A prior article noted the characteristics of the FHA 203K but there is also a renovation loan with conventional financing known as Fannie Mae Homestyle Renovation. This is a conventional or non-FHA insured loan for both home buyers and home owners needing funds to rehab or remodel a property. A Homestyle renovation loan can be used to both purchase a property or refinance a property already owned.
The HomeStyle® Renovation Mortgage allows you to buy a home and repair or improve it with just one loan. You can also use it as a refinancing tool to refinance an existing mortgage and borrow funds for the improvement or repairs to the home you currently own. Funds used for renovation under this program are capped at 50% of the completed value of the home. The loan
amount is based on the “as-completed” value of the home rather than the present value.
The HomeStyle Renovation (HSR) mortgage provides a convenient and economical way for borrowers considering moderate home improvements to make repairs and renovations with a single-close first mortgage, rather than a second mortgage,home equity line of credit, or other, more costly methods of financing.
Renovations must be completed by an approved, third-party contractor. You cannot use a renovation loan to do your own remodeling. You will make full, principal+interest payments both during and after the renovation. Renovation must be completed within 6 months of the closing date, and you cannot use the program for renovations already in progress. These are standard underwriting guidelines for conventional renovation mortgages. They are valid only for primary residences and 2nd homes.
Fannie Mae sets the maximum loan amount for conventional loans each year. The minimum loan size is $50,000. Funds for the renovation cannot exceed 50% of the estimated completed value of the home. Renovation cost must be documented by a fully executed third-party builder contract.
As noted in the prior article the standard FHA 203(k) program, the borrower hires a consultant to assess the construction plan and to perform an inspection before each draw is made. A “draw” happens when a portion of the money is disbursed to the contractor. Borrowers have up to six months to finish the project and are allowed up to five draws. The HomeStyle program does not require a consultant to monitor the work, only an initial and final inspection.
Borrowers must choose his or her own contractor to perform the renovation. Lenders must review the contractor hired by the borrower to determine if they are adequately qualified and experienced for the work being performed. Plans and specifications must be prepared by a registered, licensed, or certified general contractor, renovation consultant, or architect. The plans and specifications should fully describe all work to be done and provide an indication of when various jobs or stages of completion will be scheduled (including both the start and job completion dates).
Those who don’t have great credit should probably opt for an FHA 203(k). Most Fannie Mae HomeStyle lenders require a credit score above 660. To get the best rate on a HomeStyle mortgage, borrowers need to have a minimum 740 credit score.
When looking to update that “fixer-upper” purchase or update your existing home be aware of all the programs available to you, it could expand your options when it comes to achieving your real estate goals or updating your existing home!