Selling Guide

Published April 25, 2017

B5-3.2-01: HomeStyle Renovation Mortgages (12/06/2016)

This topic contains information on HomeStyle Renovation mortgages, including:

Overview

The HomeStyle Renovation mortgage enables a borrower to obtain a purchase transaction mortgage or a limited cash-out refinance mortgage and receive funds to cover the costs of repairs, remodeling, renovations, or energy improvements to the property. The mortgage may be delivered to Fannie Mae prior to completion of the renovation, subject to limited recourse as described below.

There are no required improvements or restrictions on the types of renovations allowed or a minimum dollar amount for the renovations. Renovations, however, must be permanently affixed to the real property and add value to the property.

Note: For loan casefiles underwritten through DU, DU will determine that the transaction is a HomeStyle Renovation Mortgage if there is an amount entered on line b. Alterations, Improvements, Repairs in the Details of Transaction section of the loan application.

Lender Eligibility

HomeStyle Renovation mortgage loans have specific product requirements and guidelines with which lenders must ensure detailed compliance. Lenders must obtain special approval to deliver these types of mortgage loans to Fannie Mae. See A1-1-01, Application and Approval of Seller/Servicer for additional information.

Lender Responsibilities

Renovation work must be completed no later than 12 months from date the mortgage loan is delivered.

The lender is responsible for monitoring the completion of the renovation work. The lender must exercise all approval and oversight responsibilities that are customary and required to comply with specific state laws and to ensure that clear title to the property is maintained.

If any action the lender takes or fails to take in overseeing the renovation work affects Fannie Mae’s ability to acquire clear title to the property, the lender may be required to repurchase the mortgage.

The lender must maintain a copy of all of the documentation that supports the renovation work, plans and specifications, “as completed” appraisal, renovation contract, renovation loan agreement, certificate of completion, title insurance endorsements or updates, etc., in the individual mortgage file. For more information about the specialized legal documentation Fannie Mae requires for a HomeStyle Renovation mortgage, see Subpart B8, Closing: Legal Documents.

When the HomeStyle Renovation mortgage is used to finance energy-related improvements, the lender must review an energy report, obtained by the borrower, that identifies recommended energy improvements to the property and the estimated cost savings associated with those improvements. See B5-3.3-01, HomeStyle Energy for Energy Improvements on Existing Properties, for additional requirements related to mortgage loans with energy improvement features.

Delivery and Recourse Requirements

A lender may deliver a HomeStyle Renovation mortgage as soon as it is closed; the renovation does not need to have been completed when the mortgage is delivered as long as the lender delivers that loan with recourse. If the borrower defaults under the terms of the mortgage loan before the work is completed, and that default continues for at least 120 days, the lender may be required to repurchase the mortgage.

When the HomeStyle Renovation mortgage includes financing of energy-related improvements, the lender may be eligible for an LLPA credit of $500. Lenders will receive the LLPA credit only if Special Feature Code 375 is delivered, as shown below.

If the HomeStyle Renovation mortgage is delivered ... And the lender delivers ... Then ...
  • the renovation is not complete,

  • SFC 215

  • the loan is delivered with recourse.

  • the renovation is complete,

  • SFC 279

  • no recourse obligation applies.

  • the renovation is not complete, and

  • the renovation includes HomeStyle Energy improvements.

  • SFC 215, and

  • SFC 375

  • the loan is delivered with recourse, and

  • Fannie Mae applies an LLPA credit of $500.

  • the renovation is complete, and

  • the renovation includes HomeStyle Energy improvements.

  • SFC 279, and

  • SFC 375

  • no recourse obligation applies, and

  • Fannie Mae applies an LLPA credit of $500.

Removal of Recourse

For loans delivered with recourse, the lender may have the recourse obligation removed when the renovation is complete. The required documentation to remove recourse is either a certification of completion from the appraiser on the Appraisal Update and/or Completion Report (Form 1004D) or a HomeStyle Completion Certificate (Form 1036) completed with all applicable signatures. Lenders must submit HomeStyle Renovation recourse removal requests and documents to the HomeStyle mailbox, (see E-1-03, List of Contacts). Submissions must include the following:

  • Fannie Mae loan number(s) must be identified in the email request and attached documents must have the loan numbers in the title.

  • Documents must be clear and complete. For example, it is a best practice to include photos of completed renovations with all submissions.

  • Manage email and attachment size to ensure delivery by

    • submitting no more than 5–7 attachments per message, and

    • properly numbering emails if there are multiple emails for the same submission on the same day. For example, 1 of 3 emails, 2 of 3 emails, 3 of 3 emails.

See B5-3.2-05, HomeStyle Renovation Mortgages: Completion Certification, for additional information.

Related Announcements

The table below provides references to the Announcements that have been issued that are related to this topic.

Announcements Issue Date
Announcement SEL-2016–09 December 06, 2016
Announcement SEL-2016–03 March 29, 2016
Announcement SEL-2016–02 February 23, 2016
Announcement SEL-2015–09 August 25, 2015
Announcement SEL-2010–15 December 1, 2010