Appraisal Requirements
The appraisal report for a HomeStyle Renovation mortgage must provide an “as completed” appraised value that estimates the value of the property after completion of the renovation work. (See B5-3.2-02, HomeStyle Renovation Mortgages: Loan and Borrower Eligibility, for requirements pertaining to the cost of the renovations as a percentage of the appraised value.
Energy Report Requirements
When a HomeStyle Renovation mortgage is used to finance energy-related improvements, a Home Energy Rating Systems (HERS) energy rater must prepare a written energy report. See B5-3.3-01, HomeStyle Energy for Energy Improvements on Existing Properties, for additional information concerning the requirements related to the energy report.
Contractor Requirements
All renovation work must be performed by a licensed contractor.
A borrower must choose his or her own contractor to perform the needed renovation, subject to the lender’s determination that the contractor is qualified and experienced, has all appropriate credentials required by the state, is financially able to perform the duties necessary to complete the renovation work in a timely manner, and agrees to indemnify the borrower for all property losses or damages caused by its employees or subcontractors.
The lender may not choose the contractor or refer the borrower to any one specific contractor.
However, the lender may require the borrower to obtain a completed Contractor Profile Report (Form 1202) from the contractor that he or she has selected to ensure that the lender has sufficient information available to make a determination about the contractor’s qualifications.
Under Fannie Mae’s “Do It Yourself” repair option, which is available for one-unit properties only, the borrower may complete repairs that the lender reviews and approves in advance.
Do It Yourself repairs may not represent more than 10% of the “as completed” value of the property; the lender must inspect the completion of all repair items that cost more than $5,000.
A borrower may request reimbursement for his or her payments for the cost of materials or for the cost of properly documented contract labor, but not for the cost of his or her sweat equity. When a borrower chooses this repair option, the lender must fully budget for the cost of labor and materials related to the repairs so that, should the borrower be unable to complete the work, a contractor can be hired to finish any of the Do It Yourself repairs.
Plans and Specifications
The plans and specifications must be prepared by a registered, licensed, or certified general contractor, renovation consultant, or architect. The plans and specifications should fully describe all of the work to be done and provide an indication of when various jobs or stages of completion will be scheduled (including both the start and completion dates).
The lender must use the plans and specifications to document and evaluate the quantity, quality, and cost of the renovation work that is to be done and to determine the amount of financing that will be available. These plans and specifications also must be used by the appraiser in the development of his or her opinion of the “as completed” value of the property.
Before approving any change a borrower wants to make to the original plans and specifications, the lender may require the borrower to submit a HomeStyle Change Order Request (Form 1200) to provide a detailed description of the change(s), the cost of the change(s), and the estimated completion date(s).
Additional Information: https://www.fanniemae.com/content/guide/selling/b5/3.2/03.html