What is a Renovation Mortgage?
A renovation mortgage is a solution to today's current problem in housing, a lack of quantity and quality of houses for sale. A renovation mortgage provides a solution that allows a home buyer to finance a new home purchase AND make improvements in a single mortgage.

A renovation mortgage provides a first mortgage option to Home Owners that want to make home improvements, renovate, or modernize their current home. A renovation mortgage is useful to home owners that don't have a lot of equity, wants to improve their current mortgage situation, wants a possible additional tax deduction, or wants a single mortgage.

Are Renovation Loans more difficult to close?
This is a question that develops because of lenders that have 'tried' to do renovation home loans, I would say yes for many mortgage loan officers closing a renovation mortgage can be difficult. That is why you need to make sure you have an experienced and knowledgeable mortgage loan officer, a loan officer who is specialized and has become certified in renovation mortgages. I have found that there are two keys to making sure a renovation loan goes smoothly, first you must have a General Contractor in place and ready to go BEFORE you go out looking for homes. Finding a contractor once we are into the process WILL cause delays and issues. Second, a summit meeting needs to be held at the house very soon after the home inspection is held, at the summit meeting will me the home owner, general contractor, and the HUD Consultant. Together you will go through the house determining items to be added to the work to be completed, questions will be answered, processes explained, and teamwork developed.

My Real Estate Agent, said my offer won't be accepted, is this true?
No, any fear about a mortgage program that a Seller or their Agent may have is negated by a renovation mortgage. If your real estate agent is fearful of an offer that includes a renovation mortgage have them contact me or another experienced renovation lender to explain the strength of you as a home buyer with a Renovation Mortgage in hand.

Another Lender said that there is too much paperwork and too much hassle for me, is this true?
Too much paperwork? All mortgages have too much paperwork, and there is more with any renovation mortgage. Too much hassle? There is extra work on your part, securing a contractor is the most hassle you will have. But, I ask you, does getting the home you want and not settling for less work the extra paperwork and hassle? Your Dream Home is Worth it!

Are Renovation Mortgages more expensive than "normal" mortgages?
Yes, interest rates are a little higher than a 'normal' mortgage and closing costs will be higher as well.

Expect the interest rate to be about .250 to .375 percent higher than a comparable normal mortgage, for example comparing a normal FHA mortgage that you would be qualified for to a FHA 203k that you also qualify for.

Closing costs will be higher, there are many additional people and steps involved that add to the closing costs. Many of the additional closing costs are associated with the renovation work so they are rolled into the renovation costs and then become a part of the mortgage.

How long will it take to close a Renovation Mortgage? 
The average across the country appears to be nearer to 60 days, I generally ask for 45 days to close but if we are well prepared and have an approved Contractor ahead of time it can be done in 30 days. 

What Down Payment is Required?
Keep in mind that the down payment on any Renovation Mortgage is based on the sales price PLUS the cost of renovation, this is called the acquisition cost for home buyers, then the down payment is applied to that acquisition cost.

FHA is pretty simple, the minimum required down payment for a FHA 203k is 3.5% of the acquisition cost, for a 1 unit to a 4 unit property.

HomeStyle, for PRIMARY RESIDENCES a required a minimum 5% down payment for a single unit properties, a 15% minimum down payment for 2 unit properties, and a 25% minimum down payment for 3 - 4 unit properties.

Second Homes require a 10% minimum down payment and only on single family residences.

Investment Properties require a minimum down payment of 15% and can only be used on 1 unit properties.

VA Renovation Mortgage has a ZERO DOWN PAYMENT requirement.

Jumbo Renovation Mortgages generally require a 20% down payment.

How Much are Closing Costs?
For a 'normal' mortgage I always suggest to borrowers they have 2 to 4% of the purchase available for closing costs. With a Renovation Mortgage I suggest from 4 to 6% of the total acquisition cost will be what closing costs come in at. Some of these costs are financed in the mortgage though.

