A Complete Guide To The Fannie Mae HomeStyle Loans for Renovations

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A particular kind of renovation loan or rehab loan is the Fannie Mae Homestyle Renovation Mortgage. In essence, the HomeStyle loan and similar programs allow homebuyers to borrow both the future home’s purchase price and any renovation expenditures and bundle them into a single mortgage loan sum.

A construction loan, which is typically used to create a brand-new home, is not the same as a Fannie Mae Homestyle Loan. The HomeStyle Renovation loan, on the other hand, is for customers who wish to purchase a fixer-upper or restore an existing building and pay for the renovation as part of their monthly mortgage payment.

Rocket Mortgage® does not currently offer financing for renovations, but we want you to be informed of all of your options.

What Is The Process For A Fannie Mae HomeStyle Loan?
A lender is not Fannie Mae. Fannie Mae, on the other hand, is a GSE that purchases mortgages from banks. This enables banks to remove debt from their books and utilize the proceeds to start new mortgage lending. This is how banks maintain their liquidity and support the economy.

However, Fannie Mae does not exist merely to assist banks. Fannie Mae is a government-run organization that aims to lower housing costs for borrowers with middle-class to poor incomes. Fannie Mae essentially reduces part of the risk to banks by purchasing mortgages so that financial institutions can lend money to “riskier” borrowers, such as those with little income or bad credit histories and scores.

A conventional loan works somewhat differently than the Fannie Mae HomeStyle Loan. An approved contractor must submit plans to the bank for a “draw” before using the funds for renovations; otherwise, the money will be distributed to pay for the home purchase at closing. The bank then transfers the funds to the contractor following checks to guarantee the work is completed. This prevents fraud from happening (homeowners and contractors utilizing renovation loans for other things) but also creates more administrative work than just paying cash for home upgrades.

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What Are the Sources of Fannie Mae HomeStyle Loans?
Borrowers who want to use a HomeStyle loan must first choose a lender that offers this sort of loan product because Fannie Mae does not directly lend money to consumers. Start by getting in touch with your bank, neighborhood credit unions, or other local lenders. Inform them that you’re looking for a HomeStyle loan and, if they don’t provide it, ask if they can suggest a lender who does.

HomeStyle loans are not currently available from Rocket Mortgage.

What Sorts Of Properties Qualify?
Unbelievably flexible is the Fannie Mae HomeStyle Renovation financing. A HomeStyle loan can be used to purchase and modify almost any kind of property, including multifamily residences, vacation homes, and investment properties. The complete list of qualifying property types is shown below:

detached single-family home


Co-op or condominium unit

Triplex, quadplex, or duplex

small second home

a single-family rental property

prefabricated home with one unit
Requirements for a Down Payment
Similar to other Fannie Mae mortgages, a HomeStyle loan typically requires a down payment of at least 5%. If you are eligible for the HomeReady program, however, the down payment is only 3%.

The down payment requirements rise slightly if you’re purchasing a multifamily property or another kind of real estate:

10% (90% LTV) for a second home.

Real estate investment: 15% down payment, 25% refinanced

15% (or 85% LTV) for duplex

25% (or 75% LTV) for triplexes and quadplexes
A HomeStyle loan typically requires a down payment of between 3% and 5% of the home’s purchase price plus the amount you borrow. Let’s imagine you spend $100,000 to buy a house and another $100,000 to refurbish it. This home would require a down payment of 10% of $200,000, or $10,000.

Additionally, keep in mind that private mortgage insurance (PMI), which increases your total monthly payment if you put less than 20% down on a home, will be necessary to pay until you have 20% equity in the property.

For the remodeling portion of the loan, the principal HomeStyle loan restriction is that you can only borrow up to 75% of the home’s after-repair value (ARV).

An Example Using A Fannie Mae Homestyle Loan
Sadie wants to use a HomeStyle loan to purchase an older house in her parents’ neighborhood. Her lender has given her permission to borrow up to $300,000. She can pay $220,000 for a house in the neighborhood she prefers, but it needs a lot of work and is older. Even though Sadie’s contractor estimates all of her desired home improvements to cost $100,000, Sadie is only able to borrow $80,000 for the makeover because this is the maximum amount her lender will approve based on her income and obligations.

