If you’re looking to buy and renovate a home, a Fannie Mae HomeStyle Loan can be a great option. This loan allows you to roll the purchase price and renovation costs into one mortgage. But to get a HomeStyle Loan, you need to find a lender that offers them. With so many options, how do you identify the best HomeStyle lenders near you?
I’ve purchased homes using HomeStyle loans twice now. Based on my personal experience, here is my guide to finding top HomeStyle lenders in your area.
What Is A Fannie Mae HomeStyle Loan?
First let’s quickly recap what a HomeStyle Loan is. Fannie Mae is a government-sponsored enterprise that buys mortgages from lenders. This allows lenders to originate more loans while freeing up their capital.
The HomeStyle Loan is a mortgage option Fannie Mae offers that combines the home purchase price plus renovations into one loan with one monthly payment. It works similar to a purchase loan, except funds are held back to pay the contractor as work is completed.
HomeStyle Loans can be used to buy and renovate:
- Single family homes
- Condos
- Townhomes
- Duplexes
- Manufactured homes
- Second homes
- Investment properties
You can make all kinds of renovations, from minor cosmetic improvements to additions and major remodels.
How To Find HomeStyle Lenders Near Me
Fannie Mae doesn’t lend money directly to borrowers. So you’ll need to find a lender that offers HomeStyle Loans. Here are some tips on how to locate top lenders in your area:
Search Fannie Mae’s Lender Lookup Tool
Fannie Mae provides a handy lender lookup tool on their website. You can search by state and see a list of lenders near you that offer HomeStyle Loans.
This is a great place to start your search and identify lenders in your area. Be sure to take note of multiple options so you can compare interest rates and fees later.
Ask Your Bank Or Mortgage Broker
If you already have a relationship with a bank or mortgage broker, ask them if they handle HomeStyle Loans. Even if they don’t, they may be able to recommend a lender that specializes in renovation loans.
Local lenders are more likely to have experience with HomeStyle Loans than big banks. They will also be familiar with local real estate values needed to calculate the after-improved value for loan approval.
Search Online For Specialty Lenders
In addition to the lenders on Fannie Mae’s list, expand your search online for lenders that specialize in renovation loans. They will likely have the most experience to guide you through the process efficiently.
Be sure to read reviews and compare interest rates from multiple lender websites. Specialty renovation lenders often offer very competitive rates.
Ask Your Real Estate Agent
Real estate agents work with lenders in your area on a regular basis, so tap your agent as a resource.
Ask them for recommendations of lenders they have positive experiences working with on HomeStyle Loans. Top agents should be able to refer you to lenders they trust.
How To Choose The Best HomeStyle Lender
Once you’ve compiled a list of potential lenders, you’ll want to compare them across a few key factors to identify the best option for your situation:
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Interest rates and fees – Get rate quotes from multiple lenders and compare. Ask about origination fees and closing costs. A lower rate and fees can save you thousands over the loan term.
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Renovation loan experience – Choose a lender that handles these loans regularly, not just occasionally. You want experts guiding you who can answer all your questions.
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Application process – Is the application process simple and online-friendly? Difficult applications waste your time.
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Contractor payment process – The lender should have a streamlined system to fund draws to your contractor versus making this complicated.
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Customer service – You’ll be working closely with your loan officer throughout the process, so ensure they have excellent customer service ratings and quickly respond to you.
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Turn times – Ask about average application approval turn times and funding time after final approval. Delays can negatively impact your renovation timeline.
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Loan terms offered – Compare loan term options like 10-year, 15-year, 20-year, 25-year, or 30-year mortgages. Make sure the lender offers terms that align with your budget and goals.
Doing your research upfront helps you find the right HomeStyle Loan lender to partner with on your renovation project. Be sure to get pre-approved early so you can shop for homes with confidence.
How does HomeStyle Loan work?
The purpose of a HomeStyle loan must be a purchase or a limited cash-out refinance. Borrowers that have one to four-unit principal residences, one-unit second homes, or one-unit investor property units, such as a condo, are eligible. According to the guidelines, any type of renovation project is acceptable, as long as the repair permanently fixes the home and adds value. Fannie Mae accepts a wide variety of applicants, such as individual homebuyers, investors, nonprofit organizations, or local government agencies. However, borrowers must meet a specific loan-to-value (LTV) ratio. For example, on purchase transactions, the LTV ratio is based on the lesser of the following:
- a. Purchase price and cost of renovation
- b. The “As-completed” value
For refinance transactions, the LTV ratio is determined by dividing the original loan amount by the “as-completed” appraised value of the home. Mortgage insurance (MI) is required to be purchased based on a borrower’s LTV ratio calculation. Fannie Mae requires MI to be resolved before closing. Borrowers can either perform renovations themselves or hire contractors to complete the job. Borrowers that choose to renovate must not exceed 10% of the as-completed value. Fannie Mae requires to inspect all work items that cost more than $5,000. In addition, the property must be a one-unit owner-occupied home.
