehabilitate or renovate a property.

There are currently two types of loan programs:  FHA and Fannie Mae.

The FHA program requires:

  • Current seller on title for 90 days
  • For Condo projects: 51% owner occupancy in association
  • Borrow needs to contribute 3.5%
  • FHA Loan limits apply

The Fannie Mae program requires:

  • 20% down payment on investment property (contract + renovation cost + fees)
  • 10% down payment for owner occupied property (contract + renovation cost + fees)

Within each loan program, there are two programs:  streamlined and standard.  For the streamlined program, the project must not be a "complicated rehab/renovation", such that no engineer, consultant or architects needed.  Typical projects include:

  • Remodel kitchen/bath
  • Painting (interior or exterior)
  • Disability access improvements
  • Basement waterproofing
  • Window/Door replacement
  • Re-siding
  • Septic/Well repair/replacement
  • Update Appliances
  • New Flooring
  • New Cabinets
  • New Roof, gutters, downspouts
  • Replace/Upgrade Furnace or HVAC
  • Green Loan
  • No structural repairs

Important points to remember regarding many of the renovation loans:

    • Must become owner occupied after renovation
    • Maximum loan $35,000 for streamlined, higher limit for non-streamlined (standard)
    • Timeline:  30 to 60 days to close on this loan
    • Closing costs, carry costs, etc. can be rolled into total loan amount
    • Budget 10% to 20% for contingencies/cost overruns.  Any balance remaining will go toward principle reduction
    • Owner CAN NOT do any work.  Work must be performed by a contractor that is approved by lender (detailed list of work, permits needed, etc.) Note: some jobs can be performed by general handyman.  Homeowner may work under a contractor as a 1099 Independent Contractor and then the labor costs can be reduced.
    • Any Change Orders/Work Changes MUST be approved by lender
    • Multiple contractors are allowed (different contractors for HVAC, electrical, plumbing, windows, painting, etc.)

    The type of property is limited to residential properties including:

    • 1-4 unit properties as long as one of the units is owner occupied
    • Condominium, Townhouse, single-family home, duplex, triplex, etc.
    • Can be used to demolish house as long as foundation is reused
    • Property must have certificate of occupancy (CO) for minimum one year
    • Manufactured homes
    • Moving a home

    Buyer’s need to be aware that the renovation loan is a complicated process that requires much up-front work to ensure a successful project.  Contact us if you want more information regarding the renovation loan process or need a lender.