Fannie Mae’s HomeStyle Renovation Loan Process (2024)

What is a Fannie Mae HomeStyle renovation loan?

Fannie Mae’s HomeStyle renovation loan combines the costs of buying or refinancing a home, and renovation expenses into one loan. It offers advantages such as lower costs compared to credit cards or personal loans for upgrading fixer-upper homes. This loan allows you to pay for renovations as they are completed and potentially borrow more than cash-out refinance guidelines allow. In summary, the HomeStyle loan simplifies financing and offers flexibility for comprehensive home renovations.

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Fannie Mae HomeStyle Renovation Loan Benefits

• For first-time buyers planning to live in the home, a down payment as low as 3% is possible. However, manufactured homes, multi-family units, and second/investment properties require higher down payments.
• Repeat buyers can qualify for a 3% down payment by combining HomeStyle with the HomeReady loan.
• The appraiser will assess the home based on its future value after the renovation work is done.
• While you can handle some of the renovation work yourself, licensed professionals are necessary for safety-critical tasks. All work will be inspected, and renovations may not be more than 10% of the “as completed” value of the property.
• If you can’t live in the home during renovations, you can add mortgage payments to the loan balance until you move in (with time limits).

Fannie Mae HomeStyle Renovation Loan Process

While renovating a home can seem tiresome and time consuming, the loan process shouldn’t be! When you use Fannie Mae’s HomeStyle Renovation Loan, you are using a product that will be closed in three simple phases.

One: Review Plans and Loan Preparation

• Review HomeStyle loan terms and fees.
• The borrower works with a contractor, and in most cases, a HUD consultant, to submit renovation plans to the lender.
• The appraiser reviews the plan and determines an “as-compared” value.
• Lender uses Maximum Mortgage Worksheet (form 1035) to determine mortgage amount.

Two: Manage Funds Through Renovation

• Lender sells loan to Fannie Mae.*
  • *Must be an approved HomeStyle Renovation Lender to sell the loan prior to project completion.
• Lender places funds in a custodial account.
• Contractor begins work and submits requests for funds.
• Lender manages draws based on inspections.

Three: Finalize Loan Completion

• Lender orders final inspection.
• Title company updates title policy (completion materials).
• Lender finalizes and submits completion materials and certificate of occupancy to Fannie Mae.
• Lender removes recourse (if sold prior to construction completion) or sells loan to Fannie Mae.

How To Apply For A Fannie Mae Homestyle Renovation Loan

If you’re interested in applying for a Fannie Mae Homestyle Renovation Loan through Direct Mortgage Loans, then here is an overview of the steps in the process:

1. Speak with a Direct Mortgage Lender: Reach out to one of our expert Loan Officers to set up a no-obligation call to discuss your home renovation goals and specific financial situation.
2. Gather Documents and Submit Application: The next step includes gathering all documentation needed for your loan application including proof of income, asset documentation, bank statements, and information about the property you are renovating. After this, fill out the application provided by your lender.

How To Find Fannie Mae Homestyle Loan Lenders Near Me

Direct Mortgage Loans offers Fannie Mae HomeStyle loan options. For more information or to explore these loan options, contact one of our expert mortgage lenders near you.

FAQ’s About Fannie Mae Homestyle Renovation Loan

What is the maximum loan amount for a Fannie Mae HomeStyle renovation mortgage?

The Fannie Mae HomeStyle Renovation mortgage maximum allowable loan-to-value (LTV)/CLTV/and HCTLV ratio has been increased to 97% for 1-unit, principal residence, purchase and limited cash-out refinance transactions. *

Can a HomeStyle renovation loan be done as a refinance?

The HomeStyle renovation loan can provide borrowers with the option to finance their home improvements through a refinance. This loan allows for a limited cash-out refinance, where cash can only be utilized for renovations and cannot be directly disbursed to the borrower, distinguishing it from other Fannie Mae limited cash refinances. The lender is required to distribute the remaining funds to the borrower using one of two methods:

1. Reduce the principal balance.
2. Make additional permanent changes to the property that enhance its value.

What credit score is needed for a Fannie Mae HomeStyle renovation Loan?

To qualify for a Fannie Mae’s HomeStyle loan, a minimum credit score of 620 is required, and the maximum debt-to-income (DTI) ratio allowed is 45%. These criteria are stricter compared to the government-backed FHA 203(k) program, which only requires a FICO Score of 580.

Are there any limitations on the types of renovations that can be financed with the HomeStyle renovation loan?

The HomeStyle renovation loan provides borrowers with great flexibility as there are no specific limitations on the types of renovations that can be financed. It allows for a wide range of projects, including completing work on a new home, addressing non-structural items, financing outdoor structures within local codes, and making energy-related improvements. The loan offers freedom and versatility to meet various renovation needs.

What is the income limit for the Fannie Mae HomeStyle renovation loan?

The Fannie Mae HomeStyle Loan allows borrowers to borrow up to 95% of a property’s after-renovation value, subject to Fannie Mae’s maximum loan limit. In most areas, the maximum loan limit is set at $548,250. However, in high-cost markets, the limit is increased to $822,375. This provides borrowers with the opportunity to finance a significant portion of the property’s value to support their renovation plans.

Can the Fannie Mae HomeStyle Loan be used for investment properties?

Yes, the Fannie Mae HomeStyle Loan can be used for investment properties. This loan program is not limited to primary residences and can be utilized for financing renovations on various types of properties, including investment properties. Whether you plan to renovate a rental property or a property you intend to sell, the HomeStyle Loan offers flexibility and financing options to improve the investment property and increase its value. It provides investors with an opportunity to fund renovations and upgrades, enhancing the appeal and profitability of their investment properties.

Direct Mortgage Loans provides a wide array of renovation loan programs to choose from, offering options for various types of renovation projects. Take advantage of our variety of loan programs that best suit your specific project and financial needs.