Home Renovation Loan and Energy Efficient Mortgage FAQ's

Home Renovation Loan Questions

1. What is an FHA Home Renovation Loan?
   A.    The Home Renovation Loan from Citywide Home Loans, has a cap of $35,000 including fees, with no minimum repair cost. It is designed as a “refurbish and rehab” loan for borrowers to finance non-structural and cosmetic repairs only. The Home Renovation Loan can be used on purchase or re-finance transactions.

2. Can the $35,000 cap on repairs be exceeded by soft costs?
   A.    No. the Home Renovation Loan caps at $35,000 including all costs.

3. Define Soft Costs?
   A.    Soft costs are the closing costs associated with the Home Renovation Loan. They include up to 2 inspections fees (approx $150/each), and an appraisers compliance inspection report (approx $125) and a supplemental origination fee (the greater of $350 or 1.5% of the rehab costs, and a contingency reserve of 10% - to be determined by the Underwriter.

4. Can the borrower bring in cash for repairs that exceed the maximum $35,000 cap?
   A.     No. if the rehab amount exceeds $35,000 including costs, the loan is not eligible for the Home Renovation loan program. The borrower may not bring in funds for excess costs.

5.  What are the down payment requirements on the Home Renovation Loan?
   A.    Standard FHA lending limits. Maximum Loan To Value (LTV) is 96.5% for purchases and 97.75% for Rate & Term Refinances.

6. How do you calculate the loan amount on the Home Renovation Loan for purchases and refinances?
   A.    Purchases – Use the lesser of the “As-is” value provided by the appraiser, or the sales price of the property – add the cost of the rehab and soft costs – deduct any seller concessions that exceed 6% - compare this to the “as-Improved” value per the appraisal x 110%. The maximum loan amount will be based on the lesser of the 2 calculations. Apply the standard FHA Loan to value calculation of 96.5%.
   B.    Refinances – Use the lesser of the “As-is” value provided by the appraiser, or the current Mortgage balance – add the cost of the rehab, soft costs and allowable borrower closing costs – compare this to the “as-Improved” value per the appraisal x 110%. The maximum loan amount will be based on the lesser of the 2 calculations. Apply the standard FHA Loan to Value calculation of 97.75%.

7. Can the borrower receive any cash out on this program?
   A.    No. the Home renovation loan is for purchase and rate & term refinances only.

8. Can the borrower be reimbursed for any funds spent prior to closing the loan?
   A.     No.

9. What types of properties qualify under this program?
   A.    OWNER-OCCUPIED Single Family Residences, condos, PUDs and 2-4 units.

10. Is this allowed for new construction properties?
    A.    No. The property must be at least 1 year old to be eligible for the Home Renovation Loan from Citywide Home Loans.

11. Is there any additional Underwriting time required for this program?
    A.    Normal Underwriting turn times, plus 48 hours for 2^nd level review of the Home Renovation Loan paperwork will be required.

12. Can this loan be used with the FHA High balance loan
    A.    Yes.

13. Can this loan be used for someone with a non occupying co-borrower?
    A.    Yes, The credit criteria of this loan is the same as an FHA 203b – standard FHA qualifying.

14. Can this program be used for investors?
    A.    No. This is an owner occupied only program. Not allowed for investment properties or 2^nd homes.

15. Can an Energy Efficient Mortgage (EEM) be used along with the Home Renovation Loan?
    A.    Yes. The EEM may be used in addition to the $35,000 Home Renovation Loan. The borrowers may finance up to $8000 in approved EEM items (Energy Star appliances, dual pane windows, insulation, etc.) on top of the $35,000 allowed for the Home Renovation Loan – for a total of $43,000.

16. Can this loan be used in conjunction with the HUD REO program?
    A.    Yes. But the use of the Home Renovation loan MUST BE PRE-APPROVED BY HUD to be used with their REO program.

