Monday, September 19, 2022

Fannie Mae Homestyle Renovation Loan

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Property Types Eligible For The Homestyle Renovation Mortgage Loan

What is a Fannie Mae Homestyle Loan?

To be eligible, the subject property must be a 1-2 unit primary residence or a single family second or investment home. The number of units on the site must be acceptable according to the provisions of local zoning requirements. All newly constructed units must be attached to the existing dwelling. Cooperative units are not eligible.

In addition to typical home rehabilitation projects, this program can be used to convert a single family dwelling to a multi-unit dwelling. Alternatively, an existing multi-unit dwelling could be converted to a single family home. See below for a full list of eligible property types:

  • 1-2 Unit Primary Residences
  • REO, Short Sale, Foreclosure Properties

What Are Fha 203k & Homestyle Renovation Loans

Both FHA 203k and HomeStyle renovation loans allow you to finance the purchase or refinance and renovation of a home in a single loan.

These mortgages let you borrow against your homes future value, increasing your borrowing power when compared to a traditional home equity loan or line of credit.

Whether youve fallen in love with a fixer-upper and want to purchase the house and turn it into your dream home, or have a lengthy wishlist of renovations to turn your existing property into the perfect space for you and your family, these loans can help you to do that now.

Just think about it this way

You either buy a new house that youve found using a traditional mortgage, carry on living in your existing home knowing it needs work, carry out renovations a bit at a time over many years, or you find a financing option that lets you do everything right away.

And the extra borrowing power that comes with borrowing against your homes future value makes it easier to get the full amount you need now, rather than having to make compromises on which projects you undertake and which have to wait until another time.

What Is Not Covered By A Fannie Mae Homesstyle Loan

Actually, the only thing you really cant do with a HomeStyle loan is demolish the existing home and rebuild. Here are a few other examples of what is not covered by the Fannie Mae HomeStyle loan:

  • Tearing down a home
  • Building a second home on a new property
  • Improvements that are not permanent to the property like furniture, certain types of landscaping, light fixtures, or a moveable storage shed or unit

Also Check: Can You Refinance An Fha Loan

How A Homestyle Renovation Loan Works

The basic process for getting a HomeStyle loan is the same as getting any other type of loan. Youll need to apply for a home loan and meet basic income, credit and qualifying guidelines . Extra steps you need to take to be approved for a HomeStyle loan include:

  • Finding a contractor. You can choose any qualified contractor to complete your project. Licensing is only required if your state requires it.
  • Providing a construction contract. The lender needs to approve a signed work contract with your contractor that details the project scope, completion date and costs for each phase.
  • Disclosing any DIY work. If youre contributing your handyman skills to your renovation project, youll need approval from the lender for the work youll be doing. No more than 10% of as-completed value can go toward DIY work. Youll be limited to a single-family home and can only be reimbursed for material and contract labor costs.
  • . Renovation loans typically require two types of reserves to help cover unexpected costs outside of your original construction budget: contingency reserves and payment reserves.
  • Apply For The Homestyle Renovation Mortgage Loan

    FANNIE MAE HOMESTYLE® RENOVATION LOAN

    To apply for a Homestyle Renovation Mortgage Loan the first step is to request information below or speak with a Mortgage Loan officer at 800-555-2098.

    Riverbank Finance is a locally owned Michigan mortgage company specializing in home loans. Let us know how we can help your family with your next home purchase or mortgage refinance!

    Submit your information now and a licensed residential loan officer will contact you within 24 hours. If you need immediate assistance then please call us now at 800-555-2098!

    Riverbank Finance LLC is a Michigan mortgage company in Grand Rapids, MI specializing in mortgage home loans for both refinancing and new home purchase mortgages. Our extensive list of mortgage programs allows us to offer competitive low wholesale mortgage rates. We hire only the best licensed loan officers to serve our clients and take pride in our superb customer service.

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    The Difference Between A Homestyle Loan And A Second Mortgage

    A second mortgage, also known as a home equity loan, allows you to take out a secondary mortgage on your home against the equity you have built up. You can use these funds to renovate your home or pay for anything else. Youll have a second mortgage payment every month. You can have a second mortgage through a different lender than the one who holds your primary mortgage.

    Fannie Mae Homestyle Faq

    What lenders offer the HomeStyle loan?

    Not all lenders offer HomeStyle mortgages. But plenty do. So shop around, as usual, to find your best deal.

    What’s the maximum HomeStyle renovation loan amount?

    You can spend up to 75% of the homes as-complete appraised value on renovations. The mortgages themselves are capped only by the usual loan limits. In most of the US, that is $548,250 in 2021. But areas with high home prices have higher limits, over $820,000 in some real estate markets.

    What’s the interest rate on a HomeStyle loan?

    Interest rates are similar to other conforming loans. You shouldnt normally pay more just because you have a rehab loan. And, as with all Fannie Mae loans, your credit score and down payment affect your mortgage rate. So working to improve these before you apply can earn you a bettter deal.

    What’s the minimum credit score for a HomeStyle renovation loan?