Keep in mind that the higher the acquisition cost the lower the closing cost percentage, just a trick of simple math applications. Also, because of all the extra people involved and the extra items involved with a renovation mortgage that all these extras over a normal mortgage will increase the closing costs.....but they are worth the extra costs.

Can the Seller Pay My Closing Costs?
Yes they can! All mortgage programs allow for seller concessions to pay for home buyers closing costs. All seller concessions are based upon the purchase price and not the acquisition cost. The FHA 203k will allow up to a 6% of the sales price to be used a seller concession for closing costs.

The VA Renovation Mortgage allows up to 4% of the sales price.

With the HomeStyle Renovation Mortgage, primary and second homes will depend on the down payment. A down payment of less than 10% will allow for a 3% seller concession, a down payment of 10 - 25% allows for a 6% seller concession, and a down payment over 25% will allow for a 9% seller concession.

Jumbo Renovation Mortgage will generally provide for an allowable seller concession of 3%, but this will vary with investor overlays.

Can I Get and Install New Appliances?
Absolutely, and this is frequently done by most. The appliances have to be a part of an overall remodel of the home/room, meaning a renovation mortgage cannot be used simply to purchase new appliances. Stove, microwave oven, refrigerator, washer, dryer, dishwasher, etc., are all acceptable appliances.....but not a blender, etc.

Also, new HVAC systems, whole home vacuum systems, water heaters (tankless or other), etc., can also be included.

Can I Buy New Furniture?
No, nothing of a personal property nature.

Can I do My Own Work? Can I be the Contractor?
In most instances the answer will be no, for several of the renovation mortgages this is allowed but either the investor or the lender will have an overlay not allowing for self contracting. This rule and/or the overlay are put into place to mitigate for risk associated with the loan and self contracting.

The FHA 203k and HomeStyle renovation mortgage will allow for self contracting but the borrower will have to prove that they are well qualified and experienced with being a General Contractor and will have the time to devote to the project and complete the work in a timely manner....without it affecting their income/employment that was used to approve the mortgage.

The VA Renovation and Jumbo Renovation will not allow for self contracting.

This is one of the most asked question I receive and needs to be discussed in person as there may be a solution to the situation that cannot be determined without additional information.

I Have a Family Member That is a Contractor?
All renovation mortgages will not allow for a close family member to be the Contractor, this also applies to current and previous employers.

Can I do any of the work myself?
Yes, subject to your Lender approval as well as your General Contractor. You must have proven skills to complete the work and the ability to complete the work you will perform in a timely manner that will not interfere with the project.

I will forewarn that investors/lenders do not like self help and will either charge additional fees and/or higher interest rates to offset the presumed risk. Also, a borrower doing their own work can only be paid for the cost of the materials, but not labor. The contractor estimates must include the material and labor costs which will be added to the renovation costs. Additional fees, higher interest rate, and costs added to the mortgage causing higher payments.....generally not worth it in many instances.

If this is something you are interested in have the conversation with the mortgage loan officer, an experienced renovation mortgage loan officer has had to work through this situation many times. There are solutions to the situation if you are flexible and willing.

Does HUD/FHA provide a list of FHA 203k Contractors?
No, and neither does Fannie Mae or the VA but all Contractors must be approved through specific rules and guidelines of the mortgage program and to the specifications of the lender.

Every lender will have their own "contractor's package" that is provided to the Contractor to fill out and complete to become approved with that lender. This is one of the major causes of delays in renovation mortgages if the Contractor to be used is not approved before a home is found or mortgage application are not known for their willingness to complete paperwork. Once approved with a lender the contractor is generally approved for 12 months.

The VA require that every Contractor go through a process of approval and registration, once registered with VA the process is not repeated every time.

All renovation mortgages puts the decision of what contractor to use up to the borrower or home owner, the lender cannot chose your contractor for you. But, generally an experienced renovation mortgage lender can provide referrals and/or associations that can provide contractor referrals that are well versed with renovation mortgages.

What is a HUD Renovation Consultant?
I consider the HUD Renovation Consultant one of the top 3 keys to a smooth and successful renovation mortgage project. I always recommend to utilize the skills and expertise of a 203k Consultant even when they are not required. They can add an extra layer of protection and information to the home buyer/owner that only they can provide.