17. Is there special verbiage required on the purchase contract for the Home Renovation Loan?
    A.    No. The Home Renovation Loan is not typically part of the purchase contract although it does require the property be available for the inspections to complete the bids for the work to be completed. The seller must be cooperative with the access to the property.

18. Are there any extra fees associated with the Home Renovation Loan or Energy Efficient Mortgage?
    A.    Only the soft costs – which will be approximately $800-$1,000 plus the contingency reserve.

19. How long does the borrower have to complete the work?
    A.    The work must begin within 30 days of the loan closing and be completed no later than 6 months from the loan closing. However, the average renovation is completed within 30 days of the work being started.

20. Does the borrower have to occupy the house during the entire time of the rehab?
    A.    The borrower cannot be displaced from the property for more than 30 days during the allowable 6 month rehab time.

21. If the repairs do not allow the borrower to be in the property for 30 days – can the mortgage payments for the month they are displaced be included in the loan amount?
    A.    No. The Home Renovation Loan does not allow the financing of Mortgage payments.

22. How many draws are there on the Home Renovation Loan and who provides them?
    A.    There are 2 draws. The first is distributed at 50% of the total rehab costs within 30 days of the loan closing (once the loan is purchased by the servicing lender). The servicing lender will disburse 50% up front and the remaining 50% will be distributed once all the work is completed. Regardless of how many bids, disbursements will happen in 50% increments.

23. How do the borrowers get the draws?
    A.    The draw will be distributed in 2 parts – 50% of all the bids will be disbursed within 30 days of closing.   The remaining 50% will be disbursed after all the work is completed. The funds will be disbursed in a 2 party check made out to the borrower and the contractor jointly. It is important for all parties involved to understand that regardless of when their portion of the work is complete – no contracts on the job will receive the 2^nd half of the draw until after ALL work on the property is completed and a final inspection is obtained by the servicing lender.

24. Can the borrower do their own repairs on the Home Renovation Loan?
    A.    Yes. However, if the borrower wants to do any work or be the general contactor, they must be qualified to do the work, and do it in a timely and workmanlike manner. It is very important that the work be done in a time frame that will assure the completion of the work that will be agreed upon in the Home Renovation Loan agreement (signed at closing). A borrower doing their own work, can only be paid for the cost of the materials. Monies saved can be allocated to cost overruns or additional improvements.

25. Am I required to use the Certified Home Renovation Contractors?
    A.    No. The Home Renovation Contractors are certified specialists and can help you ease the stress and management of the renovations. They are professionals skilled at understanding and executing all of the necessary paperwork. However, you may choose your own contractors. The contractor must provide their bond, a copy of their current license, and 3 references along with the detailed bid. See the Contractors forms for the required paperwork that must be submitted before an appraisal can be done.

26. What are the requirements for a contractor?
    A.    ALL contractors must be licensed and bonded. They must have a complete resume with three client references. The contractor will be required to complete a W9 prior to closing.

27. Is a consultant required on the Home Renovation Loan?
    A.    No. A consultant is not needed because the extent of the work on the Home Renovation Loan is meant to be minor rehab – not room additions or structural in nature.

28. Is there a contingency reserve required and what is it for?
    A.    A 10% contingency reserve will be required anytime there will be actual construction being done to the property, to cover any cost over-runs on the repairs.

29. What happens to any leftover funds after the repairs are complete?
    A.    Any excess funds after the work is completed will be applied to reduce the principal balance.

30. Can this program be used for Mold abatement or termite repairs or asbestos removal?
    A.    Yes. The program will allow non-structural mold abatement, termite repair work (including tenting) and the removal of asbestos provided it is done by a licensed expert.

31. Is flooring allowed to be included in the program?
    A.    Finish flooring is allowed, however the repair of sub-floors is not allowed because it is considered structural.

32. Can the borrower do plumbing and electrical work with this program?
    A.    Yes. The program can be used for any non-structural repairs. The borrower can upgrade a kitchen or bath, including all fixtures and plumbing, cabinetry, etc. Licensed workmen must be used to complete the work. 