    Its Fannies standard 620. But individual lenders can set their own minimums so some may want higher scores. Shop around!

    What’s the minimum down payment for the HomeStyle program?

    You can put down as little as 3% as long as you are buying a 1-unit home that you plan to live in and getting a fixed-rate loan. You also have to be a first-time buyer unless you combine the HomeStyle loan with the HomeReady option. Minimum down used to be 5%, and some sources may wrongly still suggest that.

    Do I have to be a first-time buyer to use Fannie Mae’s HomeStyle loan?Can I refinance into a HomeStyle loan?

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    What Do I Need To Apply For These Loans

    For both FHA 203ks and HomeStyle Loans, prior to closing on the loan, youll need to provide:

    • Cost Estimate – a formalized estimate written by your contractor.
    • Income & Asset Verifications – bank statements, paystubs, W2s, & tax returns.
    • Title Insurance & Title Report
    • Homeowners Insurance – this may require both builders risk and standard insurance depending on loan amount.

    To learn more about cost estimates, income & asset verifications or homeowners insurance, take a look at RenoFis Application Checklist Guide. Many of the documents required to apply for a RenoFi Loan are the same for FHA 203k and Fannie Mae Homestyle loans.

    Qualifying For A Homestyle Loan

    Have You Considered a Renovation Loan? 203k vs Fannie Mae HomeStyle

    Fannie Mae sets the criteria that borrowers who are interested in taking out a HomeStyle loan must meet in order to qualify for the loan. This criteria includes acceptable property types, credit scores, contractors, income requirements, etc.

  • Eligible Property Types

    With a HomeStyle loan you can finance most types of properties, such as for residential properties, vacation homes or investment properties. The list below shows the eligible types of properties set by Fannie Mae:

  • Single-family detached home
  • One-unit manufactured Homes
  • Two, Three, or Four-unit properties
    • Suitable for year-round use

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    K Loan Vs Homestyle Loan: Which Is Right For You

    If you have a lower credit score, a 203k is going to be the only available option, but this will still allow you to finance your renovation and is one of the reasons why these remain popular alongside HomeStyle loans.

    But if you can qualify for a Fannie Mae HomeStyle renovation loan, the benefits are incomparable in the long run.

    That said, its nice to know you also have other options. And wed encourage you to explore these.

    If youre looking to increase your borrowing power, both the Fannie Mae HomeStyle and FHA 203k ARV financing structure can help you get more money to put toward your renovations.

    But refinancing your existing mortgage could cost you in a low rate environment, and the good news is you have options.

    A 203k or HomeStyle isnt the only way to finance a renovation based on your homes after renovation value, and theres a good chance that an alternative option could be better suited.

    How A Homestyle Renovation Mortgage Works

    You can get a HomeStyle loan only through a Fannie Mae-approved lender, and it can only be used for your primary home, a vacation home, or an investment property. Like any other mortgage, it offers 15- and 30-year terms with either a fixed or adjustable APR.

    As long as its a permanent update and adds value, the HomeStyle loan can be used on pretty much anything, Marsh says. You can do an addition on a house, you can put a pool in. Most people use them to redo a kitchen add a bathroom.

    With a HomeStyle loan, you can borrow up to 75% of the as-completed appraised value of the property , rather than the pre-renovation value. This allows you to borrow more funds for your project than you otherwise would. All home renovations would need to be completed within 12 months. Just keep in mind the funds will be disbursed to a contractor on a draw schedule, and not to you directly.

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    Homestyle Loan Pros And Cons

    Pros
    You can buy and fix up a home with one loan Youll provide more paperwork than a regular loan
    You can refinance and renovate with one loan Youll need to shop for lenders that offer renovation loans
    You can renovate a primary, vacation or investment home Youll need to meet stricter qualifying requirements than government-backed fixer-upper loans
    You may be able to roll in monthly payments if you cant live in the home You must find a contractor and get plans for the renovations

    What Are The Down Payment Requirements

    Fannie Mae Homestyle Renovation Overview

    As with any conventional loan, in order to avoid mortgage insurance, a 20% down payment is required. However, on a one-unit, owner-occupied property, borrowers can put down as little as 5%, plus closing costs. Subordinate financing is allowed, as are Community Seconds, which could potentially eliminate the need for any down payment. Absent subordinate financing, the table below shows the standard down payment requirements for various types of properties and occupancy:

    HomeStyle Renovation Loan Minimum Down Payment Requirements
    Min Down Payment

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    Fannie Mae Homestyle Renovation Loan

    Lots of people are in love with the idea of building a home, but cant seem to pull it off for a variety of reasons. Chief among those reasons is the ability to find an available lot in the part of town that has access to quality schools, shopping, and entertaining activities. Most of those spots are occupied by current homeowners or properties that need some major work. However, there is another alternative. The HomeStyle Renovation Loan, a conventional mortgage offered by Fannie Mae, will allow people to purchase a home AND get the money for repairs all with one loan.

