What is a RenoRefresh Second Mortgage Loan?
Diamond Residential Mortgage Corporation’s portfolio RenoRefresh Second Mortgage allows existing VA-eligible homeowners the ability to finance minor remodeling and renovation projects with limited renovation loan file documentation.
The RenoRefresh Second Mortgage is designed to provide temporary financing with a 6-month draw period and 12-month maturity date in second lien position.
Veterans are charged interest-only payments until work has been completed and the second mortgage matures. After completion of the renovation project, Diamond Residential Mortgage Corporation will refinance both the existing first mortgage and RenoRefresh Second Mortgage into permanent VA financing.
Approval for the RenoRefresh Second Mortgage is subject to VA end-loan approval and conformity with VA guidelines.
Structural repairs are not allowed. A $10,000 minimum is required, and total renovation costs, fees, and reserves may not exceed $35,000. The use of a Consultant is not required. All repairs must be completed within six (6) months of closing or if the borrower elects to execute rate protection the project will need to be completed prior to the expiration of the rate protection.
What properties are eligible for a RenoRefresh Second Mortgage Loan?
Eligible properties include:
- 1-4 units, owner-occupied
- Historical Properties (require approval for repairs from governing historical
- society)
- Manufactured homes
- Modular homes
- Planned Unit Developments (“PUD”)
- Townhome
- Warrantable Condo (must meet VA requirements)
What improvements are allowed with a RenoRefresh Second Mortgage Loan?
Required Improvements
All appraiser-noted deficiencies and repairs that are required to meet VA Minimum Property Requirements (“MPR”) must be addressed.
Eligible Improvements
All improvements must be permanently affixed to the real property (dwelling or land) and allowable by VA.
Types of eligible improvements include, but are not limited to:
- Making changes for improved function and modernization, including (but not limited to) interior painting, new flooring, kitchen and bathroom remodel (e.g., new cabinetry and countertops), new windows/doors, siding, and other interior and/or exterior enhancements
- Eliminating health and safety hazards that would violate VA MPRs
- Repairing or replacing wells and/or septic systems
- Connecting to public water and sewage systems
- Gas conversions
- Repairing/replacing plumbing, heating, AC and electrical systems
- Finishing out an attic or basement
- Repairing or installing new roofing (provided the structural integrity of the home will not be impacted by the work being performed), siding; gutters; and downspouts
- Making energy-efficient improvements
- Creating accessibility for persons with disabilities
- Installing or repairing fences, walkways, and driveways
- Installing new appliances such as a refrigerator, cooktop, oven, dishwasher, built-in microwave oven and/or washer/dryer
- Rehabilitating or improving a garage
- Making landscaping and site improvements
- Repairing or removing an in-ground swimming pool
- Installing smoke detectors
- Installing, replacing or repairing exterior decks, patios, and porches
- Installing a windstorm shelter
- Covering lead-based paint stabilization costs if the structure was built before 1978, in accordance with the EPA’s Renovation, Repair, and Painting Rule
Ineligible Improvements
Types of ineligible improvements include, but are not limited to:
- Tear-downs and re-builds
- Converting a one-family structure to a two-, three- or four-family structure
- Decreasing an existing multi-unit structure to a one- to four-family structure
- Reconstructing any part of a structure that has been or will be demolished
- Repairing, reconstructing or elevating an existing foundation
- Purchasing an existing structure on another site, moving it onto a new foundation and repairing/renovating it
- Making structural alterations such as the repair of structural damage including roof joists/beams/trusses, new construction including room additions, moving load-bearing walls, adding egress windows, enlarging doors or windows, post and pier or flooring support joists or beams
- Constructing a new garage or outbuilding
- Repair or replacement of oil tanks
- Required repairs arising from the appraisal that necessitate a Consultant to develop a specification of repairs/Work Write-Up or require plans or architectural exhibits
- Repairs that prevent borrower from occupying the property for more than 15 days during the renovation period
- Any work performed or materials purchased prior to closing
- Recreational or luxury improvements such as installation of new swimming pools (existing swimming pools can be repaired), an exterior hot tub, spa, whirlpool bath, or sauna, barbecue pits, outdoor fireplaces or hearths, bath houses, tennis courts, satellite dishes, tree surgery (except when eliminating an endangerment to existing improvements), photo murals, gazebos
- Making additions or alterations to support commercial use or to equip or refurbish space for commercial use
What are the RenoRefresh Second Mortgage Loan Appraisal Requirements?
- As-Is Appraisal: As-is appraisals are not required for RenoRefresh Second Mortgages.
- After-Improved Appraisal: An after-improved appraisal is required for every RenoRefresh Second Mortgage loan.
What are the RenoRefresh Second Mortgage Loan Financeable Renovation Costs?
- A contingency reserve will be funded to cover unforeseen repairs that are discovered during renovation. The amount of contingency will be set at 10% of the bid amount. Contingency reserves are required and 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)
- Permit costs
Other Highlights of the RenoRefresh Second Mortgage Loan
- Program is reserved for Veterans eligible for VA financing
- Refinances only (purchase transactions not allowed)
- Maximum loan-to-value (“LTV”) is 90%
- Escrows for property taxes and homeowner’s insurance are not required
- 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 has to meet certain requirements such as being on contractor letterhead, naming you as the client, identifying the property where the work will take place, a full description and the location of all work being performed, accurate tally of all sub-totals and the grand total, start and completion dates, and number of draws needed
- You may be able to perform some of the work yourself. To find out whether or not you would be allowed to perform work, contact me
- 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 six (6) months of loan closing
Draw Process of the RenoRefresh Second Mortgage Loan
Allowable Disbursements at Loan Closing
Items that may be disbursed at the closing table include:
- Permit costs (permits must be obtained before work commences)
Remaining Draws Process
All other financeable improvement costs and fees will be deposited in the renovation escrow account and disbursed as described below:
- Inspections 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 General Contractor only when any given renovation work has been completed
- General Contractor to identify number of draws needed (max of five (5)), payable upon completion of work
- A ten percent (10%) holdback will apply 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 contractor (i.e., dual-party checks)
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.
Below is a high-level overview of the renovation loans Diamond Residential Mortgage Corporation offers. For more information, explore FAQs and Blog.
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.
