The HomeStyle Renovation loan is a Fannie Mae (FNMA) mortgage loan that allows a home buyer to purchase residential property (1-4 units) and include the renovation costs into the mortgage. This includes manufactured/ mobile homes. Not all lenders offer the HomeStyle loan. Eligible borrowers include individual home buyers, investors, nonprofit organizations, and local government agencies. The loan is a permanent 15 or 30-year fixed loan and since it’s FNMA backed, has similar interest rates and fees as a conventional mortgage.
ADVANTAGES OF THE HOMESTYLE RENOVATION LOAN
It can help finance one or more major renovation projects, repairs and/or remodeling and is available for new and existing homes, even new construction. It could also be used to refinance an existing mortgage as long as funds for repairs or renovations are also needed. It’s convenient and economical since it allows borrowers can make repairs and renovations with a single-close first mortgage, rather than getting a second mortgage, home equity line of credit, or other more costly forms of financing.
The loan amount can be based on the as-completed (after repair) value of the home, rather than the total amount needed (purchase price plus renovations). This potentially allows for a larger loan than usual. The final loan-to-value ratio (LTV) will depend on the individual lender but can be up to 75% of the as-completed, appraised value of the property. FNMA recently made changes to allow LTV of up to 97% for some single-unit properties. The LTV may be lower for rental properties (non-primary).
UNIQUE THINGS ABOUT THE HOMESTYLE RENOVATION MORTGAGE:
- The property must need some repairs (moderate repairs are justifiable.)
- The property does not need to be currently habitable/ livable.
- The loan cannot be used for a tear-down/ demolition.
- The loan cannot be used solely to construct another residential dwelling on the property.
- Renovation General Contractor must be approved by the lender.
- All the subcontractors must work with one General Contractor to get paid.
- Lenders require General Contractor’s Scope Of Work (SOW) with itemized repair budget.
- Lender will require a *HUD inspector to inspect the property and provide a report of repairs needed.
- Lender must approve the SOW and corresponding repair budget.
Under FNMA guidelines, for 2-4 unit properties, the lender is required to add a buffer to the repair budget i.e. a contingency reserve. This is usually 10% – 15% of the total budgeted cost of the renovation. That amount is added on top of the loan amount and is to help cover any costs that run over the estimated repair budget.
Remember, not all lenders offer the HomeStyle Renovation Loan and normal mortgage qualifications like minimum acceptable credit scores still apply. Consult with your loan officer for the full requirements.
*HUD is the U.S. Department of Housing and Urban Development.