Purchase Improvement Loan
The program that is best for you will depend on your specific circumstances, such as your credit history and amount of cash savings, as well as your individual preferences. A PHFA approved homebuyer education provider or participating lender can help you decide.
PHFA's Purchase Improvement loan allows buyers who qualify for a Keystone Home Loan to purchase and improve/repair a home within one transaction. Eligible buyers may include between $1,000 and $15,000 for repairs and/or improvements with a conventional PHFA first mortgage, as long as the As Completed appraised value supports the cost of the repairs. This allows the buyer to make needed repairs right away, without having to take out another loan at a higher rate and with a shorter repayment period.
The purchase price plus the cost of the repairs (referred to as the total acquisition cost) cannot exceed PHFA's applicable purchase price limit. (Visit the page on the Keystone Home Loan Program for purchase price limits.) The loan amount will be based on the lesser of the total acquisition cost or the as completed appraised value.
Two-unit properties are not eligible for this program.
Common repairs include:
- Renovation of plumbing or electric systems
- Installation of improved heating or air conditioning systems
- Addition of living space
- Renovation of a kitchen or bath area
- Replacement of a roof
- Energy conservation and solar energy improvements
A maximum of two inspection fees (not to exceed the normal and customary amount) may be included in the repair costs. Recreational or entertainment items such as swimming pools, tennis courts, hot tubs, saunas, etc., may not be included.
All repairs must be completed by a qualified and licensed contractor. If the local government (city or municipality) does not require contractors to be licensed, proof of their liability insurance must be supplied and included with the contract. Borrowers may not act as their own contractors, unless that is their profession.
The contract must contain the following items:
- A description of the specific work to be completed. This must be supported by specifications, drawings, photos, etc.;
- A statement of the actual maximum amount that can be charged (not estimated amount);
- A release of lien clause to maintain clear title;
- The contractors agreement to complete the work in compliance with all applicable building codes and zoning restrictions and to obtain the necessary permits and a certificate of completion within 90 days of the closing date;
- The borrowers and the contractors signatures and date.
It is up to the buyer to provide the lender with a written request detailing the required improvements/repairs to be completed, along with the estimates, specs, contracts, etc., from a qualified and licensed contractor(s). The buyer must sign Purchase/Improvement Program Acknowledgment at the time of application. The borrower must fund any amount in excess of $15,000 and/or any amount that exceeds the as complete appraised value. If this amount is financed, it must not impact the buyers ability to pay the mortgage (debt to income ratios).
The lender is responsible for reviewing the borrowers written request and specs, contracts, etc., to determine the credibility and legitimacy of the proposed repairs and/or improvements, and to ensure the contract contains all the necessary items as listed above under the section titled The Contract. Also, the lender will ensure that the funding of any additional costs do not jeopardize the buyers debt to income ratios or PHFA's lien position, nor do they cause the purchase price limit to be exceeded.
The lender will submit a signed Purchase/Improvement Program Acknowledgment with specs, contract(s), etc., to PHFA when they submit the pre-closing package. The lender should write Purchase Improvement Program on the top of the 51 Compliance Package Checklist - PURCHASE, the credit/pre-compliance package checklist. The lender must provide the appraiser with the contract and supporting documentation so the as completed value of the property can be determined.
At closing, the lender will escrow for the repair funds and will thereafter monitor the completion of the repairs and issue draws. An initial draw in an amount of 25 percent of the total repair cost may be issued at closing or 50 percent after half the work has been completed. The checks for each draw must be signed by both the borrower and the contractor. A maximum of two inspections (with a charge not to exceed the normal and customary amount) may be ordered by the lender. The lender will secure the completion certificate (for additional information review Form: 50 Requirements and Guidance for PHFA Home Improvement Loans) from the original appraiser within 90 days of closing. Please note that the borrower must still occupy the home within 60 days, so repairs in the final month must not affect livability of the home. PHFA will purchase the loan according to the normal schedule, which will usually be prior to the completion of the repairs.
This program is also covered in Chapter 3 of the Seller's Guide.