What is a HomeStyle® Refresh Loan?
HomeStyle® Refresh loans provide financing for homeowners or buyers seeking to make smaller-scale home improvements to an existing property, including energy and/or water efficiency upgrades, environmental remediation, disaster preparedness or resiliency improvement, or repairs needed due to a natural or environmental disaster.
On refinances, HomeStyle® Refresh loans may be used to pay off PACE or non-PACE secured or unsecured debt that financed energy-related improvements.
What properties are eligible for a HomeStyle® Refresh Loan?
Eligible properties include:
- 1-4 units
- Historical Properties (require approval for repairs from governing historical society)
- Manufactured homes (non-structural improvements only)
- Modular homes
- Planned Unit Developments (“PUD”)
- Townhome
- Warrantable condos (Fannie Mae®-approved and non-structural improvements only)
What improvements are allowed with a HomeStyle® Refresh Loan?
Types of home improvements allowed include, but are not limited to:
- Small-scale improvements such as kitchen or bathroom updates, construction of outdoor buildings and structures when allowed by local zoning regulations (e.g., swimming pools, decking, screening and porch, patio additions), adding or renovating an accessory dwelling unit (ADU), with the exception that no structural changes are allowed to be made on manufactured homes
- Energy or water efficiency upgrades or improvements, or to pay off PACE debt or non-PACE secured or unsecured debt used to finance energy-related improvements (conditions apply)
- Environmental hazard damage repairs or resiliency improvements, including asbestos, lead, mold, and radon
- Disaster preparedness or resiliency improvement such as storm surge barriers, foundation retrofitting for earthquakes, hazardous brush and tree removal in fire zones, or retaining walls to address mud or water flows
- Repairs needed due to a natural or environmental disaster of an existing property
The following applies to all HomeStyle® Refresh loans:
- Any work performed or materials purchased prior to closing is not eligible to be financed into the loan
- Improvements or changes made to the initial scope of work as identified in the contractor’s bid that were not pre-approved by the lender in advance may not be eligible for reimbursement
What are the HomeStyle® Refresh Loan Appraisal Requirements?
As-Is Appraisal: An “as-is” appraisal is required when there is no renovation component to the loan such as when the HomeStyle® Refresh loan is being used to pay off PACE or non-PACE secured or unsecured debt that financed energy-related improvements.
After-Improved Appraisal: An after-improved appraisal is required for every HomeStyle® Refresh loan with a renovation component.
What are the HomeStyle® Refresh Loan Financeable Renovation Costs?
Minimum/Maximum Energy Improvement Costs, Fees, and Reserves Allowed
There is no minimum dollar amount for the improvements.
The maximum dollar amount depends on the type of HomeStyle® Refresh activity and the transaction, as described below:
Renovation of an existing property
- For purchases or limited cash-out refinances, up to 15% of the “as completed” appraised value of the property
Payoff of non-PACE secured or unsecured debt that financed energy-related improvements
- For limited cash-out refinances, up to 15% of the appraised value of the property. The energy-related debt must be paid off in full. Partial payoffs are not permitted Note: If a HomeStyle® Refresh loan includes both new energy-related improvements and payoff of previously acquired energy-related debt, the total of both cannot exceed 15%
Payoff of existing PACE loan
- For purchases or limited cash-out refinances, all outstanding PACE debt may be paid off up to the maximum allowable loan-to-value (“LTV”) for the transaction and occupancy type. The PACE loan must be paid off in full. Partial payoffs are not permitted
Other Renovation-Related Costs That May Be Financed
- A contingency reserve may be funded to cover unforeseen repairs that are discovered during renovation. The amount of contingency will be up to 20% of the total cost of improvements. Most lenders will require contingency reserves which are typically financed in the loan amount (i.e., Financed Contingency). Alternatively, you may bring funds to closing to fund the contingency reserves; however, any assets required to fund the contingency reserves must be documented and verified above the amount required for down payment and reserves (i.e., Borrower-Funded Contingency)
- Hard costs (i.e., labor and materials from the contractor’s bid)
- Architectural fees
- Engineering fees
- Draw inspection fees
- Title update fees
- Permit costs
- Draw Management Fees
Other Highlights of the HomeStyle® Refresh Loan
