Fannie Mae Homestyle Loan Lenders - Empowering Your Financial Journey

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For homebuyers and homeowners looking to consolidate the cost of remodeling a fixer-upper property into one loan, the Fannie Mae HomeStyle® Renovation Loan is a fantastic option. Understanding how the HomeStyle loan program operates will help you determine if it is the best remodeling mortgage for you because it is more complicated than a traditional home loan.

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What is a Fannie Mae HomeStyle renovation loan?

With the Fannie Mae HomeStyle loan, you can refinance or buy a house and combine the closing costs and remodeling costs into a single loan. When renovating a fixer-upper home, HomeStyle renovation loans are typically less expensive than using a credit card or a personal loan.

If a seller refuses or is unable to make repairs that the buyer requests, a purchase transaction may be saved by a HomeStyle loan. Since the maximum loan amount is determined by an estimate of the value of the property after the improvements are complete rather than the as-is value, it might also enable you to borrow more than the cash-out refinance guidelines permit. This conventional renovation loan allows you to:

Make a down payment as low as 3%

Borrow a loan amount based on home’s estimated value after renovations

Finance the fix-up costs for one- to four-unit homes, investment properties, condos and manufactured homes

Renovate a home you’re buying or you already own

DIY is allowed

Roll mortgage payments into the loan if you can’t live in the home during renovations

Pick your own licensed contractor

How a HomeStyle renovation loan works

The basic steps for obtaining a HomeStyle loan are the same as those for obtaining a loan of any other kind. You must apply for a mortgage and meet the basic income, credit, and eligibility requirements (described below). To be qualified for a HomeStyle loan, you must additionally complete the following steps:

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 you’re contributing your handyman skills to your renovation project, you’ll need approval from the lender for the work you’ll be doing. No more than 10% of as-completed value can go toward DIY work. You’ll be limited to a single-family home and can only be reimbursed for material and contract labor costs.

Deciding how much you’ll need for reserves. Renovation loans typically require two types of reserves to help cover unexpected costs outside of your original construction budget: contingency reserves and payment reserves.

In order to cover increases in labor and material costs, contingency reserves are typically optional and based on a percentage of your overall project costs. Lenders require 10% of the project costs in reserves for renovations of two to four-unit properties.
Mortgage reserves, also known as payment reserves, are funds set aside to cover your monthly payments if you are unable to live in your home while it is being built. Up to six monthly mortgage payments may be financed with the Fannie Mae HomeStyle loan.

Fannie Mae HomeStyle renovation loan requirements

For a Fannie Mae HomeStyle loan, your credit score must be at least 620. The maximum debt-to-income (DTI) ratio is 45%.

A one to four unit primary home, a condo or co-op, a planned unit development (PUD), or a manufactured home can all be renovated. Renovations to manufactured homes are only permitted on one-unit properties, and you won’t be able to borrow as much money for them.

By dividing your loan amount by the home’s appraisal value, you can calculate your loan-to-value (LTV) ratio, which calculates how much you owe in relation to the value of your house. According to the type of home you’re financing and whether you live in the property full-time or not, the table below shows how much equity or down payment you’ll need to obtain a HomeStyle renovation loan.

For a mortgage, lenders typically use the “as-is” or current value of your house. Your loan amount is determined by the “as-completed” appraised value by lenders for renovations. This illustrates the potential value of your house following renovations.

For instance, if you pay $300,000 for a home that is in good condition, you are typically only allowed to borrow $291,000 at a 97% LTV ratio. If the “as-completed” appraised value is $350,000 and you need an extra $50,000 to fix up that $300,000 house, you might be able to borrow up to $339,500 with a renovation loan.

ACCEPTABLE TYPES OF RENOVATIONS

The size and scope of remodeling projects you can complete with a HomeStyle loan are largely unrestricted. Contrast this to the FHA 203(k) program, a government-backed renovation loan, which prohibits luxury additions like swimming pools and outdoor fireplaces.

LENGTH OF TIME TO COMPLETE

Renovations must be finished within a year of the loan’s closing.

HomeStyle loan pros and cons

You might not require all of the features offered by the Fannie Mae HomeStyle loan. Here’s a list of other home improvement loans to consider.

Cash-out refinance. With a cash-out refinance for home improvements, you can borrow more money than you currently owe on your mortgage and keep the difference in cash.

Home equity loan or home equity line of credit (HELOC). With a home equity loan or a HELOC, you can turn a portion of the equity in your home into cash. A home equity loan is a one-time, fixed-rate loan, whereas a line of credit functions more like a revolving credit card.

Personal loan. Your home won’t be at risk of foreclosure if you take out a personal loan because it isn’t secured by it. Compared to HELOCs and home equity loans, you’ll typically pay higher interest rates and have shorter repayment term options.

Credit card. For smaller “pay-as-you-go” projects, using a credit card might be worthwhile, especially if you can find one with a 0% APR for a limited time. Make sure to keep track of the “interest-free” period because credit cards typically have higher interest rates than other financial products, so you don’t have to pay exorbitant interest fees.

FHA 203(k) loan. The Federal Housing Administration insures an FHA 203(k) loan with lower credit score requirements than conventional loans. Like the HomeStyle loan, you can roll the cost of repairs and the purchase price into one loan.

Today’s Mortgage Rates APR as low as

30-Yr. Fixed 5.88%

15-Yr. Fixed 5.87%

5/1 ARM 6.30%

Before contacting a lender, review our comprehensive overview of the minimum mortgage requirements by loan type to understand how to qualify for a mortgage in 2023.

Learn about available bad credit home loans. Conventional and government-backed programs make it possible to obtain a mortgage even with poor credit.

FAQ

Is a HomeStyle loan a good idea?

No matter if you’re purchasing a home to live in full-time, part-time, or as an investment property, it’s a fantastic option for purchasing a property that needs a little—or a lot—of work. When it comes to the repairs and improvements you can finance, the HomeStyle Renovation loan is incredibly flexible.

Do HomeStyle loans have higher interest rates?

Interest rates on Fannie Mae HomeStyle loans are frequently lower than those on conventional loans, as opposed to the slightly higher interest rates applied to HELOCs and home equity loans.

What is the difference between a HomeStyle loan and a 203k loan?

With both, you can get a mortgage to buy a house and pay for improvements. A Fannie Mae HomeStyle Loan is a conventional mortgage, whereas an FHA 203(k) loan is a government-backed option with more forgiving qualification standards. This is the main distinction between the two.

Can I get a loan directly from Fannie Mae?

You cannot obtain a mortgage directly from Fannie Mae because it does not originate loans. It is the responsibility of banks and non-bank lenders like Rocket Mortgage® to gather a client’s application, underwrite the loan by verifying the client’s income, assets, and property value, and bring them to the closing table.