source:
  type: guide
  id: fnma-sel-b5-3.2-04
  authority: 'Fannie Mae Selling Guide B5-3.2-04 — HomeStyle Renovation Mortgages:
    Costs and Escrow Accounts'
  description: 'Fannie Mae Selling Guide B5-3.2-04 — HomeStyle Renovation Mortgages:
    Costs and Escrow Accounts.'
  coverage_tier: operative
obligations:
- id: fnma-sel-b5-3.2-04-full
  canonical_id: fnma-sel-b5-3.2-04-full
  section: 'Fannie Mae Selling Guide B5-3.2-04 — HomeStyle Renovation Mortgages: Costs
    and Escrow Accounts'
  type: do
  tags:
  - regulator-direct
  - fnma
  - selling-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: 'Fannie Mae Selling Guide B5-3.2-04 — HomeStyle Renovation Mortgages:
      Costs and Escrow Accounts'
    source_class: fnma-guide
    source_url: https://singlefamily.fanniemae.com/media/document/pdf/selling-guide
    snapshot_id: 5f7b8b79da595d76
    fetched_at: '2026-05-25T14:09:57Z'
    content_hash: sha256:98cf85a02861bbe84914a0e339b327c8fc131869a8a573882007bbeea60c5701
    paragraph_quote: 'B5-3.2-04, HomeStyle Renovation Mortgages: Costs and Escrow
      Accounts (12/10/2025) Introduction This topic contains information on HomeStyle
      Renovation costs and escrow accounts, including: Costs and Escrow Accounts Contingency
      Reserve Escrowing Initial Mortgage Payments Renovation Escrow Account Costs
      and Escrow Accounts The costs of the renovations will be based on the plans
      and speciﬁcations for the work and on the contractor’s bids for all of the work
      requested by the borrower. The renovation costs may include a contingency reserve,
      renovation-related costs, and an escrow for mortgage payments that come due
      during the renovation period, if the borrower is unable to occupy the property
      during the renovation. Contingency Reserve The contingency reserve should cover
      all renovation-related costs including labor, materials, fees, permits, plans
      and speciﬁcations, inspection costs, and other expenses related to the renovation.
      Published May 6, 2026 737 A contingency reserve is not required for a mortgage
      secured by a one-unit property, however the lender may choose to establish one.
      A contingency reserve equal to 10% of the total costs of the repairs and renovation
      work must be established and funded for a mortgage that is secured by a two-
      to four-unit property to cover required unforeseen repairs or deﬁciencies that
      are discovered during the renovation. The lender may increase the contingency
      reserve to 15% if it determines the higher reserve is appropriate given the
      scope and scale of the renovation. The contingency reserve may be considered
      as part of the total renovation costs or the borrower may fund it separately.
      It may be released only if required, necessary, and unforeseen repairs or deﬁciencies
      are discovered during the renovation. Unused contingency funds, unless they
      were received directly from the borrower, must be used to reduce the outstanding
      balance of the renovation loan after all of the renovation work has been completed
      and the certiﬁcation of completion has been obtained. However, a borrower may
      use the remaining contingency reserve funds for making additional improvements
      or repairs to the property, if the lender: warrants that the work scheduled
      and described in the plans and speciﬁcations was completed and the contingency
      reserve funds have already been reduced by any cost overruns; and ensures that
      the contingency reserve funds that are to be used for additional improvements
      or repairs are actually used to improve the real property, the improvements
      or repairs are documented with paid receipts from the borrower’s own funds,
      and inspections of the additional work or installations are completed by the
      appraiser who prepared the “as completed” value appraisal report. Escrowing
      Initial Mortgage Payments At the borrower’s request, up to six mortgage payments
      (PITIA) that will become due during the renovation period may be included as
      part of the total renovation costs for a principal residence property if the
      property cannot be occupied during the renovation period. The lender, servicer,
      or its agent must hold the funds in a renovation escrow account, and only apply
      them to payments that come due during the period in which the property cannot
      be occupied. Note: The lender may set up a separate escrow account for the mortgage
      payments in lieu of including the funds in the renovation escrow account. Renovation
      Escrow Account The renovation costs (less any draws made at closing), the contingency
      reserve, mortgage payments (if applicable), and monies that the borrower provides
      from their own funds, must be deposited into an escrow account for the beneﬁt
      of the borrower. The renovation escrow account must meet the requirements shown
      in the following table at the time of delivery to Fannie Mae. Published May
      6, 2026 738 ✓ Renovation Escrow Account Requirements The account must meet the
      requirements of and be administered in accordance with the requirements in the
      Servicing Guide, D1-2-01, Renovation Mortgage Loans. The funds must be used
      to complete the repair and renovation work and, if applicable, make any mortgage
      payments that come due during the renovation period. Note: The lender must ensure
      that the funds held for mortgage payments are used only for that purpose and
      are not used for renovations or any other reason. The lender, or its agent,
      is responsible for administering this account and ensuring the repairs and renovations
      are completed in a timely manner and in accordance with the plans, speciﬁcations,
      and contractor estimated bids. The lender must release funds from this account
      only when any given renovation work has been completed, and then only in accordance
      with the agreed-upon schedule and after receipt of a speciﬁc request. • Renovation
      funds may only be disbursed using the following processes: a check issued jointly
      to the borrower and the contractor; or • a wire transfer to the contractor after
      the lender has obtained written consent from the borrower to release the funds
      to the contractor. The written consent must be received prior to each disbursement.
      It must specify the borrower’s name, property address, amount of funds to be
      disbursed, contractor to which the funds are to be disbursed, and date of the
      consent. After renovations are complete, all funds remaining in this account,
      including any mortgage payment reserves, may be used to either: • reduce the
      unpaid principal balance of the loan (unless they represent funds deposited
      separately by the borrower), or • to make additional improvements or repairs
      to the property. Note: The lender may fund up to 50% of the total planned renovation
      costs at closing with an initial draw. A portion of this initial draw may be
      used to pay for permits, architect fees, and other eligible renovation-related
      costs (see B5-3.2-02, HomeStyle Renovation Mortgages: Loan and Borrower Eligibility
      for additional information on renovation-related costs). Borrower deposits may
      also be reimbursed from the draw if the funds were used for renovation-related
      costs and were intended to be ﬁnanced through the renovation loan. The lender
      must obtain periodic inspections to conﬁrm the work is being completed as planned
      prior to the issuance of additional escrow draws. Should there be an increase
      in costs during the renovation period, the borrower, or the lender, must fund
      the amount of the increase. The lender may not increase the loan amount to oﬀset
      any increase in costs. The lender must ensure that the additional funds are
      obtained in a manner that will not aﬀect the priority of Fannie Mae’s Published
      May 6, 2026 739 lien. Recent Related Announcements The table below provides
      references to recently issued Announcements that are related to this topic.
      Announcements Issue Date Announcement SEL-2025-10 December 10, 2025 Announcement
      SEL-2019-07 August 07, 2019'
  judgment: false
