Renovate & Repair Loans

Loan Features and Guidelines

Eligible Loan Uses

The proceeds of the R&R loan are to be used only to finance eligible improvements as specified below. Such improvements shall not have commenced prior to the date of the credit application with the exception of emergency financing as specified below. Eligible improvements include those to:

Improve the basic livability or energy efficiency of the property. These improvements must be permanent general improvements which shall include additions, alterations, renovations, or repairs upon or in connection with existing structures which materially preserve or improve the basic livability, safety, utility, and/or accessibility of the property.
Comply with applicable state, county, or municipal health, safety, building, fire prevention, and housing maintenance codes or other public standards applicable to housing. Also eligible is the connection to public water and/or sewer facilities, and the repair, improvement or installation of code-compliant septic or well systems. 1 However, bringing the entire home up to code is not a requirement of the program.
Remediate or remove lead-based paint (not required but is a permissible use). The program is not subject to the federal lead-based paint requirements for pre-1978 housing; however, if an applicant wishes to use the funds for remediation or removal, they may. All loans for homes built prior to 1978 will require at a minimum a signed Lead-Based Paint disclosure. (Pending Environmental Protection Agency regulations may require a more restrictive approach to lead-based paint remediation in the future.)
Repair items of an emergency nature. The rehabilitation must be necessitated by extraordinary circumstances relating to damage to the property beyond the control of the applicant such as failure of the plumbing, heating, electrical system, or defects in the roof or foundation system or the presence of conditions in or on the property that have been determined to cause an elevated blood lead level of a resident. These situations supersede normal processing procedures. In these cases, the borrower may be reimbursed for work already begun or completed if the applicable repairs were made within 30 days of the pre-application with the LPA. The borrower must provide an invoice, proof of any and all payments made, as well as all related estimates and contracts for the work. (See Chapter Five for further details on the process involved for emergency repairs.)

1 Borrowers needing to repair or replace individual on-lot sewage disposal systems should investigate the PENNVEST loan, offered through PHFA. It has a lower interest rate than the R & R.

Ineligible Loan Uses

Ineligible improvements include, but are not limited to:

Luxury or purely cosmetic items or those used primarily for recreation or entertainment such as gazebos, hot tubs, pools, new fireplaces, landscaping, additional garages beyond one, underground sprinkler systems, etc. Any questionable items must be pre-approved using the form provided by PHFA.
Improvements which are not a permanent fixture to the property such as appliances and furniture, although large appliances specific to a kitchen or laundry room remodel may be financed. These are limited during a kitchen remodel to the refrigerator, stove (ok to finance a built-in microwave but not freestanding), and dishwasher, and in a laundry room remodel or relocation, the washer and dryer.
Repairs to or construction of outbuildings, sheds, utility buildings, barns, shops, silos, greenhouses, etc.
Improvements to the portion of the buildings or real estate owned by the association in a cooperative or condominium community.
Improvements to a recreational home or a home which is not used by the borrower as a permanent, principal residence.
Conversion of a recreational home to a year-round permanent residence.
Costs associated with a project that will not be completed, e.g. the shelling-in of a room addition or the roughing-in of plumbing.
Improvements that began before the credit application approval, except for emergency repairs as specifically referenced in these guidelines.
New construction or expansion of an area used or to be used in a trade or business.
Playground equipment.
Labor costs paid to any applicant or resident. (Borrowers qualified and licensed, if applicable, as a contractor or in a skilled trade profession may perform work for which they are qualified, but they may only receive financing for the cost of materials.)
The refinancing of existing loans.
Payment of current or past due property taxes.

General Loan Guidelines

In order to be eligible for funding by PHFA, a loan must be originated in accordance with the following requirements.

