Fannie Mae HomeStyle Renovation Loan | HomeStyle Home Improvement Loan
Fannie Mae HomeStyle Renovation Loan | HomeStyle Home Improvement Loan
The Fannie Mae HomeStyle Renovation Mortgage is a renovation and remodel mortgage loan that gives homebuyers the ability to buy and renovate their potential residence all within one mortgage amount.
HomeStyle also allows existing homeowner's the ability to refinance their first mortgage and include the cost of renovations and improvements into a new first mortgage home loan.
The Fannie Mae HomeStyle renovation loan is a Conventional Mortgage Loan that conforms to the underwriting guidelines authored by Fannie Mae, a government sponsored enterprise.
This type of renovation loan gives borrowers the ability to include any necessary remodeling costs for their new property in one transaction, so they won't have to purchase separate loans or pay out-of-pocket expenses.
With this convenient option from Fannie Mae, you can enjoy your dream house without breaking the bank! A HomeStyle Renovation Home Improvement mortgage can provide you with better interest rates than a second mortgage or other financing plans.
Under HomeStyle refinance, borrowers have the option to add their closing cost and home improvement costs into the new first mortgage loan. HomeStyle guidelines mandate that the home improvements must be permanent and all work must be completed within 12 months.
In contrast to a construction loan, which is usually used for constructing an entirely new home, the Fannie Mae HomeStyle Loan has been designed with buyers in mind who prefer purchasing a "fixer-upper" or renovating an existing property. As part of their monthly mortgage payments, they will also be able to pay off any renovation costs incurred.
What is HomeStyle Renovation Loan's Maximum Loan Amount for Home Improvements?
- A borrower may spend up to 75% of the property’s as-complete-appraised value.
- The limit in the United States, (as of 2023) for a single family home is
$726,000. The limit is $1,089,300 single family homes in select high-cost metropolitan areas. - Multifamily properties the borrower may borrow up to $1,396,800 for a four-unit property, or up to $2,095,200 in select high-cost metropolitan areas.
What is "as-completed-appraised-value for a HomeStyle Loan?
When an applicant applies for a HomeStyle Renovation mortgage loan, they will be required to submit a scope of work that list the items they intend to improve and or remodel. In addition, the applicant will be required to submit bids from licensed and insured contractors.
Upon receipt of these items, the lender will provide the scope of work, and contractor bids to the real estate appraiser.
The real estate appraisal will place a value on the property, based upon the repairs, improvements and remodeling scope of work furnished by the applicant. This is referred to as an after-value appraisal, or as-completed-appraised-value.
What are the Interest Rates for Home Improvement Loans?
Fannie Mae Homestyle may be offered at a lower interest rate in line with the interest rates for conventional mortgage loans. In comparison to HELOCS and home equity loans, the interest rate may be lower.
Contrary to popular belief, you don't have to pay a higher interest rate when taking out renovation loans. The only time the interest rate goes up is if you borrow more money for renovating your home. Typically, HomeStyle loan rates are similar to conventional loan rates and much lower than those of HELOCs or home equity loans!
Fannie Mae HomeStyle loans offer the same conventional mortgage terms, including 30-year and 15-year mortgages. Refinancing your existing mortgage with a HomeStyle loan can be beneficial if you want to make renovations but don't have enough cash on hand. To obtain the most competitive rate available, it is best to acquire quotes from at least three lenders before making a choice.
What are the Down Payments Requirements for Fannie Mae Renovation| Home Improvement Loans?
A typical down payment on a HomeStyle loan is similar to the requirements on other Fannie Mae mortgages; you must put down at least 5%, unless you qualify for the HomeReady program, where the down payment is 3%.
If you are buying a multifamily property or some other type of real estate, the down payment requirements increase slightly.
So, say you’re buying a home for $100,000 and borrowing an additional $100,000 to renovate. The down payment for this home would be 5% of $200,000 or $10,000 dollars.
Also, keep in mind any time you put down less than 20% on a home purchase, you will be required to pay private mortgage insurance (PMI) until you reach 20% equity in the home, which can impact your overall monthly payment.
- The typical down payment for a home improvement loan for a single family home loan is 3% to 5%.
- Second home: 10% (90% LTV)
- Investment property: 15% to purchase, 25% to refinance
- Duplex: 15% (or 85% LTV)
- Triplex/quadplex: 25% (or 75% LTV)
What are the Qualifying Requirements for Fannie Mae HomeStyle Renovation| Home Improvement Loans?
- Qualified borrowers may take advantage of up to 97% financing for a one-unit property, principal residence and limited cash-out refinance transactions.
- A credit score of 620 or better
- A debt-to-income ratio(DTI) of 45% or lower
- A loan-to-value ratio (LTV) no higher than 97% (based on the lesser of as-complete value
- A steady job
- A reliable income stream (with tax returns to validate)
What are the Minimum Property Requirements for Fannie Mae HomeStyle Mortgages |Home Improvement Loans?
- A property/residence that’s legally real estate.
- The property must be at least one year old.
- Suitable for year-round occupation.
- Safe, sound, and structurally secure.
- Readily accessible by roads that meet local standards.
- Served by utilities that meet community standards.
What Type of Properties Qualify for Fannie Mae HomeStyle Renovation Loans | Home Improvement Loans?
There are many options for the type of properties which qualify for a Fannie Mae HomeStyle|Home Improvement Loan. Listed below are a few examples.
- Single-family detached home
- Townhome
- Condo unit/co-op unit
- Duplex, triplex or quadplex
- One-unit investment home
- One-unit manufactured home
- ADU (an accessory dwelling unit), often called in-law suites, secondary dwelling, and/or granny flats. The ADU must have a separate entrance. The ADU must have a full kitchen, a full bathroom and a space for cooking separate from the main/primary residence.
