For a few months there has been some competition for FHA 203k Rehabilitation loans in the form of the HomeStyle® Renovation loan that is being offered by FNMA. A number of mortgage brokers and lenders are 
shying away from the FHA 203k loan of late because of the high cost of the mortgage insurance that FHA requires that cannot be dropped when the LTV gets down to 78% or less like a conventional loan. FHA charges an upfront MIP of 1.75% of the loan amount and 1.35% as an annual premium.
The HomeStyle® Renovation loan ("HSR loan") is available for 1-4 unit residential properties and eligible borrowers include owners, investors, non-profit groups, and governmental agencies. The product is available for single unit second homes and loans to investors are limited to single unit properties. Any type of renovations are allowed, as opposed to some restrictions that are imposed under the FHA 203k program. Renovations however cannot exceed 50% of the "as-completed" value of the property.
For purchase loans, LTV is determined on the basis of the lesser of the purchase price plus cost of renovations, or "as-completed" value. For refinance loans, ther LTV is determined by dividing the original loan amount by the as-completed appraisal value of the property. Cash back to the borrower at closing is not permitted. Standard secondary financing is allowed.
Borrowers can chose their own contractors, but their contractors are subject to FNMA approval. The borrower must also have a written contract with the contractor. FNMA does provide a sample form of contract that can be used. "DIY" improvements are allowed, but there is no allowance for payment of YOUR labor, i.e., no asweat equity allowed. If you go the :DIY" route, only the cost of materials are allowed and the property must be a single unit property.
The HSR loan seems like it may be a more affordable loan than the FHA 203k rehab loan. I have not yet had an opportunity to be involved with the product, but is something to keep in mind if you are involved in a situation involving repairs and rehab work.
Image courtesy of willoughby.nsw.gov.au
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