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The rehabilitation and repair feature of the SFHGLP allows borrowers to finance the cost of repairs to improve an existing dwelling at the time of purchase. The maximum loan amount cannot exceed the cost of acquisition plus the cost of repairs up to the as- improved market value, plus the guarantee fee, if financed. The borrower obtains one loan at a fixed interest rate to finance both the acquisition and the rehabilitation of the property. The loan is guaranteed after the loan has closed, prior to the completion of the repairs, which minimizes the risk to the lender. In GUS, the lender will select Purchase as the loan purpose type on the Loan and Property Information page. On the Lender Loan Information page, the lender will identify the transaction as Renovation, Construction-
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Conversion/Construction-to-Permanent and select the Single-Closing radio button. On the Additional Data page, “Purchase is” field equals Existing.
Unless otherwise specified, the rehabilitation and repair construction loan process should be closed and managed following the same procedures described in the single- close feature for new construction.
Lenders may utilize Attachment 12-E, Repair Escrow and Rehabilitation & Repair with Purchase Comparison, when determining how repairs or rehabilitation to properties may be financed.
B. Type of Loans
1. Non-Structural Repairs up to $75,000
This feature allows borrowers to finance up to $75,000 for repairs such as those identified by a home inspector or appraiser. There is no required minimum repair amount. The repairs must be non-structural, and the home must be considered habitable within 30 days of closing to be eligible for this feature. Since the dwelling will be habitable within 30 days of closing, the loan is not eligible for reserve accounts for PITI payments during the construction period. The timeframe for the repairs to be completed should typically not exceed 10 months, however, may be extended at the lender’s discretion.
2. Structural Repairs and Repairs Exceeding $75,000
This feature allows borrowers to finance structural repairs or improvements greater than $75,000 for extensive rehabilitation. If the dwelling is not habitable at the time of closing, reserves for principal, interest, taxes, and insurance may be established to cover the mortgage payments for up to 10 months, or until the home is determined to be habitable by a third-party inspector deemed qualified by the lender during the construction period. While the reserve period should typically not exceed 10 months, contract deadline extensions may be approved at the lender's discretion.
C. Property Eligibility
New construction or incomplete constructions are not eligible. Evidence that the home has been completed for 12 months or older must be obtained. Evidence of
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completion such as a Certificate of Occupancy or documentation from local taxing entities is acceptable.
If the dwelling must be demolished as part of the rehabilitation, the complete existing foundation must still be in place and will be used. Properties where the foundation has been demolished or where only the footings remain, are not eligible. Evidence by a licensed engineer that the existing foundation is structurally sound and supports the proposed construction will be required. The new dwelling to be placed on the existing foundation, including manufactured housing, must meet all program requirements.
1. Prohibited Loan Purposes
x Installation of new inground swimming pools, hot tubs, or saunas;
x Repairs to condominiums;
x Converting structures to SFH dwellings (barns, schoolhouses, etc.);
x Alterations that allow income-producing features;
x Installation of luxury items (exterior fireplaces and kitchens, etc.); and
x Repairs or improvements to common space areas (community meeting rooms,
playgrounds, etc.)
2. Eligible Loan Costs
Loan proceeds must be used for the acquisition of the land and dwelling plus the total amount for repairs that include but are not limited to:
x Removing safety and health hazards;
x Making the dwelling accessible to persons with disabilities;
x Repair or installation of septic system and water wells;
x Additions, structural alterations, or reconstruction of an existing dwelling;
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x Addition of a garage, attached or detached;
x Modernizations (kitchens and bathrooms, interior floor cover, exterior siding,
etc.); x Installation of energy conservation or weatherization features;
x Repairs to existing swimming pools, hot tubs, or saunas; and
x Repairs to accessory dwelling units.
Applicable soft costs as defined in Paragraph 12.15 are allowable in addition to:
x Contingency reserves; 10% when utilities are on, 15% when they are off for
all transactions; x Principal, Interest, Tax, and Insurance payments for up to ten months for
reserves, when applicable; and x Inspection/Consultant fees, if applicable.
D. Managing Construction
Originating lenders do not need to have construction experience if the servicing lender will administer the construction phase. Servicing lenders must meet the requirements outlined in Paragraph 12.13. Builder/contractors must meet the requirement outlined in Paragraph 12.14. The borrower may not act as the general contractor. A pre- construction conference with all parties is strongly encouraged.
The lender may engage any inspector or consultant deemed qualified by the lender to evaluate the property, write up the necessary improvements, conduct periodic inspections, and to act as a liaison between the borrower, builder, and lender.
x Inspector/Consultant fees: For structural repairs and those exceeding $75,000,
an inspector will perform a thorough inspection of the property and prepare a detailed write-up of the work to be repaired and include estimated costs for labor and materials and associated fees that are customary and typical for the area. This write-up will be used to obtain cost estimates from contractors. Inspectors or
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consultants are selected by the lender. An inspector or consultant is not required for non-structural repairs of $75,000 or less. x Cost Estimate: The borrower must obtain a detailed and fixed cost estimate that
fully describes the work being performed to include itemized costs for labor and material. The cost estimate must identify the borrower’s name, subject property address, contractor’s name, contact information, and license number, where applicable. For work repairs $75,000 or less, the cost estimate must indicate that the repairs are non-structural. x Appraisals: The appraisal report must support the “As Improved” market value
of the property with the assumption that all repairs are completed. A copy of the original write-up or the cost estimate including reserves will be provided to the appraiser.
x Construction Period: The construction period should typically not exceed 10
months from the date of closing for all transactions. However, contract deadline extensions may be approved at the lender’s discretion.
x Construction Contract: The lender must ensure the utilization of a fixed price
contract. The total amount in the construction contract must match the total cost breakdown of the bid proposal, must have a start and end date, must be signed by the contractor and borrower(s) and must be referenced and made part of the Security Instrument. x Additions: New structures or additions to the existing dwelling must comply with
local codes and applicable national codes. x Unpermitted work: When unpermitted work is discovered in the existing
dwelling, the lender must ensure that the owner and/or contractor contact the appropriate code enforcement office to obtain retroactive permitting or devise a plan to permit the previous construction. The lender must ensure that the borrower obtains a rehabilitation loan permit certification prior to the loan closing so that all permit fees associated with the new and/or previous construction are included in the total bid. x PITI Reserve: The lender will be responsible for making the borrower’s monthly
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PITI payments during the period of rehabilitation, up to a maximum of 10 months or when the dwelling is determined to be habitable by a qualified third-party inspector.