HomeStyle Renovation Loans: A Comprehensive Guide for 2023

If you’re looking to purchase a fixer-upper home or make renovations to an existing property, a HomeStyle Renovation loan can be the ideal financing solution. Offered by Fannie Mae and available through participating lenders, these specialty mortgages allow borrowers to roll the costs of renovations directly into the home loan.

This comprehensive guide will explain what HomeStyle Renovation loans are, their key features and requirements, and how to find lenders that offer these unique loans

What is a HomeStyle Renovation Loan?

A HomeStyle Renovation loan combines the mortgage for purchasing or refinancing a home with a separate home improvement loan for renovations. The renovation costs are included directly in the total loan amount, providing a simple single closing and consolidated monthly payments.

With a HomeStyle Renovation mortgage, borrowers can finance repairs, remodeling projects, additions, and major renovations when buying a home or refinancing their existing mortgage. The renovated home does not need to be currently habitable to qualify.

HomeStyle Renovation loans are backed by Fannie Mae but offered through participating lenders. They provide expanded flexibility beyond standard mortgages to allow homeowners to customize, upgrade, and reinvent their living spaces.

What Renovations are Eligible?

These loans give borrowers wide flexibility to take on diverse home improvement and remodeling projects. Common eligible renovations include:

• Kitchen, bathroom, and flooring upgrades
• Room additions and accessory dwelling units
• Basement finishing
• Garage expansion
• Exterior facelifts like roofing, siding, windows
• Handicap accessibility upgrades
• Electrical and plumbing repairs
• HVAC and water heater replacement

Luxury upgrades like swimming pools, decks, and landscaping are also eligible. The renovated property must comply with all local building codes and zoning regulations when completed.

Key Benefits of HomeStyle Renovation Loans

Some of the biggest benefits that make HomeStyle Renovation mortgages a popular choice include:

• Lower interest rates – Compared to financing renovations with credit cards or personal loans

• Payment simplicity – One single closing and monthly payment

• Expanded loan limits – Borrow up to 75% of the purchase price plus renovation costs

• Limited cash needed – Potential to draw 50% of funds before starting renovations

• Time savings – No need to complete renovations before purchase

• Home equity gains – Increase property value through renovations

• Energy efficient upgrades – Can be combined with HomeStyle Energy mortgage

• Mortgage insurance savings – Cancelable mortgage insurance available

HomeStyle Renovation Loan Requirements

While flexible, HomeStyle Renovation loans do come with some specific eligibility and underwriting requirements:

Borrower Qualifications

• Minimum credit score of 620
• Stable income and employment history
• Manageable debts and expenses
• Sufficient cash for down payment and closing costs

Property Requirements

• Single-family home, condo, townhome, or manufactured housing
• Primary residence or second home only
• Existing property or new construction

Renovation Requirements

• Maximum renovation amount capped at 75% of the purchase price plus improvements or the appraised value after renovations

• Contractor bids required

• Work must be completed within 15 months of closing

Meeting all requirements, including the enhanced home value, allows for improved loan-to-value ratios and more advantageous rates.

How to Apply for a HomeStyle Renovation Loan

If you’re interested in a HomeStyle Renovation mortgage, follow these steps:

1. Find a Participating Lender

HomeStyle Renovation loans are only offered through lenders approved by Fannie Mae. Ask your lender if they offer the product or search online for an approved HomeStyle lender.

2. Submit Your Application

Work with the lender to complete the mortgage application, providing all required financial, employment, and property details.

3. Get Pre-Approved

The lender will review your application and provide a pre-approval letter if you qualify. This shows sellers you are a serious buyer.

4. Make an Offer

With pre-approval in hand, you can confidently make offers on homes needing renovations. Consider fixer-uppers listed below market value.

5. Finalize Renovation Plans

Once your offer is accepted, finalize the scope of renovations and required permits. Obtain contractor quotes to determine renovation costs.

6. Close on Your Loan

Approval of the plans and quotes will allow you to close on the single consolidated loan, with funds allocated for purchase price and improvements.

7. Complete Renovations

With funds secured, start your renovations. The lender will distribute payments in stages per the draw schedule.

8. Enjoy Your Renovated Home!

Once all work is finished, the home will need to be re-appraised to confirm proper completion according to approved plans.

Finding the Best HomeStyle Renovation Lender

The first step to getting a HomeStyle Renovation loan is finding an approved lender familiar with their unique guidelines and requirements. Be sure to shop around and compare multiple lenders on:

• Interest rates – Lower rates increase savings and reduce payments

• Fees – Ask about origination fees, appraisal fees, and other closing costs

• Renovation budget flexibility – Some allow higher renovation amounts than others

• Draw payment schedules – Releasing funds in stages or upfront

• Customer service – Find a lender who communicates clearly and promptly

Online mortgage marketplaces like LendingTree allow you to compare personalized loan offers from competing lenders. This simplifies the process of finding your best HomeStyle Renovation loan.

Alternatives to HomeStyle Renovation Loans

Some other options to consider beyond a HomeStyle Renovation mortgage include:

• FHA 203(k) Loan – Lets you finance up to 35% of a home’s value in renovations. More flexibility on property types compared to HomeStyle.

• Cash-Out Refinance – Tap into your home equity to pay for renovations. You’ll get a higher rate and fees compared to HomeStyle.

• Home Equity Loan – Second mortgages that provide funds for repairs and upgrades. Features higher rates than first mortgages.

• Personal Loans – Unsecured loans from banks can fund renovations but have higher rates than mortgages.

• Using Cash Savings – Avoid financing costs by paying for upgrades in cash. Ties up your money and limits project scope.

Talk to a loan officer to review your situation and determine if a HomeStyle, FHA 203(k), cash-out refi, or other option is right for your renovations plans and budget.

The Bottom Line

HomeStyle Renovation loans offer borrowers a smart and streamlined way to finance renovations to an existing home or as part of a home purchase. With a single mortgage loan and one monthly payment, you can take on major remodeling and customization projects at competitive rates. Just make sure to find a knowledgeable, approved HomeStyle lender that can walk you through the mortgage process from start to finish.