What is the HomeStyle renovation loan process?
The HomeStyle loan is a Fannie Mae product that allows borrowers to purchase an eligible property that bundles the renovation costs into the mortgage. If investors decide to finance a HomeStyle mortgage, borrowers can expect to see similar guidelines as a conventional loan. However, only certain lenders are qualified to sell Fannie Mae products, so research which lenders are eligible. Once you have found a qualified lender, they can appropriately assist you during this process. The HomeStyle process requires borrowers to purchase a property that fits within their guidelines, such as a one to four-unit property, one-unit second homes, or one-unit investor buildings. Fannie Mae requires the property to need moderate repairs. For the most part, there are not many restrictions as to what kind of repairs can be made. For example, borrowers can have windows repaired, doors replaced, bathrooms remodeled, the roof updated, and much more. At the end of the day, renovations must permanently fix the home and add value. Most HomeStyle approved lenders require borrowers to hire a contractor and have an inspection on their property. The inspection gives lenders and borrowers reassurance that funds will be spent toward necessary renovations. Inspectors will evaluate the home and highlight any other issues that should be resolved. They can also suggest ideas on how to repair items. According to the HomeStyle guidelines and in addition to a contractor profile, your selected contractor must write a Scope of Work (SOW) plan with you. This paperwork is required by lenders because they need to have a concrete itinerary of what borrowers intend on repairing and how it will add value to the home. Your lender will require additional paperwork from you, such as the following:
- Scope of Work with itemized repair budget (the cost of renovation cannot exceed 50% of the purchase price of the property)
- Copy of contractor’s license from the jurisdiction of the property
- Copy of contractor’s insurance
- Completed contractor form from Fannie Mae
- Copy of contract between borrower and contractor
- Notification of needing required permits
After you’ve given your lender the required documents, they will order an appraisal to determine the value of the home. However, instead of a traditional appraisal, your property will be appraised based on “subject to repairs” or the “After Repaired Value” (ARV). The licensed professional will evaluate the property and conclude whether the planned repairs will enhance the home’s living and safety conditions. The ARV calculation is important because lenders need to verify that the mortgage plus renovation costs do not exceed the value of the property repaired. Most lenders will allow a lending limit of 80% of the ARV, or 80% of the cost of the property and renovations. Once the appraisal has been conducted and your lender has all the required documents, the loan will enter the underwriting phase. After the underwriting process has been completed, the sale of the property is ready to be closed. However, this process can take up to 45 days or longer. If borrowers decide to use a HomeStyle loan, it is important to be patient during this process because it can take more time for the transaction to close compared to a conventional loan. When the closing day arrives, so does the beginning of your renovation plans. You and your contractor need to follow the outlined plan of your repairs. Your lender will not give borrowers an initial source of funds to begin renovation updates. Funds must come from the borrower or other resources. Once there is noticeable progress according to your SOW agreement, a draw request can be made for reimbursement. Typically, most HomeStyle loans allow borrowers up to five draws. After all renovation plans have been completed, borrowers can move into their newly constructed home!
Fannie Mae Homestyle Renovation Loan: Transforming Homes In North & Sc | MortgagesByScott.com
FAQ
Do banks do Fannie Mae loans?
What is the minimum credit score for Fannie Mae Homestyle?
Can I get a loan directly from Fannie Mae?
How do I contact Fannie Mae lender?
What is a Fannie Mae homestyle loan?
Essentially, the HomeStyle loan – and other products like it – enables home buyers to borrow both the purchase price of the potential home and any renovation costs and wrap it up into one mortgage loan amount. A Fannie Mae Homestyle Loan is different from a construction loan, which is generally for building an entirely new home.
What is a Fannie Mae homestyle renovation loan?
The Fannie Mae Homestyle Renovation Mortgage is a type of renovation loan or rehab loan. Essentially, the HomeStyle loan – and other products like it – enables home buyers to borrow both the purchase price of the potential home and any renovation costs and wrap it up into one mortgage loan amount.
Should you get a Fannie Mae homestyle loan?
Whether you’ve fallen in love with a fixer-upper or have a list of renovations that you want to do to turn your current home into your forever home, there’s a good chance you’re going to need to borrow money to make this a reality. And one option that you might be considering is a Fannie Mae HomeStyle loan. WHAT IS YOUR PROJECT?
Can a Fannie Mae homestyle loan finance a fixer-upper?
While Fannie Mae HomeStyle loans are commonly used as a way for homebuyers to finance the purchase and renovation of a fixer-upper in a single loan, they can also be used by current homeowners to finance their renovation wishlist. You will need to refinance your existing mortgage, and this could mean you need to do so onto a higher rate.