Does Fannie Mae have rules against buying a home and demolishing it if they are owner occupant?

Asked by Sherylgarciano08, San Diego, CA Thu Jan 2, 2014

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Robert Boern…, Agent, El Cajon, CA
Thu Jan 2, 2014
Yes. Destroying the collateral is a breach of the security agreement/note/deed of trust. You would want to seek a construction loan for such a situation.
2 votes
Chelsiepaige…, Home Buyer, Palm Springs, CA
Wed Sep 7, 2016
We recently closed on a home loan with Homestreet Bank (out of San Diego) and could not be happier. Our Loan Officer, Niki Campbell, was without a doubt the absolute best person we have ever worked with during many, many years of home buying throughout the US. She was always available with fast, friendly, knowledgeable, and extremely professional responses - whether we contacted her via phone, email, or text.
Niki worked very hard to get all our documents in order, processed, and approved so that we could close in less than 3 weeks (amazingly fast - at least for this area). Even after closing and the loan fully funded, Niki followed up to say "Congratulations" and to ensure we were satisfied and also to see if there was anything she could do for us. If only all account executives were this friendly and professional...

Our hats off to Niki and Homestreet Bank - thank you very much for all you've done for us. We highly - highly recommend calling Niki if you need a home loan at (619)550-7541.
0 votes
Nancy Bergman, Agent, San Diego, CA
Mon Sep 15, 2014
Are you currently living in the house now or are you looking to purchase a property that needs work?
There are FHA 203K loans that are for owner - occupied properties. There are also some lenders that have their own renovation loans.
If you are "demolishing" it - are you planning to upgrade or remodel? Then I suggest a construction loan or home improvement loan.

If you are looking for homes that need a little TLC, let me know. I have remodeled a bunch of properties and worked with flippers from adding sq ft to a simple paint and floors.


Nancy S Bergman
Realtor - Cal BRE #01893550
Keller Williams- Carmel Valley/ Del Mar
12780 High Bluff Dr #130
San Diego, CA 92130
Cell (858) 617-9449
Email -
website -
0 votes
, ,
Sat Sep 13, 2014
If you want to buy a home that needs work, consider a loan program that allows you to include a Renovation Budget in the purchase of the home.

The 203(k) Renovation Loan may be able to help you get the home you've always wanted, by turning a home that's almost perfect into the home that's just right for you. You can purchase and renovate your new home, all in one loan, with one set of closing costs.

Benefits of the standard 203(k) loan include:
1) No limit on repair amount; $5,000 minimum
2) Fees for five draws are included
3) Single-family homes, PUDs and 2-4 unit primary residences are eligible
4) Cost consultant fee may be rolled into the mortgage
5) Several months of Mortgage payments may be included in the loan if the property is not habitable

Don't let the wrong carpet color, lack of central air conditioning or a poorly designed kitchen stop you from getting the home that's almost perfect. If you have a vision of the perfect home, we have a loan that could help you bring that vision to life.

Some examples of allowed renovations are:

New roof
Upgrade electrical or plumbing systems
Remodel kitchen or bath
Purchase and installation of new appliances
Room addition
Repair or replacement of structural damage
Replace windows
Install hardwood floors
Finish basement
New carpet or paint
Energy conservation improvements
Improve landscaping

These loans are especially great for FHA properties, older homes and REO homes but any home can benefit from some remodeling or cosmetic fixes, to make it your own.

Say you're shopping for a new home, and you keep finding houses that are almost perfect. Maybe the carpets are old and need replacing; maybe the paint is starting to peel; maybe you need a handicap ramp installed; maybe the furnace is just a little too old. Maybe you're checking out the REO or foreclosure and short sale markets and thinking that most of those homes need some work before you'd be happy in one of them.

Those problems don't have to be deal breakers. A 203(k) Renovation Loan can help you take care of those problems and turn a house that's almost perfect into the home that's just right for you. With a 203(k) loan, you can borrow money for repairs and upgrades in addition to your loan for the home itself, all bundled together so you only pay one set of closing costs and make only one payment each month for your financing.

These loans are especially great for FHA properties, older homes and homes bought on short sale or at foreclosure — but any home can benefit from some remodeling or cosmetic fixes, to make it your own. I can explain the details of the program and provide you with guidelines to stick to while you look at houses with your real estate agent, making it easier for you to find a home that will qualify.

We offer two types of 203(k) loans: the Streamline Renovation loan and the Standard Renovation loan

Feel free to call us

Brendan Bracken
Mortgage Advisor, NMLS#247272

Peoples Mortgage
2550 Fifth Ave #167
San Diego, Ca 92103

858-518-0523 cell
0 votes
Eric Lovett, Mortgage Broker Or Lender, Carlsbad, CA
Thu Jan 9, 2014
Yes, if you want do a major renovation, you should consider a renovation loan. There are FHA renovation and conventional renovation loans. I am happy to help
0 votes
Claudia Mull…, Mortgage Broker Or Lender, Fremont, CA
Thu Jan 9, 2014
Reading your Deed of Trust will show you the restrictions of your loan.
The property is collateral for the amount of money you are borrowing from the lender.
Technically it needs to be habitable as you stated you would be inhabiting it.

If your plans are to rebuild what you have demolished, then it is your intention to make improvements to the property.

As long as you are making your payments on time and your taxes and insurance are paid on time, the lender should not be sending out any representatives to look at the condition of your property.
0 votes
JR Thrasher, Agent, San Diego, CA
Fri Jan 3, 2014
Yes, any lender has rules against "demolishing a home, but when you say "demolish" I think of completely tearing the home down, to the ground. Why would you buy a home just to tear it down? I think you may be talking about demolition or tearing out: old, worn or malfunctioning parts of the home in that case, as long as you had the ability to fully effect the repair I think it would be OK.

J.R. Thrasher
0 votes
Kari Shea, Agent, San Diego, CA
Thu Jan 2, 2014
Hi Sheryl,

As mentioned by Robert, it would create a breach of contract in your loan agreement with Fannie Mae. The house is part of the collateral for the loan, hence if it is demolished, they would lose part of their collateral.

Others have mentioned referrals. We would suggest you contact this team at US Bank as they specialize in these types of loans:

Niki Campbell & Mark Maughan
Construction Loans / Lot Loans
US Bank Home Mortgage
600 W Broadway Ste 100
San Diego, California 92101

Direct: 619-550-7541

Best of luck,

Mark & Kari Shea
Shea Real Estate
National Association of Realtors
CA BRE License 01713506
0 votes
Jessica Tang…, Agent, San Digo, CA
Thu Jan 2, 2014
As has been mentioned, yes this is a problem. If you need a referral for a construction or land loan feel free to give me a call or email me. I will be happy to provide you with 2 resources so you can get more information directly from them. Thank you.

Jessica Tangen
SD Homes
CA BRE# 01391056
0 votes
Sinead McAll…, Agent, Oceanside, CA
Thu Jan 2, 2014
Yes. I would consult your lender for further clarification for what you can and cannot do. If you need a referral, I would be happy to assist.

​Sinead McAllister-Clifford
Real Estate Broker/ Realtor®

McAllister Homes Real Estate
Residential Sales & Property Management
License 01366009
858-205-5215 CELL EMAIL
0 votes
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