The lending process for your renovation loan application approval involves essentially the following steps:

1. Contractor approval

2. Project approval

3. Credit underwriting and loan approval

4. Loan closing

5. Drawing funds during renovation to reimburse the builder for work as it is completed

6. Completion of renovation 

Fannie Mae HomeStyle Renovation loans offers renovation and permanent financing as part of a standard 15- or 30-year fixed-rate conventional loan with renovation costs allowed up to 75% of the as-completed appraised value of the home. Funds for renovations, repairs, remodeling or energy improvement can be included as part of a new purchase transaction, or with the refinance of the applicant’s current mortgage loan. Renovation work must be completed within the first 12 months after closing.

1. Construction Loan Disbursement Request/Authorization

   This form is used to request a draw from the construction loan funds. It must be signed by both the borrower and the contractor. The approved budget must be referenced when completing this form, and the specific payees (subcontractor or supplier) who will be paid by the contractor must be identified. The form must be signed by both the borrower and the contractor.

   Contingency Funds

   Contingency funds are funds included in the construction/renovation budget to cover possible cost overruns and/or change orders. Contingency funds are common with renovation loans, but not as common with new construction. However, not all loans include a contingency fund.

   Deposits

   The lender will fund deposits on certain items that have been documented by an invoice. Deposits for which reimbursement is sought must be for custom and/or specialty items and are limited to 50% of the budget for the item.

   Fees (Unused)

   Any fees or portion of fees collected, other than Vendor fees, that are unused after the completion of construction or renovation (e.g., inspection fees, survey fees, title update fees) will be refunded to you within 30 days of conversion of a construction loan to the permanent phase or the closeout of the renovation escrow.

   Final Draw

   A minimum of 10% of the total construction hard costs must be held for the final draw. Final completion documentation will be required prior to the release of the remaining funds. Standard documentation required for the final draw can be found in the Construction Draw Checklist. Support documentation such as invoices and Unconditional Waiver of Liens for the previous draw must also accompany the final draw.

   Funding Notification

   A funding notification is a notice that funds have been disbursed following a draw request. Wire disbursements will receive an email with the confirmation number and amount. Funds disbursed by check will be notified via the next-day delivery of the check by UPS.

   Line Item

   A line item is a part of the construction budget that shows the amount budgeted to complete a particular component of the home.

   Notice of Right to Lien

   In certain states a subcontractor or supplier is required to give notice to the property owner and/or contractor of his intent to file a lien; this is one way in which a subcontractor or supplier can advise a property owner they are working on their project. The subcontractor and supplier are not required to notify the lender. Because the potential of these liens can affect our primary lien position, it is important that all notices received from the subcontractor or supplier be forwarded to your loan administration Vendor. These notices can have a variety of titles depending on the state. For example, it may be referred to as Notice of Right to Lien, Preliminary 20–day Notice, Notice of Intent to File a Lien, Pre-lien Notice, Special Notice, Notice of Lien, Notice to Owner, Notice of Unpaid Balance and Right to File a Lien, Notice of Furnishing and Notice of Right to Claim a Lien, or similar titles. Should the borrower or contractor receive a preliminary notice, it should be forwarded to the Vendor.

   Permits

   A permit is an authorization from the local building authority to begin work on a construction project. It is also used by the building authority to identify properties in need of inspections during and after completion to ensure they were constructed according to applicable building codes. The permits for your project must be submitted to your Vendor no later than with the first draw request.

   Request for Line Item Transfer

   This form is used to move funds from one line item in the construction budget to another. This form can be submitted with a draw request. In order to transfer funds when work has not been completed on a specific line item, evidence of savings must be submitted. The evidence can take the form of a new bid or an invoice. A line item transfer will not be permitted unless savings are confirmed. If the work for any particular line item has been completed and funds still remain, the funds may be transferred.

   Site Inspection

   A site inspection is an on-site review of the progress of construction/renovation by a local inspector in order to make a determination as to whether the work or materials for which draw funds have been requested has actually been completed or are on site. The loan administration Vendor will order a site inspection from a local inspector each time a draw request is received. An additional site inspection will be ordered prior to releasing the final draw; this inspection will be made by the property appraiser to ensure the construction/renovation was completed as originally planned. Inspections typically will be conducted 24-48 hours after the Vendor receives the draw request. The local jurisdiction may also require inspections at various points during the construction or renovation process.

   State-Specific Requirements

   State lien laws place the burden on the property owner (you) to ensure subcontractors and suppliers are paid for their materials and their labor. In order to protect the primary lien position of our loan to you, we also must ensure that subcontractors and suppliers have been paid. Thus, state-specific procedures and documentation for draws have been established. With each draw request, you are required to provide us the draw documentation, e.g., invoices and lien releases, as detailed in the Standard Draw Requirements Letter. As certain states require a state-specific Waiver of Lien form, Subcontractors and suppliers must be provided with the correct state-specific form. A draw request cannot be processed without the correct Waiver of Lien form.

   Standard Draw Requirements Letter

   The Standard Draw Requirements Letter is a state-specific document which outlines the requirements for requesting a draw in the state(s) to which the letter applies. The top portion of the letter will specify the applicable state.

   Survey

   A survey is a geographic mapping of your property boundary lines, setback lines, utility easements, etc. A survey is required for your project after the foundation is poured to confirm it was poured within the legal lot limits. For renovation loans, a survey is generally not required unless the footprint of the home is changed (e.g., due to an addition).

   Vendor

   The Vendor is a specialized company contracted by the investor to provide certain loan administration services to them in conjunction with construction and renovation loans.