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Understanding How a Renovation Loan Works
 
Understanding how a renovation loan works is key to for a successful closing!  Every renovation loan (from FHA 203k to Fannie Mae HomePath or HomeStyle) can present a different scenario although the basic flow or process of the loan is similar for all renovation loans. 
Simply put these loans only have the added step of obtaining a bid from a general contractor and ordering the appraisal for the after improved value but let's look at it in a bit more detail.
The basic structure of the product works like this:
*Home goes under contract for the “as is” purchase price
*Buyer has a home inspection and a feasibility study (for HomeStyle/HomePath reno loans) or 203k work write up for FHA reno’s
*Items are identified that MUST be repaired, recommended repairs and of course the desired repairs
*A General Contractor provides a detailed bid with repair items broken out by labor and material
*Appraisal is ordered with the detailed bid and the value is provided on an “after improved” basis - this allows us to finance the cost of the work being proposed
*Loan goes to Underwriting and to Renovation Department for project approval
*Loan Closes and Funds - in Texas contractors ... more

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