HomeStyle® Renovation Mortgage

HomeStyle

Renovation Mortgage

The HomeStyle Renovation mortgage provides a convenient and flexible way for borrowers considering home improvements to make repairs and renovations with

a first mortgage, rather than a second mortgage, home equity line of credit, or other more costly methods of financing. We’ve simplified the process of delivering

HomeStyle Renovation loan with HomeStyle Energy. If a HomeStyle Renovation loan contains ENERGY STAR®-certified improvements, then lenders may deliver

the loan as HomeStyle Energy to receive a $500 Loan Level Price Adjustment credit. Enhancements include:

▪ If the renovation includes one or more ENERGY STAR-certified improvement, then the loan is eligible for HomeStyle Energy and a $500 LLPA credit,

and must be delivered with Special Feature Codes 375 and 773

▪ If the renovation includes other improvements eligible for HomeStyle Energy but does not include any ENERGY STAR-certified improvements, then

the loan is eligible for HomeStyle Energy and a $500 LLPA credit and must be delivered with Special Feature Code 375

▪ ENERGY STAR-certified products can be evidenced by its presence of the EPA ENERGY STAR product list located on the ENERGY STAR product

finder

N O T E : Lender approval is required to deliver HomeStyle Renovation loans to Fannie Mae prior to completion of the work. Lenders must have two years of direct

experience originating and servicing renovation mortgages within the past five years, and meet certain financial capacity and operational requirements. See Selling Guide

B5-3.2-01: HomeStyle Renovation Mortgage: Lender Eligibility for details, and contact your Fannie Mae customer delivery team for assistance.

Loan Purpose

Purchase or LCOR.

Loan Type/Term

15- and 30-year FRMs and all eligible ARM products.

Property and

Renovation

Eligibility

▪ One- to four-unit principal residences, one-unit second homes, or one-unit investment properties, including units in condos, co-ops,

and PUDs.

▪ MH is eligible, with the eligible renovation funds capped at the lesser of $50,000 or 50% of the “as completed” appraised value.

(Available in DU on March 17.)

▪ Any type of renovation or repair is eligible, as long as it is permanently affixed to the property. Renovations should be completed

within a fifteen-month period from the date the mortgage loan is closed.

Underwriting

DU and manual underwriting permitted.

Calculating the

LTV and Maximum

Mortgage Amount

For purchase transactions, loan-to-value (LTV) ratio is based on the lesser of: 1) purchase price and cost of renovation, or 2) the “as completed”

appraised value.

For refinance transactions, the LTV ratio is determined by dividing the original loan amount by the “as completed” appraised value of the property.

MH Primary Dwellings are eligible with HomeStyle Renovation, with the eligible renovation funds capped at the lesser of $50,000 or 50% of

the “as completed” appraised value.

Borrower may not receive cash back at closing in any amount (Fannie Mae standard limited cash-out refinance of 2% or $2,000, whichever is less, is

NOT PERMITTED for this product).

Lenders should use the HomeStyle Renovation Maximum Mortgage Worksheet (Form 1035) to calculate the maximum mortgage amount.

Maximum

LTV/CLTV/HCLTV

(at Origination

using DU*)

The following are maximum LTV/CLTV/HCLTV ratios for purchase or LCOR when HomeStyle Renovation mortgages are underwritten with DU* (note

that borrowers can also qualify for up to 105% CLTV with eligible Community Seconds®):

▪ One-unit principal residence to 97% LTV/CLTV/HCLTV with FRM; 95% with ARM (Available in DU on March 17) (Note: For LTVs >

95%, on purchase transactions, the borrower must be a first-time home buyer unless combined with HomeReady; for LCOR

transactions, the loan must be owned or securitized by Fannie Mae.)

▪ Two-unit principal residence to 95% LTV/CLTV/HCLTV with FRM/ARM

▪ Three- and four-unit principal residence to 95% LTV/CLTV/HCLTV with FRM/ARM

▪ One-unit second homes to 90% LTV/CLTV/HCLTV with FRM/ARM

▪ MH LTV/CLTV/HCLTV ratios principal residence to 95% FRM/ARM; second homes to 90% FRM/ARM (Note: 105% CLTV is not

permitted with Community Seconds)

One-unit investment properties:

▪ Purchase up to 85% LTV/CLTV/HCLTV with FRM/ARM

▪ LCOR up to 75% LTV/CLTV/HCLTV with FRM/ARM

*For properties underwritten manually, credit score and other factors will determine LTVs. Refer to the Eligibility Matrix.

