Homestyle Loan: Landscaping Covered?

The Fannie Mae HomeStyle Renovation mortgage program is a popular choice for homebuyers looking to finance the purchase and renovation of a fixer-upper home with a single loan. It offers flexibility in terms of the types of improvements that can be made, including landscaping, as long as they are permanently attached to the property and add value. However, it's important to note that there are some restrictions on what the loan can be used for, such as teardowns or paying off existing debts. The loan amount is based on the as-completed value of the home, and borrowers can finance up to 95% of this value up to a maximum of $548,250.

Landscaping loans are a type of personal loan

Landscaping can be expensive, with landscape installation costing between $1,258 and $6,032, and installing a patio costing from $1,950 to $5,600. A landscaping loan is a type of personal loan that can be used to finance an outdoor project. Personal loans are usually unsecured, meaning they require no collateral, so whether you’re approved for the loan will depend mostly on your credit score and debt-to-income ratio (DTI). A good credit score could qualify you for a low-interest rate, and a rewards card can get you cash back or other perks when you make certain types of purchases.

The personal loan application process is relatively easy and straightforward. First, determine the loan amount you need, then look over your credit report, compare lenders, and apply for prequalification. If approved, you can expect to have your loan in 1–7 business days, with some lenders offering same-day financing.

APR for landscaping loans ranges from 6% to 36%, and repayment terms can be two to seven years. Your rate and loan amount are based on information like your credit and income. Borrowers with high credit scores, strong income, and little existing debt often receive the lowest rates. A $5,000 landscaping loan with a 10% APR repaid over two years would cost $5,537. The same loan with a 36% APR would cost $7,086.

Pros and cons of Homestyle loans

The Fannie Mae HomeStyle loan is a mortgage loan that allows borrowers to purchase a home and finance the cost of qualifying renovations, all in one loan. It is a convenient way for many borrowers to finance home improvements, but it comes with more requirements than a traditional mortgage.

Pros

HomeStyle loans offer several benefits to homebuyers and homeowners. Here are some of them:

• It allows borrowers to finance major home improvements with one mortgage, requiring a low down payment or equity position.
• The loan is based on the "as-completed" property value, increasing your borrowing power and making it easier to get the funds needed for repairs and renovations.
• The involvement of Fannie Mae means that the loan comes with a federal government guarantee, making it easier to obtain if you qualify.
• The loan can be used to finance a wide range of remodelling projects, including landscaping, basement finishing, and even luxury improvements like swimming pools.
• The loan can also cover other costs associated with making home improvements, such as up to six months' worth of mortgage payments if you can't live in the home during renovations.
• The HomeStyle Renovation interest rates may be lower than HELOCs, personal loans, and other costly financing options.

Cons

While the HomeStyle loan is a great option for some, there are also some drawbacks to consider:

• The qualification standards for the loan are more demanding than for other government-backed mortgages, with a stricter debt-to-income ratio and a higher minimum credit score required.
• The loan may have a higher interest rate, extra closing costs, and a longer closing schedule compared to other options.
• The loan cannot be used to tear down and reconstruct a home or to add additional units to the property.
• The money for repairs is not given in a lump-sum payment, and the borrower must follow a step-by-step process with the lender to access the funds.

Homestyle loan eligibility requirements

The Fannie Mae HomeStyle Renovation loan is a flexible financing option that allows borrowers to purchase a home and finance the cost of qualifying renovations with a single loan. This loan is ideal for those looking to buy a fixer-upper or refinance their current home to cover the cost of remodelling.

Property Type

The HomeStyle loan can be used to finance a variety of property types, including one- to four-unit primary homes, condos, co-ops, planned unit developments (PUDs), multifamily homes, second homes, and investment properties.

Down Payment

The typical down payment for a HomeStyle loan is similar to other Fannie Mae mortgages, requiring a minimum of 5%. For the HomeReady program, the down payment is as low as 3%. If you are buying a multifamily property or other types of real estate, the down payment requirements may be slightly higher. Additionally, if your credit score is on the lower end of the acceptable range (620-699), you may need to make a larger down payment, up to 25%.