    How Does A Homestyle Loan Work

    Borrowers can take out HomeStyle loans only from Fannie Mae-approved lenders. We can describe the process of how HomeStyle loans work through 10 steps related to being approved for this type of mortgage and how the funds are disbursed thereafter.

    Step 1: Find a house that you would like to renovate or decide that you want to refinance your current mortgage to get the funds needed for renovations on the home you already own.

    Step 2: Apply for a HomeStyle loan through a Fannie Mae-approved lender.

    Step 3: Find a licensed contractor who you trust to help you with the renovations.

    Step 4: Decide on the renovations needed and their cost with the help of a contractor or architect. You will need to submit these plans to the lender who then works with a HUD-approved consultant to determine if the costs for renovation finalized by the contractor are fair. This protects you and the lender from getting charged more than you should.

    Step 5: The lender will then determine the value of your home after renovations have been conducted through a home appraisal. Typically the maximum amount you can borrow with a HomeStyle loan equals 75% of the appraised value of the house post-renovations.

    Step 6: Sign the necessary documentation and close on the loan.

    Step 8: Start the renovations on your house within the first 30 days of closing on your loan. The work must be completed in a 6-month period starting from the day of closing.

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    Who Provides Fannie Mae Homestyle Renovation Loans

    You dont get a HomeStyle loan directly from Fannie Mae, but they will end up owning it. Fannie Mae is a government sponsored entity that buys mortgages from banks, taking debt off of their books and keeping them liquid for a better national economy.

    Since the mortgages are bought almost immediately from the bank, your lender doesnt carry as much risk as they do with a loan they service for the entire loan term. This makes it easier for banks to make more loans to people who are considered high-risk, such as borrowers with low income or shaky credit.

    Wondering if your loan is owned by Fannie Mae? Check now.

    There are lots of loans that are considered Fannie Mae loans because they are the type that is almost certain to be purchased after closing. There are also loans that are specifically designed by Fannie Mae for lenders to offer, with the understanding that they will be purchased after the lender completes the loan. The HomeStyle Renovation mortgage is one of these types of loans.

    Buying On A Budget Finance Your Dream Home With A Homestyle Renovation Mortgage

    What is the Fannie Mae Homestyle Renovation Loan?

    “Fewer Homes for Median Earners,” “The Fight to Keep Teachers in Tech Hubs from Being Priced Out,” and “Housing Market Slows, as Rising Prices Outpace Wages,” are just a few of the headlines from last year that may leave would-be homebuyers feeling stuck without options. That sense of helplessness resonates even more during National Homeownership Month when there is an increased discussion about providing both first-time and repeat homebuyers with affordable mortgage options.

    According to a recent National Housing Survey® analysis on consumer affordability perceptions, two-thirds of renters say that owning their own home makes more economic sense, while the same share believe it would be difficult to get a mortgage. Moreover, using the Mortgage Lender Sentiment Survey® our economists found that programs designed to help borrowers cover renovation costs were cited by lenders as the second most helpful idea to enhance housing affordability for low- and moderate-income homebuyers.

    Fortunately, renovation options are available to address the reality of severe shortages of affordable housing in many communities.

    Additional benefits of HomeStyle Renovation include:

    Jonathan Lawless

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    Homestyle Loan Contractor Requirements

    Understand that you arent the only one who has to meet Fannie Maes requirements. You also need to choose a licensed contractor to complete the bulk of the work.

    You cant get an old, handy pal to do the rehab for you unless he or she meets Fannies standards.

    According to Fannie Mae, your mortgage lender must determine that your contractor is:

    • Qualified and experienced,
    • Has all appropriate credentials required by the state,
    • Is financially able to perform the duties necessary to complete the renovation work in a timely manner, and
    • Agrees to indemnify the borrower for all property losses or damages caused by its employees or subcontractors

    Those shouldnt be a problem for most reputable, licensed professionals. But it can help to choose one whos been through the HomeStyle process before.

    It can be a big help to choose a contractor whos already familiar with the HomeStyle loan process.

    Using a contractor whos already familiar with the HomeStlye process means theyll already know how to complete their plans, schedule, and cost estimate according to Fannies requirements. This can help the process go more smoothly and ensure that your renovations are completed without setbacks.

    Allowable home improvements

    Unlike some rehab loans, Fannie imposes few restrictions on how you can spend the renovation funds. However with the exception of kitchen appliances it does say that improvements should be permanently affixed to the real property.

    How A Homestyle Loan Works

    Fannie Mae HomeStyle loans are available only through Fannie Mae-approved lenders, and the amount is limited to 75 percent of the as-completed appraised value of the property once the repairs or renovations are finished, rather than its existing, pre-renovation value. This helps homeowners who dont have a lot of home equity to borrow against.

    The loan can be used for a primary residence, vacation home or investment property. It comes with a fixed or adjustable rate and terms of 15 years or 30 years. The cash payout for renovations is not disbursed to the lender instead, the money is held in escrow and must be used solely for the renovation.

    All renovations must also be permanently attached to the property, and add value to it. The renovations must be completed within 12 months of getting the mortgage, and the lender must monitor the job and have all the paperwork that supports the project.

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