Renovation Loans: Fannie Mae's Homestyle Loan Option

Fannie Mae offers a HomeStyle Renovation mortgage loan that lets you buy and renovate a property using a single mortgage. This loan program provides a convenient way for borrowers to finance home improvements, but it comes with more requirements than a traditional mortgage. The HomeStyle Renovation loan is for home buyers who want to buy a fixer-upper or renovate an existing structure and pay off the renovation monthly when they pay their mortgage. The loan may be delivered to Fannie Mae before or after the completion of the renovation work, with the former requiring special approval.

Fannie Mae HomeStyle Renovation Mortgage

The Fannie Mae HomeStyle Renovation Mortgage is a type of renovation loan that enables home buyers to borrow the purchase price of a home and the cost of renovations and combine them into a single mortgage loan. The loan can be used to finance a wide range of projects, from small projects like painting and flooring to large-scale rehab or additions. It can also be used to build accessory dwelling units, such as a carriage house or garage apartment, or to finish a basement for an in-law suite.

The HomeStyle Renovation Mortgage has specific requirements and guidelines that lenders must follow. The loan may be delivered to Fannie Mae before or after the completion of the renovation work, but special approval is required if delivered before the completion of the renovation. The renovation work must be completed within 15 months from the date the loan is closed.

To qualify for a HomeStyle Renovation Mortgage, borrowers typically need a credit score of at least 620, with a maximum debt-to-income (DTI) ratio of 45%. A down payment of at least 3% is required, and the portion of the loan covering renovation expenses cannot exceed 75% of the projected value of the home after the work is completed.

The HomeStyle Renovation Mortgage is a convenient option for borrowers looking to finance home improvements, but it comes with more requirements than a traditional mortgage. It is important to note that Fannie Mae does not directly lend money to borrowers; instead, it purchases loans from lenders like banks and credit unions.

Renovation costs and restrictions

The Fannie Mae HomeStyle Renovation mortgage loan is a type of renovation loan or rehab loan. It enables home buyers to borrow both the purchase price of the potential home and any renovation costs in one mortgage loan amount. The HomeStyle Renovation loan is for home buyers who want to buy a fixer-upper or renovate an existing structure and pay off the renovation monthly when they pay their mortgage. The loan may be delivered to Fannie Mae before or after the completion of the renovation, but special approval is required for delivery before completion.

The HomeStyle Renovation loan covers a wide range of projects, and the home isn’t required to be habitable at the time of purchase. However, all work must be completed within 12 to 15 months after the loan closes. The borrower may finance up to six months of principal, interest, tax, and insurance payments to cover these costs while the home is uninhabitable. The borrower must have a down payment of at least 3%, and the loan amount can be up to 75% of the projected value of the home after work is completed. The total loan amount can be up to 75% of either the purchase price plus renovation costs or the “as-completed” appraised value, whichever is lower.

There are no required improvements or restrictions on the types of renovations allowed, nor is there a minimum dollar amount for renovations. However, the changes must be permanent to the home and provide value. Renovations can include small projects like paint and floors, large-scale rehabs or additions, and energy-efficient improvements. The loan may be bundled with HomeStyle Energy if the borrower is planning on ENERGY STAR®-certified improvements or other energy upgrades.

The Fannie Mae HomeStyle loan has more lenient eligibility requirements than other loans, but there are still some conditions. For example, a credit score of at least 620 is required, and the maximum debt-to-income (DTI) ratio is 45%. Additionally, the loan only applies to one- to four-unit primary homes, condos, co-ops, planned unit developments (PUDs), or manufactured homes. Renovations on second or vacation homes and investment properties are limited to one-unit properties.

Lender requirements

Fannie Mae is not a lender, so you can't borrow from the entity directly. If you want to use a HomeStyle Renovation loan to finance the work needed on your fixer-upper, you'll need to find a lender who offers this loan product. Start by calling local banks, credit unions, and mortgage lenders to ask what products they offer. If one financial institution doesn't offer the HomeStyle renovation loan, they may be able to recommend another that does.

To qualify for a Fannie Mae HomeStyle loan, borrowers must meet the following lending criteria: a minimum credit score of 620 is required, and the maximum debt-to-income (DTI) ratio allowed is 45%. These criteria are stricter compared to the government-backed FHA 203(k) program, which only requires a FICO Score of 580. For the lowest possible rate on a HomeStyle loan, you'll need a 780 credit score or higher.

The basic process for getting a HomeStyle loan is the same as getting any other type of loan. You'll need to apply for a home loan and meet basic income, credit, and qualifying guidelines. You'll need to gather documents, including proof of income, asset documentation, bank statements, and information about the property you are renovating. After this, you'll fill out the application provided by your lender.

