* For LTVs > 95%, on purchase transactions, the borrower must be a first-time homebuyer unless combined with HomeReady®; for limited cash-out refinance transactions, the loan must be owned or securitized by Fannie Mae.
The information below addresses common questions about the HomeStyle Renovation features and requirements.
FAQs updated June 13, 2024
No, Fannie Mae does not require the property to be habitable at the time of closing. If the home is not habitable, the borrower may finance up to six months of principal, interest, tax, and insurance payments to cover these costs while the home is uninhabitable.
No. A contingency reserve is not required for a mortgage secured by a one-unit property, however the lender may choose to establish one. A contingency reserve equal to 10% of the total costs of the repairs and renovation work must be established and funded for a mortgage that is secured by a two-to-four-unit property to cover required unforeseen repairs or deficiencies that are discovered during the renovation. The lender may increase the contingency reserve to 15% if it determines the higher reserve is appropriate given the scope and scale of the renovation.
No, HomeStyle Renovation loans may not be used to tear down and reconstruct a home. A tear down would include removing the entire shell of the dwelling down to the foundation. Major renovations such as additions or multi-room rehabilitations are eligible projects, provided they meet the applicable LTV requirements.
No. Fannie Mae does not require that the improvements add value to the property. The appraiser must evaluate the proposed renovation during the appraisal process. The “as completed” value of the property with the improvements will reflect any contributory value of the renovation.
No. However, the appraiser or lender may observe something that could make it necessary for utilities to be turned on to confirm there is no issue, or to confirm that the construction plans include all the work that needs to be done on the property.
No. Funds for HomeStyle Renovation may be used only to complete new improvements to the property. Funds cannot be used to pay off existing debt or special assessments.
Yes, manufactured housing is eligible for HomeStyle Renovation financing, up to the lesser of 50% of the as-completed value or $50,000. The manufactured home must meet the applicable Selling Guide requirements in Section B2-3-02, Special Property Eligibility and Underwriting Considerations: Factory-Built Housing.
Yes, an accessory unit may be detached from the primary dwelling. All improvements related to accessory units must be in compliance with local and state codes and statutes. They also must meet the applicable Selling Guide requirements for accessory units in Section B4-1.3-05, Improvements Section of the Appraisal Report.
The lender shall not request removal of the recourse obligation until all of the following conditions are met:
The cost of renovations must not exceed 75% of the lesser of the purchase price plus renovation costs, or the “as completed” appraised value for purchase transactions; and 75% of the “as-completed” appraised value for refinance transactions.
If the contingency reserve is not financed because the borrower funds the reserve, it does not need to be included in the total renovation costs toward the 75% limit as indicated on the 1035 worksheet (“if applicable and financed”). Borrower-provided funds for all other costs cannot be subtracted before calculating the 75%. The borrower bringing additional funds toward renovation would reduce the overall LTV ratio, but we expect it to be counted toward the total percentage of renovation.
All inspections must be completed when local code requires a post-completion inspection and/or a certificate of occupancy to be issued at the conclusion of the renovation. When these activities are required to satisfy local codes, the renovation phase may not be closed out until the lender has obtained evidence that these were completed. In all cases, the property must meet Fannie Mae’s General Property Eligibility requirements, as described in Selling Guide B2-3-01, prior to the renovation phase being closed to allow for the removal of recourse. This includes the requirement that the property be safe, sound, and structurally secure.
No. Fannie Mae does not mandate use of the worksheet (Form 1035). The form is provided as a tool for optional lender use. Lenders must retain any document or worksheet that was used to calculate the maximum mortgage amount in the loan file.
No. Lenders must submit these cases to Fannie Mae via the Fannie Mae HomeStyle mailbox to determine acceptable remedies based on the specific scenario and its impact to loan eligibility.
If the work was complete per the work order and the property is safe, sound, and has no compromises to the structural integrity, the litigation will not prevent closing out the renovation. However, the lender must determine if the litigation is related to a matter that suggests the property does not meet our basic property requirements regarding safety, soundness, or structural integrity. To the extent the lender has specific loan scenarios in mind, they should contact Fannie Mae’s HomeStyle mailbox to determine if additional steps are needed to close out the renovation.
If during the renovation period the loan is ever 60 or more days delinquent or has more than one 30-day delinquency, the loan is not eligible for removal of lender resource until the loan has had 36 months of clean (no 30-day late or greater) payment history. The loan must be current at the time of recourse removal.
Yes. Renovation work must be completed no later than 15 months from date the loan is closed as stated in Selling Guide section B5-3.2-01. Note: Loans delivered to Fannie Mae after one year past the first payment date must meet our requirements for seasoned loans (Selling Guide section B2-1.5-02, Loan Eligibility).
Yes, loans originated through a correspondent or third-party originator channel are eligible for delivery. The restriction on servicing transfers applies only to Fannie Mae sellers/servicers and is effective once the loan is delivered to us through the completion of the project.
For more information, refer to the homeownership education FAQs.
* A qualified provider must be independent of the lender, with homeownership education content that is aligned with National Industry Standards (NIS) or is offered by a housing counseling agency approved by the U.S. Department of Housing and Urban Development (HUD).
RLA signatures can occur anytime during the closing process. Therefore, lenders may sign the RLA before going to the closing table and borrowers may review/sign the RLA prior to closing, as each would occur during the closing process and before the RLA is delivered to the document custodian in the loan package. The key requirement is that a fully executed, valid and enforceable RLA must be delivered to the document custodian in the loan package. The RLA date, however, must match the note date to help link the RLA with the note.
The RLA is a model document, and the notary lines are included as a courtesy. If the specific jurisdiction doesn’t require notarization to create a valid and enforceable agreement, then the notary lines can be removed.
Yes, it is acceptable as a limited cash out refinance (LCOR) as long as the borrower does not get any money back at the time of closing, as stated in the guidelines. For DU data entry, under “Details of Transaction”, input the renovation cost on line B and DU will handle the transaction as a Limited Cash Out refinance. (Note: the new loan amount must remain within guidelines).
Lenders must complete Special Lender Approval Form (Form 1000A) documenting two years of direct experience originating and servicing renovation loans, and meet certain financial capacity and operational requirements. See Selling Guide B5-3.2-01: HomeStyle Renovation Mortgage: Lender Eligibility for details. This approval will be documented as “Standard Approval” within the addendum to the Mortgage Selling and Servicing Contract (MSSC) between Fannie Mae and the seller/servicer. Exceptions may be considered for Lenders that have less than two years of experience provided the lender has an active contractual agreement with a construction management vendor to manage the lender’s operational, renovation escrow, and/or completion requirements. When a vendor is used, the lender is responsible for adequate vendor oversight to ensure all requirements are met. This approval will be documented as “Conditional Approval” within the addendum to the Mortgage Selling and Servicing Contract (MSSC) between Fannie Mae and the seller/servicer.