Fannie Mae HomeStyle Renovation Loan

The Fannie Mae HomeStyle Renovation Home Loan is a solid opportunity for homeowners excited about buying a fixer-upper. Even if you haven’t thought about buying a home in need of repairs, the HomeStyle loan has a full suite of advantages worth considering.

Why? Housing inventory remains low, rates dropped again this week, and the Fannie Mae HomeStyle renovation loan folds the cost of renovation and repairs into one mortgage. You won’t fall into a money pit with unlimited surprises, since the entire renovation is planned and approved before the loan closes.

The HomeStyle renovation loan reduces risk (for you and your lender) by approving a final loan amount covering all updates and repairs before the loan closes. Once your approved mortgage closes, you’ll be able to start improvements right away and enjoy the peace of mind that comes with one mortgage payment.

Fixer-Uppers are a Smart Move in Today’s Housing Market

Buying a fixer-upper isn’t always a popular decision. New homeowners often want a property with great curb appeal and everything ready to roll. Some think that fix-and-flip buyers are the only ones purchasing homes that need a lot of repairs. But in reality, this isn’t the case.

Mortgage interest rates dropped again this week despite signs of inflation, and the majority of homeowners are refinancing instead of moving which means housing inventory is still low.

A decade ago, homeowners might have traded up, moved to a bigger house, or even a better location. But with so much uncertainty in the economy, more people are staying put, which means housing inventory might remain low for a while. 

The HomeStyle loan requires a bit of work upfront to estimate the cost of repairs and get approved. Keep reading to see the benefits.

Fannie Mae Homestyle Loan: How it Works

Fannie Mae HomeStyle Loan is a government-backed loan designed to help homeowners purchase a home in need of repair. The cost of repairs and renovation is estimated ahead of time, so you have one mortgage that includes the entire amount (renovation costs + purchase price) in one monthly payment.

A designated custodial account holds the funds for renovation and repairs. As soon as the loan closes, you’ll begin paying your monthly mortgage. The contractor can start work immediately and submit requests for funds at each milestone. Inspection will take place each time there is a “draw” on the account.

When the work is complete, there is a final inspection and appraisal. A bit of business to change to the title, and you’re ready to enjoy your new home!

The HomeStyle Loan is Incredibly Flexible

You could put in permanent landscaping features such as a pool or an outdoor kitchen, build an accessory dwelling unit (ADU), upgrade the interior with brand new bathrooms, or build an extensive remodel.

One caveat: The HomeStyle home loan does not allow homeowners to tear down the existing structure to build a new one. Also, all renovations must be affixed to the property (permanent).

How to Apply for the HomeStyle Loan

Step 1: Find an approved lender and start the process to get pre-approved.

Step 2: Select a licensed contractor and work together to create detailed plans and a clear schedule. Create a timeline with milestones to show how long it will take.

Step 3: Share the final plans with your lender.

Step 4: Schedule an appraiser to inspect the home and review the plans. The appraiser will provide a valuation based on the “finished property.”

Step 5: Discuss the results with your lender to confirm how much you’re approved to borrow.

Once the final amount for the HomeStyle renovation loan is approved, you’re on your way to one simplified mortgage & a renovated home!

Eligibility Requirements

If you’re wondering who is eligible for the Fannie Mae HomeStyle Renovation Loan, it’s similar to conforming loan standards. While there is a fair amount of work upfront to apply, the eligibility requirements are fairly standard:

Homeowner Requirements:

  • Evidence of reliable income via tax returns
  • Verifiable employment & regular income
  • Loan-to-value (LTV) < 97%
  • Debt-to-income ratio (DTI) < 45%
  • Credit score 620+

Property Requirements:

  • Detached single-family home
  • Townhome, condo, manufactured home
  • Readily accessible roads that meet local standards
  • Served by utilities that meet community standards
  • Construction costs up to 75% of the home’s value

Second homes, investment properties, and 1-4 unit properties are possible, but the requirements for the borrower might be more strict. You can also use the additional funds to help bring your property up to standard, but the scope of work will need to be in the plans.

Additional Resources

The Fannie Mae HomeStyle Renovation Loan isn’t the only home renovation loan available right now. Another option is the FHA 203(k), and the VA Renovation Loan has exclusive benefits for members of the military. All of these options keep things manageable with one monthly mortgage payment that includes renovation costs.

Final Takeaway

If you’re ready to meet the challenge, the HomeStyle renovation loan will give you everything you need to build the house of your dreams AND take advantage of low rates. Properties that might be less desirable to some could be a great opportunity with the HomeStyle renovation loan.

Next Steps

Working with an experienced mortgage advisor can help you reach your financial goals. If you’d like to understand more about the Fannie Mae HomeStyle Renovation Loan, give us a call to discover what’s possible. We’d love to help. 

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