The HomeStyle Renovation loan combines the costs of buying or refinancing a home and renovation expenses into one loan. The money is dispersed to pay for the home purchase at closing, but in order to use the funds for renovation, an approved contractor must submit plans to the bank for a "draw" to get paid. Then, after inspections to ensure the work is done, the bank sends the money to the contractor. The lender services the loan, managing all project draws and overseeing the renovation process. The lender receives the final draw request, initiating the last phase of lender oversight. The lender orders a final inspection, the appraiser signs a completion certificate, and the lender provides it to Fannie Mae.

The HomeStyle Renovation loan may be bundled with HomeStyle Energy to qualify for a $500 LLPA credit if the borrower is planning on ENERGY STAR®-certified improvements, resiliency, water, or other energy upgrades.

Eligibility and credit score

The Fannie Mae HomeStyle Renovation loan is a government-sponsored mortgage product designed to help mid- to low-income borrowers access affordable housing. It is not a direct loan from Fannie Mae, but rather a loan product that is offered by banks and other lenders and then sold to Fannie Mae. This arrangement helps lenders stay liquid and enables them to offer more mortgages.

Fannie Mae's HomeStyle Renovation loan is designed for borrowers who want to buy a fixer-upper or renovate an existing structure. It allows borrowers to finance both the purchase price of the home and the renovation costs in a single mortgage loan. The loan can also be used to refinance an existing loan and include funds to cover renovation costs.

To be eligible for a HomeStyle Renovation loan, borrowers must meet specific credit score and debt-to-income ratio requirements. The minimum credit score needed to qualify for this loan is 620, which is the same as for other Fannie Mae loans, including a conventional mortgage loan. In addition, borrowers must have a debt-to-income ratio of less than 50%.

The HomeStyle Renovation loan offers flexibility in terms of the types of properties that can be financed. It can be used for multifamily homes, second homes, and investment properties. Additionally, there are no restrictions on the types of renovations allowed, as long as the changes are permanent to the home and provide value. Examples of eligible renovations include small projects like painting and flooring, as well as large-scale rehabs or additions.

Borrowers can also finance living costs, such as rental payments, while their home is being renovated. It is important to note that any costs rolled into the loan will incur interest.

For borrowers who are first-time homebuyers, homeownership education is required for purchase loans with a loan-to-value (LTV) ratio greater than 95%. The maximum LTV for a HomeStyle Renovation loan is 97%, and the total loan amount can be up to 75% of the purchase price plus renovation costs or the "as-completed" appraised value, whichever is lower.

Renovation work must be completed within 15 months from the date the loan is closed. If the borrower defaults on the loan before the work is completed and the default continues for at least 120 days, the lender may be required to repurchase the loan.

In summary, the Fannie Mae HomeStyle Renovation loan is a flexible financing option for borrowers looking to purchase and renovate a property. By offering affordable financing for a wide range of renovation projects, this loan helps to support borrowers in their efforts to improve their homes and build equity.

Energy-efficient renovations

The Fannie Mae HomeStyle Renovation Mortgage is a renovation loan that enables home buyers to borrow the purchase price of the potential home and any renovation costs, combining them into one mortgage loan amount. The HomeStyle Renovation loan is for home buyers who want to buy a fixer-upper or renovate an existing structure and pay off the renovation monthly when they pay their mortgage.

Fannie Mae's HomeStyle Renovation mortgage enables a borrower to purchase a property or refinance an existing loan and include funds in the loan amount to cover the costs of repairs, remodelling, renovations, or energy improvements to the property. There are no required improvements or restrictions on the types of renovations allowed, nor is there a minimum dollar amount for renovations. The HomeStyle Renovation loan may be bundled with HomeStyle Energy to qualify for a $500 LLPA credit. This is applicable if the borrower is planning on ENERGY STAR®-certified improvements, or other energy upgrades.

The HomeStyle Energy Mortgage can be used by borrowers to make upgrades that reduce utility costs and improve the comfort and safety of their homes. The HomeStyle Energy Mortgage can be combined with other Fannie Mae products like the HomeStyle Renovation loan to offer borrowers benefits like more flexibility and savings. The HomeStyle Renovation and HomeStyle Energy mortgages may be combined with a HomeReady® mortgage, so low-income borrowers can take advantage of lower rates and cancellable mortgage insurance.

The HomeStyle Renovation loan does not require the property to be habitable at the time of closing. If the home is not habitable, the borrower may finance up to six months of principal, interest, tax, and insurance payments to cover these costs while the home is uninhabitable. The HomeStyle Renovation loan must be completed within 12-15 months of the loan origination.

Frequently asked questions