Subordinate

Financing

Standard subordinate financing and Community Seconds are permitted. Refer to the Eligibility Matrix.

Property and

Flood Insurance

Retain in the individual mortgage file evidence of property and flood insurance following completion of the renovation (a policy or policy declarations

page). Confirm that the coverage has been increased, if necessary, to comply with Fannie Mae’s standard property and flood insurance

requirements.

Mortgage

Insurance

Mortgage insurance, if required based on the applicable LTV calculation, must be in place before closing.

Contractors

▪ Borrower must choose his or her own contractor to perform the renovation.

▪ Lender must review the contractor hired by the borrower to determine if they are adequately qualified and experienced for the work

being performed. The Contractor Profile Report (Form 1202) can be used to assist the lender in making this determination.

▪ Borrowers must have a construction contract with their contractor. Fannie Mae has a model Construction Contract (Form 3734)

that may be used to document the construction contract between the borrower and the contractor.

▪ Plans and specifications must be prepared by a registered, licensed, or certified general contractor, renovation consultant, or

architect. The plans and specifications should fully describe all work to be done and provide an indication of when various jobs or

stages of completion will be scheduled (including both the start and job completion dates).

Borrower “Do-It-

Yourself” Work

Borrowers can perform the renovation work themselves at the lender’s discretion, provided that:

▪ The Do-It-Yourself financing does not exceed 10% of the as completed value. Note: Inspections are required for all work items that

cost more than $5,000.

▪ The property is a one-unit owner-occupied home, and not a manufactured home.

▪ The reimbursement is limited to the cost of materials or the cost of properly documented contract labor (sweat equity may not be

reimbursed).

Renovation Costs,

Payment Reserves,

and Contingency

Reserves

Lender may advance funds of up to 50% of the cost of materials any time after closing of the loan to secure necessary supplies for the project.

Renovation costs may include:

▪ Labor and materials.

▪ Soft costs (architect fees, permits, licenses).

▪ Contingency reserve (up to related to the cost of labor, materials, and soft costs for unforeseen extra costs in the renovation). The

contingency reserve is optional unless the property is a 2- to 4-unit home.

▪ A payment reserve of up to six months PITIA is permitted when the borrower must vacate the property during renovation. The

amount can be financed in the loan amount if the value will support such financing. The reserve is allowed only for the period in

which the property is uninhabitable due to the renovations. (If monthly HOA fees are included in the renovation escrow account,

the servicer must pay them on behalf of the borrower.)

▪ A contingency reserve of 10% of the hard and soft renovation costs is required for two- to four-unit properties; the contingency

reserve may be financed or it may be funded separately by the borrower.

Lender

Responsibilities

for Renovation

Work

▪ The renovation and contingency funds must be placed in an interest-bearing custodial account.

▪ The lender must manage the renovation funds during the work.

▪ Unused funds must be applied as a curtailment to the unpaid mortgage balance.

▪ Once the work is complete, the lender must obtain an Appraisal Update and/or Completion Report (Form 1004D) as evidence of

completion.

Rep & Warrant

Relief

Loans may be eligible for relief from representations and warranties once the renovation has been completed and recourse has been

removed (restrictions apply).

Delivery

Requirements

▪ HomeStyle Renovation mortgages are eligible for whole loan or MBS execution.

▪ HomeStyle Renovation must be delivered with the appropriate special feature codes (SFCs):

• HomeStyle Renovation mortgage – SFC 215

• If renovations are completed at or prior to loan delivery – SFC 279

• If used with Community Seconds – SFC 118

• If used with HomeStyle Energy – SFC 375

• If renovation includes ENERGY STAR-certified improvements, SFC 375 and 773 (loan will receive a $500 LLPA credit)

Servicing

Lenders must follow standard procedures and guidelines in the Servicing Guide related to conventional first mortgages, as well as special

requirements related to the Renovation mortgage. Minimum servicing is 0.25% for both fixed-rate products and ARMs. The lender may not

sell or transfer servicing until the renovation work is complete.