Loans must be originated according to the terms of the Invitation to Participate, the Participation Agreement, and the guidelines as specified by PHFA.
Loans shall be fully amortized over 10, 15 or 20 years.
Maximum loan amount is $35,000. The minimum loan amount is $2,500.
Current interest rates are published on PHFA’s Web site www.phfa.org. The rate will be locked in by the LPA at the time of loan reservation.
The mortgage for the R&R loan is recorded as a lien against the property. It must be recorded in first, second, or third lien position (unless a written exception is provided by the Agency).
All owners must sign the Mortgage.
Each Note must be executed by the homeowner(s) responsible for the debt.
The Note shall bear the simple annual interest rate as indicated on the Pre-Closing Approval/Cancellation form.
Interest shall accrue from the first payment due date.
The first payment on the loan shall generally be the first day of the second month following closing. Subsequent payments shall be required monthly.
In accordance with the provisions of the Note, loans must be paid in full upon the sale or transfer of any borrower’s interest in the property.
Loans may not be assumed by third parties.
There are no penalties in the event of an early payoff.
All borrowers will be charged a Satisfaction Recording fee, when they pay off their R & R loan. As of September 2006 this fee is estimated at $30-100 depending on where in Pennsylvania the borrower lives.
The Mortgage and Note are to be executed on the forms provided by PHFA.
Requests for exceptions to these guidelines must be submitted in writing using a form provided by PHFA along with any relevant supporting documentation to renovateandrepair@phfa.org or by fax to 717-780-3872. If the exception request pertains to credit issues the complete credit report must be provided in addition to any other relevant supporting documentation.

Loan Origination Costs:
The following costs and fees are all considered Loan Origination Costs.

Credit Reports with Credit Scores
Title/Lien Search
Appraisal or PHFA-approved Valuation Determination
Flood Determination
Recording Cost
Program Participation Fee
Document Preparation Fee
Inspection Fees
Assignment Fee

Borrowers will always pay for their own credit reports which must include credit scores. [When they pay off their loan, borrowers will also pay the Satisfaction Recording fee.]

PHFA will pay for Title/Lien Search, Appraisal/Valuation Determination, Flood Determination, and Recording Costs on behalf of borrowers whose Household Adjusted Gross Income is at 50% of, or below, the figure in their county. (For the city of Erie, 50% of the R&R Income Limit is $45,000.)
Borrowers with a household adjusted gross income over $45,000 will pay their own Title/Lien Search, Appraisal/Valuation Determination, Flood Determination, and Recording Cost. They may pay these costs and fees with a certified check or money order at the loan closing OR may finance them in the R&R loan. [If borrowers are not prepared to pay these fees with a certified check, money order or cash at the closing they must finance the fees. LPAs should not accept personal checks.]

When the R & R is done in conjunction with a home purchase, the Title/Lien Search, Appraisal/Valuation Determination, Flood Determination, and Recording Cost(s) will be borne by the borrower. PHFA will pay the Program Participation, Document Preparation, Inspection, and Assignment Fees on behalf of all borrowers.

Borrower Eligibility and Qualification Guidelines

To receive an R&R loan, the borrower must meet the following eligibility and qualification guidelines. Documentation to verify compliance with each item is also specified below.

Ownership and Principal Residence

The borrower must be an owner OR must be in the process of purchasing the home according to the standards specified below. They must reside in the home as their principal residence OR, in the case of a homebuyer, must plan to reside in the home as their principal residence. Lenders are to gather the following documents as applicable to verify ownership and residency.

For applicants who currently own and reside in the home:

A copy of the recorded deed or leasehold agreement (must have a term which exceeds the term of the R&R loan by at least five years).
A copy of a valid driver’s license or the previous year’s Federal Income Tax return verifying that the borrower’s permanent address is the property being renovated and/or repaired.

For applicants who are purchasing the home to be renovated/repaired:

A copy of the executed Agreement of Sale with a specified closing date, as well as a copy of a loan commitment approval letter for the financing of the home purchase. (A copy of the HUD 1 settlement sheet along with certified true and correct copies of the deed, mortgage and Note for the first mortgage are to be submitted to PHFA in the Final Package.)

All owners on the deed to the home are required to sign the Renovate & Repair Mortgage.

Credit

All borrowers must meet the following credit guidelines.