Credit Score and Debt-to-Income Ratio

To qualify for a HomeStyle loan, you need a minimum credit score of 620 and a debt-to-income ratio of less than 50%. For the best interest rates, a credit score of 780 or higher is recommended.

Renovation Plans and Contractor Selection

To obtain a HomeStyle loan, you must submit detailed renovation plans to your lender, who will review and approve the plans to ensure they meet all requirements. You are also required to select a contractor, although it is possible to complete the renovations yourself on one-unit properties if approved by the lender.

Loan Amount and Repayment

The loan amount for a HomeStyle loan is based on the "as-completed" value of the property, including the cost of the property, the renovation, and closing costs. You can borrow up to 95% of the property's after-renovation value, up to a maximum of $548,250 (or $822,375 in high-cost markets). It is important to note that the renovation portion of the loan is typically limited to 75% of the home's after-repair value.

Additionally, any time you put down less than 20% on the home purchase, you will be required to pay private mortgage insurance (PMI) until you reach 20% equity in the home, which will impact your monthly payments.

Timeframe for Renovations

Renovations financed by a HomeStyle loan must be completed within 15 months from the date the loan closes.

It is important to note that HomeStyle Renovation loans cannot be used to tear down and reconstruct a home or to add additional units to the property. The funds must be used for new improvements, repairs, and renovations, and cannot be used to pay off existing debt.

To summarise, the HomeStyle loan offers a convenient way to finance home improvements, but it comes with specific eligibility requirements and a more complex process than a traditional mortgage.

Homestyle loan alternatives

The Fannie Mae HomeStyle loan is a mortgage loan that allows borrowers to purchase a home and finance the cost of qualifying renovations, all in one loan. The HomeStyle loan is different from a construction loan, which is generally for building a new home. The HomeStyle loan is also not a conventional loan, as the money is dispersed to pay for the home purchase at closing, but to use the funds for renovation, an approved contractor must submit plans to the bank for a "draw" to get paid.

• Conventional mortgage: A conventional mortgage is any loan not backed by the federal government. Conventional mortgages may offer more flexibility, lower monthly payments, and less stringent requirements than the HomeStyle loan.
• Government-backed FHA 203(k) program: This program offers a lower minimum credit score requirement of 580, compared to 620 for the HomeStyle loan. However, a higher down payment of up to 25% may be required if your credit score is close to the minimum.
• HomeReady®: This is a low down payment mortgage offered by Fannie Mae, with lower rates and cancellable mortgage insurance. When combined with the HomeStyle Renovation loan, HomeReady can make financing renovation projects more affordable.
• HELOCs, personal loans, and other financing options: These may offer lower interest rates than the HomeStyle loan and could provide more flexibility in how the funds are used.
• Construction loan: If you are building a new home, a construction loan may be a more suitable option than the HomeStyle loan, which is primarily designed for renovating existing structures.

Homestyle loan interest rates

A HomeStyle Renovation loan is a type of mortgage offered by Fannie Mae that allows borrowers to finance the cost of renovations to their property. The loan can be used to purchase and renovate a property, or to refinance an existing mortgage to cover the cost of renovations.

The interest rates for HomeStyle loans are typically lower than HELOCs, personal loans, and other costly financing options. The rates are similar to those of conventional loans, with options for 30-year and 15-year mortgages. The interest rate will depend on the borrower's credit score, income, and other financial factors.

Borrowers can take out a loan for up to 95% of a property's after-renovation value, up to a maximum loan limit of $548,250, or $822,375 in high-cost markets. For a single-family home, the loan amount can be up to $806,500, while in high-cost metro areas, the mortgage limit for a single-family home is $1,209,750.

It is important to note that HomeStyle loans cannot be used to tear down and reconstruct a home or to add additional units to the property. The loan is intended for renovations and repairs that will increase the value of the property.

When considering a HomeStyle loan, it is recommended to shop around and compare interest rates from multiple lenders to ensure you get the best deal.

Frequently asked questions