If you would like to know more about what the HUD Consultant does and will provide to you, follow this link where I discuss the ROLE OF THE HUD CONSULTANT.

Am I required to have a HUD Consultant?
Yes and No, it will depend on the renovation mortgage program. With FHA they are required with the Standard FHA 203k but not on the Limited FHA 203k. They are not required with the HomeStyle Renovation, VA Renovation or Jumbo Renovation mortgages but something similar will be needed to perform some of the same duties, but without the expertise, knowledge, and willingness to work for you.

For the Limited FHA 203k, a HUD Consultant can be AND SHOULD BE used for the Feasibility Analysis and/or the home inspection for the main purpose of determining the FHA Minimum Required Items that may need to be addressed.

I ALWAYS highly recommend that with all renovation mortgages that we hire a HUD will thank me afterwards. When I have seen renovation loans go sideways or bad, generally it is because the home buyer/owner decided against the additional cost of an additional person working for them.

What is the Feasibility Study/Analysis?
This is a study that is performed by the HUD Consultant by reviewing the bids and assessing the practicality of the proposed plan. Generally, conducted after a site visit first to the home. 

What is the Holdback Fund?
This money that is being set aside from each draw that your contractor takes. With each draw, the contractor will receive 90% of the draw amount. The other 10% will be set aside and will be paid to the contractor in the final draw, once all work is verified as completed and the property's title is clear of any possible liens.

What is the Contingency Fee/Fund?
The contingency fund is a reserve fund contained within your repair escrow amount for unexpected developments during the course of the renovation project. Should your Contractor need the funds they will file a change order and upon review the funds needed will be released if approved. (having a HUD Consultant on the project works well in these situations)
If nothing unexpected occurs and your are nearing the end of the project it may be possible to use the funds for elective items. If the funds are never used they will be applied to the mortgage in way of principal reduction.

Contingencies can range from 10 to 20% of the total renovation costs/bid. FHA a 15% in many instances, such as if any of the utilities were not turned on at time of inspection, foreclosures and bank owned properties. I have never experienced a 20% contingency.

What is the Minimum Credit Score?
Each renovation mortgage program will have it own credit score guideline and then on top of that may be a lender overlay. I have closed FHA 2o3k loans for borrowers that had credit scores just below 600 but I recommend a higher credit score of into the 600 range or higher. HomeStyle guidelines state a 620 or higher score but I have seen lender overlays as high as 660 but if you are in the 640 range you should be fine. VA Renovation Mortgages like VA mortgages do not have a required credit score in their guidelines, but I would recommend that you have at least a 620 or higher score.

Like all mortgages the credit score is referring to the middle credit score of all borrowers, with the lower middle score being the qualifying credit score.

Can I refinance my existing mortgage loan into a Renovation Mortgage?
Yes, the only way to utilize any renovation mortgage once you have purchases and resided in your home for a specific amount of time is to refinance your current mortgage to a new first mortgage renovation mortgage.

Can I make additions to a house with a Renovation Mortgage?
This is one of the most popular reasons for utilizing a renovation mortgage! Some of the additions I experience are bathrooms or bedrooms, but garages are close behind. Personally, I added a 3 season room and wish I had made it a 4 season room.

Can I use a Renovation Mortgage for landscaping?
Yes you can, not the FHA Limited but all the others landscaping can be a portion of your renovations. As long as the work being done is permanent in a fashion landscaping can be done, retaining walls, trees, fences, etc.

Can I tear down an existing home and rebuild?
The Standard FHA is the only program that I know of that will allow a home buyer or owner to tear down a home to the foundation and rebuild. But, yes it can be done, I have done several.

Are there Renovation Mortgages for Investment Properties?
The only renovation mortgage program that allows for investors is the Fannie Mae HomeStyle Renovation Mortgage. Purchase or Refinance is allowable.