The middle FICO score must be at least 620 (use the lowest score when only two scores are obtained).
No more than one 30-day late payment on any mortgage loans in the previous 12 months.
No non-medical collection accounts may be present on credit reports, unless the borrower can document satisfactory repayment for at least the previous 12 months.
Must be current on property taxes or have made satisfactory payments for at least one year as part of a documented repayment plan with the applicable taxing authority.
Bankruptcies and foreclosures need to be fully discharged or closed for at least 2 years and satisfactory credit reestablished.

Credit information must be obtained for all persons on the loan application using a Merged, Tri-Merged, Multi-Merged or Residential Mortgage Credit Report (and supplemental information if needed). If one borrower’s credit score is acceptable and another’s is not, PHFA must pre-approve the loan.
Written requests for exceptions may be emailed to renovateandrepair@phfa.org or faxed to 717.780.3872 using the form provided by PHFA along with supporting documentation. If approved by PHFA, the borrower may be required to attend credit counseling by a PHFA-approved agency.

Income Limit (Adjusted Gross Income)

The adjusted gross income of all adult household members must not exceed 150 percent of the greater of the current statewide or area median income (AMI) as established by the federal Department of Housing and Urban Development (HUD) for the county in which the home is located, and as published and provided by PHFA. (In Erie County that figure is $90,000.) An adult household member is any person over the age of 18 who resides in the home as a principal residence and is not a full-time undergraduate student (as documented by providing transcripts or other documentation from a college or university showing the student is enrolled for at least 12 credit-hours per semester).
Compliance with the income limit is documented by providing a copy of the federal income tax returns for the previous year for all adult occupants of the home. This includes any adult occupants who reside in the home as a principal residence—even those who are not owners and/or are not applying for an R&R loan. The combined Adjusted Gross Income of all adult occupants must not exceed the applicable income limit.
There is no minimum income level, except that the borrower must have sufficient income to afford the loan as referenced under the section below on qualifying income.
For situations where the borrower is using R&R funds to accommodate the needs and/or living space of an adult family member with a disability who does or will reside in the home as a permanent and principal residence upon completion of the work, only the income of the adult family member with the disability is utilized for determining compliance with the income limit. The disability must be documented by providing a copy of the Social Security Disability Income statement or a letter from a health care provider.

Qualifying Income

(Gross Monthly Income Projected from Application forward Twelve Months)
Gross monthly income is to be used to determine eligibility for loan repayment. The calculation of gross monthly income includes the current income received by all applicants before taxes and withholding. Only income that is expected to continue for at least one year from loan closing is to be utilized.
The following documentation must be provided to determine gross monthly income:

For employment income the following documentation must be provided for each job for each applicant that is responsible for the repayment of the R&R loan: a current pay stub, processor’s certification and W2 from the previous year OR a properly completed, signed Verification of Employment OR a Verification of Employment verified through a work number.
Child support income must be received regularly in consistent amounts and verified through domestic relations if being used to support the R&R loan.
Social Security statement with or without a disability award letter. Bank statements showing automatic deposit of the funds is also sufficient for documenting social security income.
Pension and/or retirement income award letter or bank statements showing automatic deposit of the funds.
For self-employed borrowers, the most recent two years of federal income tax returns.
Other documentation may be used as applicable for additional income sources.

The following calculations must be utilized to determine gross monthly income:

Upon receipt of employment income documentation, gross monthly income is determined by multiplying the required number of hours worked each week by the hourly rate. If the hours vary weekly (with or without overtime), the average gross monthly income is to be used. This is calculated by adding the total income from the previous year W2’s (before withholdings) to the current year-to-date income and dividing by the applicable number of months.
For borrowers who receive non-taxable income, the amount of non-taxable income may be grossed up by 25 percent for qualification purposes.
For persons who are self-employed, the average net income plus depreciation as listed on the most recent two years of federal income tax returns should be utilized.

Total Monthly Debt to Income

The total monthly debt to income ratio cannot exceed 45 percent of the gross monthly income figure. The total monthly debt ratio is calculated by dividing total monthly debt by total gross monthly income. Total monthly debt is defined as all personal obligations assumed which shall include, but are not limited to; the monthly payment for the R&R loan; any and all mortgage payments (including escrows for taxes and insurance); court-ordered child support, revolving charge accounts; and all installment loans with more than ten installments remaining. For those who are self-employed, business and farm debts shall not be considered as personal debts and therefore would not be considered in the total monthly debt ratio.