What are Acceptable Projects for Home Improvement Loans?
The Fannie Mae HomeStyle Home Improvement Loans must be used for improvements that are permanent and add value to the property.
Fannie Mae Homestyle loans do not have many restrictions on how a borrower may use the funds when renovating, making home improvements, or repairs.
A borrower can choose to paint, add floors or larger scale projects as long as the repairs are done within 12 months of the loan origination. A few examples are listed below.
- Kitchen remodel
- Bathroom remodel
- Mechanical upgrades and improvements (such as upgrading plumbing, electrical or HVAC)
- New exterior and interior paint
- New landscaping
- New flooring
What are Unacceptable Projects for Home Improvement Loan?
The following are some of the projects that are unacceptable when using a Fannie Mae HomeStyle|Home Improvement Loan.
- Tearing down a home
- Making structural changes to more than 50% of a manufactured 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.
How Do Homeowners/Buyers Apply for Fannie Mae HomeStyle | Home Improvement Loan?
- The borrower will need to be diligent in finding a lender who offers Fannie Mae HomeStyle Loans.
- The borrower should be very diligent in choosing a reputable, licensed contractor. Ideally a contractor who is familiar with Fannie Mae HomeStyle Loan requirements. They will need to work with the contractor to create detailed plans, cost estimates and work schedules.
- The contractor must have all of the appropriate credentials and licensing required by the state. The contractor must be 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.
- The borrower will then submit the plans to the lender. The lender will share them with the home appraiser.
- The appraiser inspects the home and reviews the plans to arrive at an as-complete valuation (what the home will be worth when all of the renovations are complete).
- The lender will then inform the borrower of the maximum amount in which they have qualified for a Fannie Mae HomeStyle Loan.
- The lender places the funds for renovation in a custodial account. The contractor starts work and submits requests for draws on the custodial account as the work is finished.
- There must be an inspection performed prior to each draw. The lender will release funds when work is satisfactorily completed.
- When all the work is complete, the lender requests a final inspections and appraisal. If all is satisfactory, they will release any remaining funds.
What are Some of the Fees that a Borrower May Roll into a Fannie Mae HomeStyle | Home Improvement Loan?
The following are a few examples of expenses that may be rolled into a Fannie Mae HomeStyle.
- Living costs for a rental while the home is being renovated
- Closing costs
- Permits and license fees
- Project contingency reserves
What Home Improvements | Do it Yourself projects may be Performed by the Borrower for Fannie Mae HomeStyle Renovation | Home Improvement Loans?
- The borrower for a single-family home may perform, at the discretion of the lender, the home improvement work for non-safety projects. Inspections are required for all work items that cost more than $5,000.
- The Fannie Mae HomeStyle Mortgage allows the borrower to finance the costs of materials for do-it-yourself home improvements for a single-family loan.
- The property must be a single family home, and not a manufactured home.
- The reimbursement is limited to the cost of materials or the cost of properly documented contract labor (sweat equity may not be reimbursed).
What are Some of the Advantages of Fannie Mae HomeStyle | Home Improvement Loans?
- Fannie Mae HomeStyle | Home Improvement Loans are available to be used for primary residences as well as second homes and investment properties.
- This type of loan offers attractive features, including low down payments, flexible repayment terms, and competitive interest rates.
- Fannie Mae HomeStyle Loans offers up to 97% financing for qualified applicants, making the down payment less than conventional loans.
- There is no requirement for the property to be habitable at the time of closing. If the property is not habitable, the borrower may finance up to six months principal, interest, tax, and insurance payments to cover the costs while the home is inhabitable.
- Non-structural home improvements, such as, boiler replacement, new kitchen or bathroom, replacing double glazing or central heating installation.
- Home Improvement Loans may also be used to finance energy-related improvements.
- The loan terms for a HomeStyle loan: are Type/Term 15- and 30-year FRMs and all eligible ARM products
- Any type of home improvements is eligible, as long as it is permanently affixed to the property and increase property value. Renovations should be completed within a twelve-month period from the date the mortgage loan is delivered.
What are some of the Disadvantages for Fannie Mae HomeStyle | Home Improvement Loans
- Fannie Mae HomeStyle Loans typically may have higher fees and closing costs than other types of financing.
- Fannie Mae Homestyle Loans do not allow for a tear down and reconstruction of a home.
- The Fannie Mae HomeStyle Loan may not be used to pay off existing debt or special assessments, such as sewer. It may only be used to complete new improvements to the property.
- The borrower may not use the funds from a Fannie Mae HomeStyle loan to build an additional residential dwelling on the property.
- There may be a second set of closing costs, as many borrowers choose to refinance at the end of the renovations.
- The Fannie Mae Homestyle loan funds will be placed in a custodial account. The contractor will have to submit requests for draws at certain project milestones to prove that the project is continuing as planned.
Conclusion for Fannie Mae HomeStyle|Home Improvement Loans
Potential borrowers will need to find a reputable mortgage loan officer. They will know how to assist the borrower in acquiring the right mortgage loan possible.
Potential borrowers may start the application online and be connected with one of our fine mortgage loan officers.
What Other Products does Fannie Mae HomeStyle | Home Improvements Loans Offer?
You may want to check into other programs offered for home improvements. We have listed them below.
- HomeStyle Energy — To make your home more energy-efficient or more resilient to natural disasters at the same time your renovations are completed
- Choice by Freddie Mac — Freddie Mac, a government sponsored enterprise offers an equivalent to Fannie Mae HomeStyle.
Please read through this information and if you have questions we are here to assist.
Our expert mortgage officers are available to assist with any questions you may have.
Please call us at 1-866-713-9292 or apply online.
