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Fannie Mae HomeStyle® Loan

Fannie Mae HomeStyle® Renovation Mortgage

This type of financing requires a down payment of just 3% if you're buying a single-family home with a fixed-rate mortgage.


You'll have 12 months to complete the work, and there's no minimum amount you must devote to repairs. You can use the money for repairs, remodeling, renovations or energy improvements. 


The only restriction is that the changes must be permanently affixed to the property and add value.


The lender will oversee the renovations to make sure they get completed. The lender will need copies of your plans and specifications as well as your renovation contract.


Since you can put down as little as 3%, the most you can borrow on the home is 97% of the lesser of:

  • An appraiser’s estimate of the market value after improvements.
  • The purchase price plus renovation costs, or "cost basis" value of the home.

Renovation costs include not just labor and materials but also property inspection, architectural and engineering, and permit and licensing fees, plus an optional 10% contingency reserve.


With a HomeStyle loan, the total cost of the work can be as much as 75% of what the property is expected to appraise for once the work is complete, but the mortgage amount still must fall within the above guidelines.


Suppose you want to purchase a home that costs $190,000. The appraiser looks at your plans, scope of work and comps, and determines the property's after-renovation value to be $250,000.

Fannie Mae says you can borrow up to 50% of that, or $125,000, for repairs.


The purchase price of $190,000 plus $125,000 for repairs, equals $315,000. Subtract your 5% down payment, and you can theoretically borrow $299,250. However, in this case, the cost basis of $315,000 is higher than the after-renovation value of $250,000, and you can only borrow based on the lower of the two.


So with 5% down, the most you could borrow would be $237,500. Subtracting the $190,000 purchase price, you'd need to limit your repair costs to $47,500.


HomeStyle loans are also subject to the usual conventional mortgage limits, which are $484,350 for one-unit, single-family homes in most areas, up to $726,525 in high-cost areas.


With less than 20% down, you'll also have to pay private mortgage insurance or PMI, which is based on the as-completed value, not the purchase price.


One final advantage is that HomeStyle loans are available to investors with a 15% down payment. Investors cannot take out 203(k) mortgages.


Investors will often max out multiple credit cards or take out hard money loans, both with double-digit interest rates, to finance flips. The HomeStyle loan offers a cheaper alternative.


Common features of home renovation loans


Before the appraisal, you'll need to draw up a budget based on contractors' estimates for your proposed scope of work.


The appraiser will use this information to estimate an after-improved value for the home you want to buy, which determines how much you can borrow.


You'll be able to choose your own contractor, but the lender will have to approve it, so pick someone who is qualified, licensed and bonded.


HomeStyle and 203(k) loans allow for the possibility of some DIY work, but you can't borrow money to pay yourself for your labor.


Loan fees, such as the origination fee and the appraisal fee, may be higher since renovation loans are more complex than a typical mortgage. For the same reason, closing may take 60 to 90 days instead of the typical 30 to 45 days.


Fannie Mae HomeStyle loans let you skip up to six monthly payments if you can't occupy the home during renovations, with the interest for those months added to the principal of the loan.

Advantages of a Fannie Mae HomeStyle® Renovation Mortgage

  • You can buy and renovate a home with one loan, which makes it easier for homeowners to buy a fixer-upper when they don’t have a lot of cash.
  • HomeStyle mortgages can also work for refinancing and may save you money if your current mortgage rate is high. With today’s low mortgage rates, you can not only save money on the existing debt if you are in a higher rate mortgage now, but you can get extra money to renovate or expand the home at a much better rate than if you used credit cards or vendor credit terms.
  • You have more housing inventory available to you. Instead of looking for a new home, you can start looking at some of the less desirable houses in the area you want to be in and use the renovation money to turn it into the home of your dreams.
  • As noted above, you can use these loans for investment properties or multi-unit properties where you plan to reside in one unit and rent out the rest.