Property Guidelines

The proceeds of each R&R loan shall be used to renovate and/or repair only those existing residential properties that meet the following criteria:

Located in the state of Pennsylvania.
Owner-occupied by the applicant as a principal and permanent residence.
Used as a primary residence and not a business, investment or vacation/recreational home.
Condominium and town homes are eligible, but only that portion of the real estate owned by the applicant is eligible to be repaired/improved. Common areas owned by the association are not eligible.
Completed property. Loan funds may not be used to renovate homes which are in the process of being constructed.
Properties located in a 100 year flood zone are required to document flood insurance in an amount at least equal to all loans secured by the property. This can be documented by providing a copy of the declarations page for the policy.
Proof of Homeowners Insurance in an amount at least equal to all loans secured by the property must be documented. This can be documented by providing a copy of the declarations page for the policy.
A loan secured with an R&R mortgage shall not be made in an amount which, when combined with all other existing debts secured by the subject property, would exceed a 120 percent combined loan to value ratio (CLTV). The CLTV is determined by adding the amount of all debts secured by the property (including the R&R loan) and dividing by the value of the home’s current value as determined by a full appraisal that has been completed within the previous three years or an alternative valuation method approved by PHFA which include: an evaluation in lieu of appraisal; a drive-by (external) appraisal, or a tax assessment if completed within the previous three years and already used in other LPA programs. Automated valuation methods are not acceptable. (The home’s as-completed appraised value may be utilized only in cases where a full, current appraisal is obtained. This allows borrowers to incorporate the added value of any repairs/improvements being made with the R&R funds into the CLTV calculation and may increase the amount they can borrow.) PHFA will approve in writing the valuation method(s) to be used by each LPA.
Two-unit properties are eligible, where the applicant resides in one of the units as a principal residence but owns both units.
Manufactured or factory–built houses are eligible for R&R loan funds if all of the following conditions are met.
- The manufactured or factory-made house is located on property owned by the applicants or being purchased by the applicants under a real estate contract.
- The wheels, axles and trailer hitches have been removed and the home has been placed on a permanent foundation in one of two ways:
  - A foundation that has footings located below the frost line and meets local code. If piers are used, they must be placed where the unit manufacturer recommends. Where state or local code requires anchors, they must be provided.
  - A”Floating Slab” foundation that meets local code and manufacturer’s specifications.
  - [Additional Guidance: Whenever mobile home foundations are being newly installed or replaced, the home must be permanently affixed to a foundation and in conformance with the requirements of Appendix E, “Manufactured Housing Used as Dwellings” of the International Residential Code (edition as currently adopted by the Commonwealth of Pennsylvania).
The residence must be in a condition that can be made habitable and sanitary upon the completion of appropriate repairs with funding available from the R&R loan and any other available home improvement funding sources. In the event that this is not possible, the LPA may decline the prospective loan applicant and make a referral to the appropriate social service or other applicable agency.

Frequently Asked Questions
What is the Renovate and Repair Home Loan Program?
Why is the program being offered?
Who is eligible to apply?
What are the restrictions?
What if the applicant’s credit score is too low?
What are the terms?
Will I have any fees or closing costs to pay if my loan is approved?
What are the other advantages?
What can I use the R&R loan for?
Does PHFA prohibit any types of uses of the money?
Who chooses the contractor or contractors?
I have outstanding violations issued by the city of Erie Code Enforcement for the house in which I reside. Do I have to address those violations first?
Can I use the program and still qualify for the city of Erie’s Local Economic Tax Revitalization Abatement (LERTA)?
What can I add to my house to build the greatest amount of equity?
How do I apply?
What is the Renovate and Repair Home Loan Program?

The Renovate and Repair Loan Program (R&R) is a fixed, below-market rate home improvement loan offered by the Pennsylvania Housing Finance Agency (PHFA) and administered locally by the Erie Redevelopment Authority. The program is not a grant program.

Why is the program being offered?