- First-time homebuyers may put down as little as 3% of the purchase price plus total renovation costs. Other buyers may put down as little as 5% of the purchase price plus total renovation costs
- Homeowners who are refinancing a loan owned by Fannie Mae® may finance up to 97% LTV. If the existing loan is not owned by Fannie Mae®, the maximum LTV allowed is 95%
- Mortgage insurance is required when LTV exceeds 80%
- Your contractor’s credentials will be vetted. Any contractor hired will have to provide proof of licensing (if required), a Certificate of Liability Insurance, Worker’s Compensation (if required), any specialty certifications required (e.g., lead-based paint, mold, radon, asbestos), and a signed IRS W-9 Form
- Your contractor’s bid will have to meet certain requirements. Each lender’s requirements vary, but contractors are generally asked to provide a bid on contractor letterhead, naming you as the client, identifying the property where the work will take place, with a full description and the location of all work being performed, permits and their associated costs, accurate tally of all sub-totals and the grand total, start and completion dates, and number of draws needed. Although not required by Fannie Mae®, some lenders may require a labor and materials breakdown per line item
- You may be able to perform some of the work yourself if the property is a 1-unit property and will be your primary residence. When allowed, Do-It-Yourself (“DIY”) improvements may not represent more than 10% of the “as completed” value of the property. To find out whether or not you would be allowed to perform work, contact your lender
- A Consultant is not required for HomeStyle® Refresh loans
- Gifts are allowed on purchases
- HomeStyle® Refresh loans may be combined with HomeReady loans
- All permits should be pulled immediately after loan closing, work should commence within thirty (30) days’ of loan closing, work should not cease for any thirty (30) day period, and must be completed within 180 days of the Note Date
Draw Process of the HomeStyle® Refresh Loan
Allowable Disbursements at Loan Closing: Items that may be disbursed at the closing table include:
- Up to 50% of the total planned renovation costs, including
- Architectural Fees
- Engineering Fees
- Permit costs (permits must be obtained before work commences) and
- Draw Management Fee
Remaining Draws Process: All other financeable improvement costs and fees will be deposited in the renovation escrow account and disbursed as described below:
- Inspections, when required, must occur before escrow draws are made to ensure work is being completed in accordance with plans and specifications
- Funds are released to you and your contractor only when any given renovation work has been completed
- Many lenders will apply a ten percent (10%) holdback to all progress, or interim, draws
Final draw will be paid-in-full and will include all previously withheld ten percent (10%) holdbacks, along with any outstanding contingency requests or change orders - Appraiser inspects property to identify the percentage of work complete to date for each draw request. Appraiser must complete final inspection
- Checks will be made payable to you and your contractor (i.e., dual-party checks) unless you grant the lender permission to issue payments directly to your contractor via wire transfer
There are many different types of renovation loans: conventional renovation loans through Fannie Mae® (“FNMA”) and Freddie Mac® (“FHLMC”), FHA renovation loans, USDA renovation loans, a VA renovation loan option, and portfolio renovation loans.
Keys To Success:
- Inquire early! If you attempt to place an offer on a property that is listed for sale without a pre-qualification letter, your offer may be rejected and you may miss a window of opportunity. It is best to secure financing before you are too far into the buying process.
- Make sure your contractor is on board with the contractor qualifications, bid requirements, and draw process required for your loan type.
- If a Consultant is involved, meet together at the property with the contractor, so all parties can finalize the scope of work together.
- Provide requested paperwork quickly to meet contract deadlines. Time lost on the front end of a deal oftentimes cannot be made up on the back end of the deal to hit closing deadlines.
- Be decisive! Decide on the details of your renovation project early and resist the temptation to make changes throughout the loan process. Wavering during the process can cause delays with your closing. Feel confident in pushing forward with the decisions you make at the onset of the transaction. That’s not to say you can’t make changes along the way, but making those changes mid-stream will likely cause delays.