33. Can the program be used to make improvements for handicapped persons?
    A.    Yes. Including lowering cabinet height, building ramps for accessibility or widening doorways.

34. Can well & septic repairs be done, or can the borrower use this program to connect the property to public water and sewer if available per FHA guidelines?
    A.    Yes. The program may be used to repair or replace existing wells and septic systems. The program can be used to permanently connect to public water and sewer – if available – in compliance with FHA guidelines.

35. Can this program be used to purchase appliances?
    A.    Yes. (new appliances only). They may be free standing ( such as stoves or refrigerators, washer & dryer) or built in.

36. Can this program be used to repair of build a swimming pool?
    A.    No. Swimming pools are considered luxury items and the construction or repair may not be included in the Home Renovation loan.

37. Can the Home Renovation Loan be used for decks, patios or driveways & sidewalks?
    A.    Decks and patios are allowed with this program. However, the building or rebuilding of a driveway or sidewalk is not.

38. What are some additional items that can be included on the Home Renovation Loan?
    A.    In addition to items mentioned above – the borrower may include items such as water softeners, humidifiers, ceiling fans, air conditioning units – all permanently affixed.

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Energy Efficient Mortgage Questions 

1.  What is an Energy Efficient Mortgage?
   A.    An Energy Efficient Mortgage (EEM) is a FHA/VA loan program that recognizes the energy efficiency of a home. When purchasing or refinancing an existing home, the EEM allows 100% financing of cost effective energy upgrades into the mortgage. The borrower does not have to qualify for this amount and no additional down payment is required. A HERS report is required to show which upgrades qualify as “cost effective”.
    
2. Why would a buyer use these programs?
   A.    By making energy efficient improvements to an existing home, the buyer benefits immediately.
   * Live in a more comfortable and quieter home
   * Lower utility bills making home ownership more affordable
   * Home will be cooler in summer and warmer in winter
   * Home will have increased value based on the improvements
   * Upgrades are financed at the low mortgage rate
    
3. Who can qualify?
   A.    Anyone that qualifies for a FHA or VA loan will automatically qualify for the EEM. The EEM may be used with FHA standard loans and the Home Renovation Loan, 234c condominium projects, and 203h mortgages for disaster victims for both purchases and refinances, including streamline refinances.
    
4. What is the HERS report?  
   A.    Home Energy Rating System (HERS). Accredited HERS rating reports are recognized by FHA/VA and the Mortgage Industry as required documentation for EEM programs. (Please see the contractors list for a certified HERS report specialist)
    
5. How much does a HERS report cost & who pays for it?
   A.    The cost of the report will vary. All HERS Raters are independent business professionals and charges are based on the amount of time spent to collect data on site, diagnostic testing that may be done at the time of the rating, inputting the information into and analysis. The HERS report may be paid by the buyer, seller, Realtor or lender. The fee can be paid at the time of the Raters visit, paid as a non-recurring closing cost, or financed as part of the “cost effective” improvements in the EEM funds.
   
   
6.  Who chooses the improvements included in the EEM?
   A.    The buyer always chooses the improvements to be financed. However, the package of improvements selected must be “cost effective”, defined as: When the savings over the useful life of the product are greater than the installed costs.
   
   
7.  Will this cause a delay in closing the loan?
   A.    Using an EEM should not delay the loan process in any way. However, this process should get started as soon as possible after escrow has been opened.
   
   
8. When are the improvements installed?
   A.    The EEM improvements can only be installed after the close of escrow. The EEM funds can be held by the Lender or the Escrow Company in a holdback account. When improvements are completed the contractors are paid from the escrow account. The improvements must be installed within 90 days (FHA) or 120 days (VA) after close. In most cases, the upgrades are completed within 7-14 days.   

Call 877-475-2407 to speak to a Citywide Home Loans, Home Renovation Program expert or GET A QUOTE today

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