A HomeStyle Renovation Loan allows borrowers to finance the purchase and renovation of a home into one convenient loan, simplifying the process of turning a fixer-upper into a dream home. Offered by Fannie Mae, this loan combines the home’s price and projected renovation costs, using an “as-completed” appraisal that estimates the property’s value after improvements.
How It Works:
- Identify a Property and Get Contractor Bids: You find a home needing repairs and obtain detailed, licensed contractor estimates for the planned renovations.
- Apply with a Lender: The loan amount includes the purchase price plus renovation bids.
- Appraisal Based on Planned Renovations: An “as-completed” appraisal predicts the property’s expected value after renovations.
- Loan Closing and Escrow Account Setup: The seller is paid for the home, and renovation funds are held in an escrow account managed by the lender.
- Incremental Payments to Contractors: Funds are released in draws after inspections of completed renovation phases.
- Final Inspection: Confirms renovation completion before leftover funds are applied to the loan principal.
Eligible Renovations: Must add permanent value and be affixed to the property. Common projects include kitchen remodeling, new roofing, HVAC upgrades, additions, and accessibility improvements. Even luxury items like swimming pools may qualify depending on local market standards.
Eligibility Criteria: Requires good credit (typically 620+), reasonable debt-to-income ratio (usually max 45%), and down payments starting at 3% for first-time buyers. It can be used for primary, second homes, and investment properties with varying down payment requirements.
Comparison With Other Options:
- Unlike the FHA 203(k) loan, HomeStyle allows financing of second homes and investment properties.
- Mortgage insurance is cancellable with HomeStyle after reaching 20% equity.
- The loan supports a wider range of projects, including luxury items.
For those familiar with concepts like Home Renovation Financing or Home Equity Line of Credit (HELOC), the HomeStyle Renovation Loan provides a single, consolidated mortgage solution that can simplify financing and budgeting.
Sources:
- Fannie Mae HomeStyle Renovation Loan (Fannie Mae’s official selling guide)
- Forbes Advisor: What Is A Fannie Mae HomeStyle Loan?
- NerdWallet: Fannie Mae HomeStyle Renovation Loan
For more on related mortgage concepts, see our articles on Home Renovation Financing and Home Equity Line of Credit (HELOC).
