B5-3.2-01, HomeStyle Renovation Mortgages (03/01/2023)

The HomeStyle Renovation mortgage enables a borrower to purchase a property or refinance an existing loan and include funds in the loan amount to cover the costs of repairs, remodeling, renovations, or energy improvements to the property. The loan may be delivered to Fannie Mae prior to completion of the renovation, subject to limited recourse as described below.

Note: For loan casefiles underwritten through DU, DU will determine that the transaction is a HomeStyle Renovation loan if the Renovation indicator in Property and Loan Information (L1) is selected and there is an amount entered in Line B (L4) of the online loan application.

There are no required improvements or restrictions on the types of renovations allowed, nor is there a minimum dollar amount for renovations.

Generally, improvements should be permanently affixed to the real property (either dwelling or land), with the exception of certain appliances installed with kitchen and utility room remodels. The borrower may use HomeStyle Renovation to purchase appliances as part of an overall remodeling project that includes substantial changes or upgrades to the rooms in which the appliances are placed.

HomeStyle Renovation may be used to complete the final work on a newly built home when the home is at least 90% complete. The remaining improvements must be related to completing non-structural items the original builder was unable to finish. Such work may include installation of buyer-selected items such as flooring, cabinets, kitchen appliances, fixtures, and trim.

HomeStyle Renovation may be used to construct various outdoor buildings and structures when allowed by local zoning regulations. These buildings or structures must be in compliance with any applicable building codes for the local area. Examples of acceptable structures include, but are not limited to, accessory units, garages, recreation rooms, and swimming pools. See Accessory Dwelling Units in  B2-3-04, Special Property Eligibility ConsiderationsB2-3-04, Special Property Eligibility Considerations for additional information about eligible ADUs.

HomeStyle Renovation may not be used for complete tear-down and reconstruction of the dwelling.

HomeStyle Renovation may also be used to finance energy-related improvements. See  B5-3.3-01, HomeStyle Energy for Improvements on Existing PropertiesB5-3.3-01, HomeStyle Energy for Improvements on Existing Properties, for additional information.

HomeStyle Renovation mortgage loans have specific product requirements and guidelines for which lenders must ensure detailed compliance. Lenders must obtain special approval to deliver these types of loans to Fannie Mae prior to completion of the renovation work. See A2-1-01, Contractual Obligations for Sellers/ServicersA2-1-01, Contractual Obligations for Sellers/Servicers for additional information. If a lender delivers HomeStyle Renovation loans to Fannie Mae after all renovation work is complete, no special approval is required.

Renovation work must be completed no later than 15 months from date the loan is closed. In the rare circumstance a renovation project exceeds 15 months, the lender must submit this information to Loan Quality Connect to describe the circumstances resulting in the delay and determine potential remedies. These options may include

• a limited extension of the timeframe (not to exceed 18 months from the date the loan was closed),

• curtailment of the work to be completed,

• repurchase of the loan, or

• other remedies applicable to the specific circumstance.

Fannie Mae has sole discretion in determining which remedy is acceptable when renovation timeframe exceeds 15 months.

Lenders may not transfer servicing on HomeStyle Renovation loans during the renovation period.

The lender is responsible for monitoring completion of the renovation work and 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.

Lenders may use vendors to manage the operational, escrow, and completion requirements for HomeStyle Renovation loans; but when a vendor is used, the lender is responsible for adequate vendor oversight to ensure all requirements are met.

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 loan.

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

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

If the HomeStyle Renovation mortgage includes financing of energy-related improvements, the loan is eligible for an LLPA credit if the lender delivers the loan using the following SFCs.

Note: The HomeStyle Energy SFCs are required in addition to the applicable HomeStyle Renovation SFC.

For loans delivered with recourse, the lender may request the recourse obligation be removed when the renovation is complete. The following criteria will be applicable to the removal of recourse:

• Recourse will not be removed if the loan is delinquent when the lender requests removal.

• If the borrower was 1 x 30 days delinquent at any point during the renovation work, but is current when removal is requested, the recourse may be removed.

• If the borrower had more than one 30 day delinquency or was ever 60 - 90 days delinquent, the lender may request recourse removal after the borrower has made 36 payments with no delinquencies.

To request removal of recourse, the lender must submit a complete Appraisal Update and/or Completion Report ( Form 1004D) to Loan Quality Connect. Submissions must meet the following requirements:

• The Fannie Mae loan number(s) must be identified in the 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.

See  B5-3.2-05, HomeStyle Renovation Mortgages: Completion CertificationB5-3.2-05, HomeStyle Renovation Mortgages: Completion Certification, for additional information.

HomeStyle Renovation mortgages are eligible for enforcement relief of underwriting and eligibility representations and warranties as described in A2-3.2-02, Enforcement Relief for Breaches of Certain Representations and Warranties Related to Underwriting and EligibilityA2-3.2-02, Enforcement Relief for Breaches of Certain Representations and Warranties Related to Underwriting and Eligibility. To be eligible for relief, the renovation must be complete and recourse removed.