|America's Best Mortgage!
One Mortgage Product - $10 Billion Committed
No Down Payment, No Closing Costs (click for details)
HAND review and contact
If you wish to enter into a NACA Rehab Loan, the HAND department will help you address all of your repair and rehab issues. This includes detailing requirements for a rehabilitation loan and completing the necessary rehab forms and documents required throughout the rehab process. You can contact the HAND department toll free at 1-877-952-6222.
The HAND staff will review your home inspection and determine which repairs are required for the loan. These items will be stated on the Repair List which will be emailed to you and your real estate agent. The repair items would need to be addressed as to how they would by completed by you or the seller as a condition for you to be credit access approved and able to submit a mortgage application through NACA. or you would need to have them completed once you close on
What to repair, and how to finance it
The mortgage amount needs to be increased to provide necessary funds for the required repairs. If you have been qualified for a higher mortgage amount, you can include the required repairs as part of the mortgage, or you can use funds to buy down the interest rate to increase your mortgage amount. These funds for the interest rate buy-down can be contributed by you, the seller, or from other sources. While the funds may also be used directly to pay for the repairs, the interest rate buy-down provides the necessary funds and may also reduce your monthly mortgage payment. While setting aside funds for the repairs is not as effective, it does not prevent a rehab project.
You can add additional items to the NACA Repair List if there are sufficient funds to complete such work. Provided that you do not exceed the maximum approved loan amount and appraised value, the following repair items can be included on a NACA Rehab loan. Allowable repair items generally fall under three categories: Code, Home Improvement & Wish List. An exception will be required from the HAND Department for any repairs not listed below.
In some instances, the HAND department may require a Work Write-up
to provide the detail of the work to be done in order to obtain more accurate and definitive bids from contractors. A construction professional develops the scope of work from the home inspection report, site visit and discussions with you. The Work Write-up is then submitted to NACA registered building contractors to bid.
The next step for you is to obtain bids for all necessary repairs. The list of available and registered contractors is available on the vendor section of the website (link – contractors) and in each NACA office to assist you with this process. You and your real estate agent should attempt to obtain bids from contractors as quickly as possible for the items on the NACA Repair List, including additional items you requested for your rehab project. Time is of the essence since the mortgage application needs to be submitted within ten business days of the executed P&S (extensions are possible, but must be approved in advance by the seller). Included on the NACA Vendor List may be names of contractors who have satisfactorily completed work for NACA Members in the past. You may use any professional contractor that meets all state and local requirements for the work to be performed
, and has been registered by NACA prior to accepting a bid.
All contractors must complete the online
NACA contractor application form
prior to submitting a bid on a rehab project. The contractor(s) must provide a copy of their license and insurance prior to final acceptance of the bid. The HAND department will work directly with the contractor to answer any questions as they process the contractor’s application.
The contractor must submit all bids through the NACA website in the Vendors section
. The online bid specification form requires itemizations for each bid item and the option to add items. All online bid submissions will be emailed directly to you for your review and acceptance.
The bid(s) are reviewed by the HAND department once you approve them to determine that all repair items have been addressed in the bid(s). Relatives or close family friends are only allowed to bid on your project if they are properly licensed and insured with documented job experience to be approved by the HAND department on an exception basis. When bids cannot be obtained within a reasonable amount of time, the costs estimate from the HAND department will be used to complete the loan application. Forms and agreements required for a rehab can be obtained from the HAND department.
Final rehab budget
All costs for completing the NACA Repair List and program management fees (HAND Fee) are included in your total loan amount.
This includes funds for the construction to be paid to the contractor(s), contingency (usually ten percent to cover unforeseen conditions), Draw Inspections (the lender pays up to $600), and a fee to HAND of three percent of the construction costs for the administration of the rehab program. You are responsible for the initial inspection fee and any work write-up charges.
The total amount available for repair/rehab is the difference between the Maximum Mortgage Qualification (as determined by your Mortgage Consultant) and the purchase price on the P&S (“Rehab Budget”).
The Final Rehab Budget is a final calculation of your full loan amount: sales price, total cost of all contractor bids, HAND administration fees, plus six months PITI (if applicable). The full loan amount must be less than 110% of the appraised value and must not exceed your maximum mortgage qualification.
Your signature approval
The Final Rehab Budget must be signed by you prior to closing on the mortgage. You must sign this Final Rehab Budget stating that you agree with the allocation of funds for your renovation. In addition, you will be required to sign a contractor’s agreement for each contractor hired to work on your rehab project. You should keep a copy of all signed rehab documents for your records. It is important that the rehab budget line item costs match what is stated on your settlement statement to ensure all rehab funds were properly allocated at closing.
Once the loan application is submitted, an appraisal of the property will be ordered. The property must appraise high enough to cover the total mortgage amount (i.e. purchase price and total rehab costs), which must be no more than the appraised value of the as-improved property (exceptions can be made for up to 110% of value).
If the costs for renovations exceed the Final Rehab Budget, you will have three options:
- You can renegotiate with the seller to lower the price for the home;
- You can eliminate some non-essential renovations/repairs; or
- You may back out of the deal (make sure your contract has specific language allowing you to do so). When the home inspection reveals necessary repairs that you are unable to finance, you may have the ability to back out of the contract on the basis that the home did not pass a satisfactory inspection. If, however, you are unable to finance voluntary renovations (i.e. building a patio, or replacing cabinets, etc.), you may have more difficulty voiding the contract. Therefore, you may wish to negotiate a clause into the P&S that makes the sale contingent upon your ability to complete certain renovations.