Can I purchase a multi unit property with a Renovation Mortgage?
Yes, you can as long as one of the units will be the primary residence of the home buyer/owner. FHA allows up to a 4 unit dwelling with no change to the minimum down payment. The HomeStyle Renovation allows up to a 4 unit property as well but the minimum down payment increases with the number of units.

If I am purchasing multi-unit property, can I use rental income from the other units in my mortgage application?
Yes, you can use rental income to qualify. For example, you must live in one of the units, you can then use 75% of the projected rent(s) as income.

What if I can't live in the house during the renovation project?
The Standard FHA 203k and the Fannie Mae HomeStyle will provide you with the option of having up to 6 months of your new mortgage payment rolled into the mortgage and have those payments made through the funds collected. The amount of monthly payments financed into the new mortgage will be determined by how many months you will be displaced, if it is determined you will be displaced for 3 months then you cannot have 6 months of payments financed.

Can I convert my garage into an accessory unit or Granny Flat, Mother in Law Quarters?
Yes, you can in fact you don't have to convert your garage you can actually build a free standing building. Keep in mind that this improvement must meet all local and state codes, ordinances, and statutes.

How is a home appraised when using a Renovation Mortgage?
The appraiser will inspect the home as for a normal mortgage in its current condition, however they will also have the bid from the Contractor or a Work Write Up from the HUD Consultant detailing the scope of work that will be done through the renovation mortgage. The Appraiser will then use this combination of information to determine the After Completion Value. The Appraiser will use comparable renovated properties and properties that are considered comparable to the home AFTER the completion of the work.

What happens if the appraisal comes in low?
If the appraisal comes in low for a HomeStyle, VA, or Jumbo Renovation mortgage the home buyer/owner may have to come to the closing with additional funds to make up the difference or we make adjustments to the bid to meet the lower appraised value. In some instances we can actually ask for reconsideration of the appraised value if better comparable properties are available that were not used.

With a FHA 203k renovation mortgage FHA has built into their program an allowance for low bids. FHA has recognized that it is difficult for an Appraiser to make value consideration from a piece of paper and not being able to actually view the work, they have to visualize the possible work. With the FHA 203k you are allowed to go up to 11o% of the appraised value, if the valuation comes in low we can mark up the appraised value by another 10% to meet the total loan amount or at the worst get much closer.

Can Down Payment Assistance be used with Renovation Mortgage?
I have not found that any down payment assistance programs can be used with renovation mortgage, and not without trying many times. Many Down Payment Assistance Programs have guidelines as to condition of the home, or what closing costs can be charged, when the home has to be inhabited, the habitability of the home, and many other rules and guidelines that preclude the combination of a DPA program with a renovation mortgage.

I am always willing to investigate any down payment assistance program, to help my home buyers, but so far our luck has not been too good.

Is there a time limit for the renovation?
All renovation programs will require that the work begin within 30 days of the closing date, but most times they start within a day or so of the closing. The VA Renovation mortgage requires a completion date of 4 months after closing, the HomeStyle requires that the work take no longer 5 months, and the FHA 203k requires work to be completed in 6 months or sooner. If there is a need for an extension it can be done under very specific and documented reasons, another reason for a seasoned HUD Consultant to be involved in any renovation mortgage program.

Use The Form Below to Ask Me Your Questions

My name is Bob Rutledge and I specialize in renovation mortgages, I am a Certified Renovation Mortgage Specialist, and I close renovation mortgages every month. Most mortgage lenders cannot say that. I have the ability to close FHA 203k and HomeStyle Renovation loans all over the State of Missouri, I am also licensed to close renovation mortgages in Texas, Ohio, Florida, and Illinois. We are licensed in 48 states and many of the United States territories. If I cannot help you with your renovation mortgage needs I can refer you to someone that I trust that will help you.

If you need help with a renovation mortgage, have questions or would like to apply for a renovation mortgage please free to contact me. Email me or
 call me directly or use the form below.

Bob Rutledge Mortgage

Loan Officer NMLS#: 297044

New American Funding 12321 Olive Blvd, ste 150
St. Louis, MO 63141