Embarking on a renovation journey with FHA 203(k) or Fannie Mae HomeStyle loans can be an exciting prospect for homeowners in Metro Detroit and Michigan. These loan programs offer the opportunity to transform properties into dream homes. However, it’s essential to understand which renovations are ineligible and eligible under these programs to avoid any setbacks or complications. In this blog post, we’ll explore the ineligible improvements for both FHA 203(k) and Fannie Mae HomeStyle loans, focusing on luxury items and other non-qualifying enhancements. There is a companion post that explores the eligible renovations and improvements for these two renovation loan products which can be found here.

Luxury Items and Non-Real Property Improvements for FHA 203(k):

Luxury items and improvements that do not become part of the real property are not eligible under both Standard and Limited FHA 203(k) loans. Examples of these ineligible renovations include:

1. Additions or alterations to allow for commercial use, such as converting part of the property into a business space, like a hair salon or daycare facility.
2. Barbeque pits, outdoor fireplaces, or hearths, are considered luxury amenities rather than essential structural elements and are ineligible.
3. Exterior hot tubs, saunas, spas, whirlpool baths, or gazebos, are often seen as luxury features.
4. Photo murals or decorative enhancements that do not contribute to the functionality or value of the property.
5. New swimming pool installation, including both in-ground and above-ground pools. You can repair an existing in-ground or above-ground pool.
6. Satellite dishes or other external fixtures that are not integral to the operation of the home.
7. Tennis courts or other recreational facilities not part of the primary residence.
8. Tree surgery, except when necessary to eliminate a hazard to existing improvements.

Additional Ineligible Improvements for Limited FHA 203(k):

In addition to the above, Limited FHA 203(k) loans have further ineligible improvements or scenarios, including

1. Repairs or improvements expected to require more than six months to complete.
2. Rehabilitation activities requiring more than two payments per contractor.
3. Repairs preventing the borrower from occupying the property for more than 15 days during renovation.
4. Landscaping or site improvements.
5. Structural repairs of any type.

Ineligible Improvements for Fannie Mae HomeStyle:

There are not many, like 203(k), but there are a couple.

1. Completing the final work on newly built homes is not permitted when the cost to complete the incomplete items exceeds 10% of the “as completed” value or when the improvements include structural items the original builder was unable to complete.
2. Complete tear-downs and reconstruction of the dwellings are also not permitted.

Understanding these ineligible renovations is crucial when planning your renovation project and securing financing. By focusing on eligible improvements, you can ensure compliance with loan guidelines and make the most of your renovation investment. If you have any questions or need further assistance, feel free to reach out to us.