WHAT IS A RENOVATION LOAN, AND HOW CAN IT HELP YOU GAIN MORE BUSINESS AS A CONTRACTOR?
FHA 203(k) loans are offered by the Federal Housing Administration, a government agency. The federal government designed these loans to encourage lenders to fund seemingly risky home purchases. Goals of neighborhood revitalization and greater homeownership opportunities also drove the creation of this loan. FHA 203(k) loans are designated for houses that are damaged or solely in need of rehabilitation. The loan covers not only the cost of the property but also the cost of necessary home repairs. Homeowners whose homes need improvement can also refinance with these loans. A vast range of repairs, including room additions, bathroom remodeling, roofing, flooring and air conditioning systems, and more can be funded with these loans.
WHAT TYPE OF RENOVATION LOAN ARE YOU WORKING WITH?
There are three types of renovation loans. FHA 203(k) loans, Standard and Limited, and the FNMA HomeStyle. Depending upon which type you are working with, will also determine how draws are disbursed to you, as an approved contractor. With all three programs, the cost of permits are always disbursed at closing.
FHA Standard 203(k) loans are for homes that need structural repairs, major remodeling, or rehabilitation costs that exceed $35,000.
- With a Standard 203(k), disbursements are made like any typical construction draw. A HUD Consultant will inspect and approve the work performed, and prepare the draw to be disbursed. Typically there are up to 5 draws allowed, and there is a 10% hold back on each draw. Once the final draw is requested and approved, the final disbursement will be made with the entire 10% hold back. All repairs must be started in 30 days of closing, and completed within six months.
FHA Limited 203(k) loans are for those that need non-structural repairs, and are less than $35,000 in TOTAL rehabilitation costs.
- With a Limited 203(k) loan, we can disburse material costs up to 50% of the total repair cost. Once all work is completed, final inspection is done, and the lien release is signed, the remaining funds owed will then be disbursed. All repairs must be started in 30 days of closing, and completed within six months.
FNMA Homestyle loans are conventional rehab loans for homes that can utilize major and or minimal remodeling.
- With a FNMA Homestyle product, disbursements are made like any typical construction draw. A Consultant or Fee Inspector will inspect and approve the work performed, and prepare the draw to be disbursed. Typically there are up to 5 draws allowed, and there is a 10% hold back on each draw. Once the final draw is requested and approved, the final disbursement will be made with the entire 10% hold back. All repairs must be started in 30 days of closing, and completed within 12 months.
HOW DO I GET VALIDATED TO BECOME AN APPROVED CONTRACTOR?
Each contractor needs to be validated and approved to perform the work on each project. Validation is good for 12 months. To be validated, you will need to fill out this form: Primary Residential Mortgage Incorporated - Contractor Registration Link (<< please click link)
In addition to filling out the online registration form, from the above link, we will need the following:
1. Copy of your licensing, if required.
2. Certificate of Worker’s Compensation Insurance (if you have employees), or Letter of Exemption (if you do not have any employees)
3. Proof of General Liability Insurance (min. $1mm aggregate coverage).
4. Signed and fully executed W-9 form, referencing tax ID or SSN.
5. Two trade references (Name and Phone Number)
6. Lead Base Paint Certification, if you are certified to work with LBP.
To expedite review of your documents, please submit all items together. The validation cannot be completed until all documents are received.
If you have problems uploading documents, please email them directly to or fax to (443) 703-2351.
We look forward to working with you. Please call (443) 273-9007 with any questions.
WHAT ARE MY BID REQUIREMENTS?
All bids submitted must meet the following requirements:
1. Bid must be submitted on the contractor’s letterhead (i.e. name of company, name of primary contact, business address, telephone
number, email address, and license # of the contractor)
2. Borrowers name and subject property address must be present (Cannot be issued to the Real Estate Agent or Loan Officer)
3. Must be a true “Bid”, not an “Estimate”
4. Repairs must be explained in detail so while reading we can picture the work being done
5. Material and Labor must be broken down separately for each repair, then totaled at the bottom of bid
a. EXAMPLE: Install hand rail for stairs leading to the basement . Material $150 Labor $75 Total $225
6. Blend Taxes, Overhead, and Profit into each line item. Taxes, Overhead and Profit are not allowed as separate line items
7. Specify whether or not permits are required. (Permit Cert From is to the Right on this page, MUST BE FILLED OUT, NO EXCEPTIONS) If
required, permits must be on separate invoice or separated from “total repair cost” on the bid)
8. All bids must be signed by contractor and borrower (See Sample Bid Link on the right)
For permit costs to be disbursed at the closing table, permit costs must be shown as separate line item,
FHA Minimum Property Requirements must be addressed within the bid, and included in the scope of work to be performed.