The Commonwealth and the Erie Redevelopment Authority want to help homeowners avoid predatory lenders and at the same time, assist in the rejuvenation of older neighborhoods and homes. (60% of housing in Erie was built prior to 1950.)

Who is eligible to apply?

The Redevelopment Authority will make the program available to all resident homeowners within the legal limits of the city of Erie. The owner/applicant must reside in the home as a principal residence and must also meet certain credit criteria associated with obtaining a loan.

What are the restrictions?

The total gross household income cannot exceed $90,000. Please note that the Renovate and Repair Home Loan Program can be used at a household with an income exceeding $90,000 if a resident at the household is disabled and the improvements will address accessibility issues at the house.
Applicants must have a credit score of at least 620.
The R&R loan, in combination with all other loans against the property, cannot exceed 120 percent of the home’s value.
The loan is not a home equity loan and the loan cannot be used to pay credit card debt, purchase automobiles, or used for vacations. Homeowners can use the loan to build equity and especially take advantage of the city of Erie’s Local Economic Tax Revitalization Abatement (LERTA) Program.

What if the applicant’s credit score is too low?

The ERA and the credit counselors at Saint Martin Center will work with applicant to help repair credit and re-apply.

What are the terms?

10, 15, or 20 year fixed-rate loan
Up to $35,000 not to exceed 120% of the home’s value.
No Pre-payment penalty

Will I have any fees or closing costs to pay if my loan is approved?

There will be a $50.00 charged to the applicant for a document fee. The appraisal, title search, and credit report will be paid for by PHFA.

What are the other advantages?

If you qualify, the ERA may be able to combine a grant for home rehabilitation or handicapped accessibility with your loan.
ERA staff will assist homeowners with evaluating home improvements, writing specifications to solicit bids, inspecting work at mid-point and at completion

What can I use the R&R loan for?

Loan funds may be used to repair items affecting the home’s basic livability, health, safety, and accessibility, or to correct code violations.

Funds may also be used to convert a multi-unit property back to a single family residence.

Eligible items include:

Sidewalks
Driveways
Garage
Stairs
Ramps
Porches
Foundations
Windows
Roof
Chimneys
Pest control
Electrical
Plumbing
Furnace
Central Air Conditioning
Kitchens
Bathrooms
Additions
Handicapped Access

Does PHFA prohibit any types of uses of the money?

Yes they include, but are not limited to, luxury items or those used primarily for recreation or entertainment such as:

Hot tubs
Swimming pools
Decks
Landscaping
Additional garages

Who chooses the contractor or contractors?

The homeowner, not the ERA or PHFA, will select the contractors.

I have outstanding violations issued by the city of Erie Code Enforcement for the house in which I reside. Do I have to address those violations first?

Yes. All applicants will be checked to insure there are no documented code violations at the property for which they are seeking funds. You may use the R&R loan to pay for the code corrections.

Can I use the program and still qualify for the city of Erie’s Local Economic Tax Revitalization Abatement (LERTA)?

Yes. While many maintenance items do not require a building permit and other items such as furnaces and new wiring would not increase your tax assessment; some work to your home may increase your assessment. Please discuss the new LERTA program with the city before you hire a contractor. Some areas of the city no longer receive the 10-year 100% tax abatement.

What can I add to my house to build the greatest amount of equity?

The Redevelopment Authority encourages you to talk to a real estate professional about the improvements that will give you the most return on your investment.

How do I apply?

If you are a resident homeowner in the city of Erie and your gross household income does not exceed $90,000, you can apply to use the PHFA R&R Program. Pre-applications can also be obtained by contacting the ERA at 453-4505. Once the pre-application is received, ERA staff will contact you to set up a brief meeting to review the program and the pre-application.

At that meeting applicants will need to have the following:

Deed
Proof that all taxes, MUNISCO, and homeowners insurance are current
Most recent pay stub for all residents

Once staff has approved your participation in the program, a local mortgage underwriter will pull a credit report and issue a Good Faith estimate about a potential loan. If your credit score is 620 or better, an appraisal and title search is ordered after which the Loan Underwriter makes a decision to approve the loan.