What Sort Of Renovations Can Be Funded By A Fannie Mae HomeStyle Loan?
Numerous upgrades could raise the value of a property. The good news is that as long as the improvements are lasting and add value to the house, the Fannie Mae HomeStyle loan doesn’t have many limits on how you can utilize the remodeling funds. As long as repairs are finished within 12 months of the loan origination, you can use a HomeStyle loan for everything from little work like paint and flooring to substantial renovations or extensions. This means that the following projects are eligible for the loan:

Fresh floors
There was a second, smaller house there.
a fresh landscape
Kitchen Renovation
Bathroom Renovation

Mechanical improvements (such as modernizing the electrical or HVAC systems)
HomeStyle loans can also be used to finish a basement for an in-law suite or to develop auxiliary housing units like a carriage house or garage apartment.

What A Fannie Mae HomeStyle Loan Doesn’t Cover
You can make changes to your house with a Fannie Mae HomeStyle renovation loan, but there are restrictions. What the Fannie Mae HomeStyle loan does not cover, for instance, includes the following:

destroying a house

structurally altering a manufactured home by more than 50%

Erecting a second house on a fresh piece of land

Non-permanent additions to the property, such as furniture, some forms of landscaping, light fixtures, or a portable storage building or unit
What Can You Include In Your HomeStyle Renovation Loan?
You can include a variety of expenses in your HomeStyle loan in addition to the cost of the property and the project, such as:

Renting expenses while the house is being renovated

Closing expenses

Fees for licenses and permits

Contingency funds for the project
You may lower your out-of-pocket expenses and free up money to help you make the most of your home improvement project by adding these fees to the loan. Remember that any charges you roll into your loan will incur interest.

To qualify for a Fannie Mae HomeStyle loan, what credit score is required?
The minimum credit score and debt-to-income ratio requirements for a HomeStyle loan are the same as those for other Fannie Mae loans, including conventional mortgage loans: you must have a credit score of 620 or higher to be eligible.

Additionally, the Fannie Mae HomeStyle loan has borrowing limits but no income restrictions. These are the conforming loan limitations for 2023 for all loans that adhere to Fannie Mae and Freddie Mac criteria, not just the HomeStyle loan.

Borrowers may obtain a loan for a single-family home up to $726,200.

For a single-family home in high-cost metro areas, the maximum mortgage amount is $1,089,300.

Borrowers may borrow up to $1,396,800 for a four-unit property or up to $2,095,200 in a high-priced area for multifamily properties.
Freddie Mac Interest Rates for HomeStyle Loans
There is a misconception regarding remodeling loans: that the interest rate will be greater because you are incorporating both rehab expenditures into the mortgage. This is simply untrue. The only way you would pay more in interest is if you were considering borrowing more money to finish the project. Instead of the somewhat higher interest rates linked to HELOCs and home equity loans, HomeStyle loans frequently have interest rates that are lower and more in line with conventional loans.

The HomeStyle loan offers the same typical mortgage options as conventional mortgages, including 30-year and 15-year mortgages.

Refinancing from your current mortgage to a Fannie Mae HomeStyle loan is another option for obtaining finance for a property you currently own. If you want to renovate your house but don’t have the money to accomplish so, this might be helpful to you.

It is important to obtain quotes from at least three lenders and compare the rates to one another to obtain the lowest interest rate feasible.

Alternatives to Fannie Mae HomeStyle Loans
Although the Fannie Mae HomeStyle loan is well known for its adaptability, there are some situations when a different loan product may be more advantageous. As previously mentioned, there are a few alternative loan choices that can assist you in financing your home improvements.

Create your haven by working with reputable bathroom remodeling companies.

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203(k) Loan from FHA
Another government organization that works to represent the interests of American consumers is the Federal Housing Administration (FHA). The main distinction between an FHA 203(k) loan and a Fannie Mae HomeStyle loan is that an FHA 203(k) loan allows you to demolish an existing building as long as you rebuild it on the same foundation.

Any sort of renovation loan entails employing bank funds for the refurbishment; as a result, the project and payment are managed by the bank. With this kind of loan, the borrower never receives cash upfront.

Loans for Home Equity
You can borrow money through home equity loans, using the equity you’ve accrued in your house. How much equity you have will determine the exact amount you can borrow. When homeowners need money for home improvement work but don’t want to deal with the trouble of getting a bank to approve contractor plans, cash withdrawals, and inspections, these loans are preferable.

Home equity lines of credit (HELOCs), which function similarly to credit cards in that you can borrow only what you need when you need it, are preferable for little improvements completed over time. Until your project is finished, you can withdraw money from your line of credit as needed; you only pay interest on what you borrow. If the one-year schedule for a HomeStyle loan doesn’t suit you and your family, it could be preferable to use home equity to finance the project.

When your loan balance and repairs won’t total more than 80% of the value of your property and you don’t want the inconvenience of the bank analyzing your home improvement project, HELOCs are the best option.