The renovation contract must:
- itemize the specific work that the contractor agrees to perform for the borrower,
- state the agreed-upon cost of the renovation,
- identify all subcontractors and suppliers,
- include an itemized description that establishes the schedule for completing each stage of the work and the corresponding payments to be made to the contractor.
This contract, which must be executed by both the contractor and the borrower, must require the contractor to:
- be duly licensed (if required by applicable law);
- obtain all required insurance coverages (such as all-risk, public liability, workmen’s compensation, and automobile liability);
- complete the work in compliance with the contract and all applicable government regulations (such as building codes and zoning restrictions);
- obtain the necessary building permits (including a certificate of occupancy, upon completion of renovations, if required by local law);
- provide for appropriate remedies for resolving disputes (including an agreement to indemnify the borrower for all property losses or damages caused by the contractor’s employees or subcontractors).
Fannie Mae has developed a model Renovation Contract (Form 3730)* to document the renovation contract between the borrower and the contractor.
HomeStyle Renovation mortgages may be subject to a variety of laws and regulations, based on the type of transaction or the types of lenders originating the mortgages. Therefore, when Fannie Mae’s model document is used, all appropriate, required changes must be made.
For additional information, see B5-3.2-06, HomeStyle Renovation: Renovation Contract, Renovation Loan Agreement, and Lien Waiver.
*For a complete list of forms used in fulfilling requirements contained in the Selling and Servicing Guides, see the Guide Forms page.