Fannie Mae HomeStyle Rehab Mortgage

The Loan Tree is New Jersey’s leading provider of Fannie Mae HomeStyle mortgages for the past 30 years.  The Fannie Mae HomeStyle Renovation Mortgage program enables borrowers to purchase a home that needs repairs, remodeling or renovation. The program also allows for the refinance of an existing mortgage while providing additional funds for renovating the property with one low fixed rate mortgage.
One of the many benefits of the HomeStyle program include being able to use the “after improved” appraised value to calculate your maximum mortgage amount that can be provided to you.  Unlike other sources of funding that only use the “current value” of your home, the HomeStyle provides up to 95% of the “after improved” value which means that more renovation projects will become a reality.
It can be exhausting finding a suitable home for sale that combines must-have and comfort features that will hold up long enough for the mortgage to close. Disrepair, energy inefficiency, and questionable code compliance can take a home with a great location and affordable price right out of the mix. Seniors and their children also may have trouble finding a suitable home where they can age in place without having to make costly renovations. As the housing stock dwindles, consumers may wish to consider a HomeStyle Renovation mortgage from Fannie Mae that includes the cost of necessary upgrades and improvements in the overall mortgage. A single mortgage can add up to lower closing costs and lower rates. Previously, consumers had to turn to second mortgages and home equity loans to pay for energy upgrades or renovation projects after they had already purchased the home with a first loan. 
If the residential property being considered for purchase by the buyer is in need of repairs and the scope of the work to be done exceeds the Fannie Mae HomeStyle $15,000 threshold, then the following essential steps involves the involvement of a HUD-accepted HomeStyle Consultant.  Should the work amount not exceed the $15,000 threshold, then a Consultant is not necessary.

Eligible properties include:

  • Principal residences, one to four units
  • Single-unit second homes
  • Condos and Townhomes
  • Single-unit investment properties

Manufactured or mobile homes are not eligible.

Types of renovations mortgages include:

  • 15- and 30-year fixed-rate mortgages

Note from Fannie Mae: “The original principal amount of the mortgage may not exceed Fannie Mae’s maximum allowable mortgage amount for a conventional first mortgage.”

Qualifying and down payment requirements:

In general, there is a 5 percent minimum down payment stipulation on these Fannie Mae purchase loans. Unlike other loan products, HomeStyle mortgages are based on the “after improved” value assuming that the renovations and upgrades have already been completed. Using this more favorable value based on documented plans from your approved General Contractor and Consultant, The Loan Tree can insure can ensure that the mortgage covers all of your projected renovations. Moreover, funds for the improvements won’t be released for homeowners/contractors until the work is certified complete by an inspection. ALso, 

Down payments can vary above the 5 percent minimum based upon the property type, number of units and property use. That’s why it makes sound advice to call The Loan Tree for assistance in navigating the approval process. Currently, applicants for a HomeStyle mortgage for one family owner-occupied homes find down payments of 5 percent for a purchase transaction.  The down payment requirement pertains to 5 percent percent of the purchase price, the renovation costs and the required renovation reserve requirement.

Getting the upgrades done on time:

When it comes to renovations, the HomeStyle mortgage offers a generous range of costs for inclusion in the loan including:

  • Architects/designer expenses (if applicable)
  • Consultant fees
  • Engineering and design updates
  • Required inspections
  • Permit fees
  • Renovation project reserves

All renovations performed under a HomeStyle mortgage must be done by your chosen General Contractor who is properly licensed, properly insured and has been approved by the lender.  General Contractors and Architects with professional licenses and credentials will be required to prepare the necessary drawings and plans as part of the loan approval process. This assists underwriters in their determination of completed value as well as whether the proposed improvements are cost effective.

Once the loan closes, the work must begin within 30 days and must be completed within 6 months. A HomeStyle Consultant or appraiser will inspect all work and submit a completion certificate to Fannie Mae before funds can be paid to your general contractor for that completed phase of the work. Any unused renovation reserves left over after the renovations are completed can be used for additional work or be paid as a principal reduction of the mortgage.

What to do while the work is underway:

If the Consultant determine that the property is uninhabitable during the renovation phase, up to 6 months mortgage payments may also be financed into the new mortgage to pay for the principal and interest, the homeowner’s insurance and property taxes without disruptions.

What’s the Difference Between the HomeStyle Mortgage and FHA 203k Loans?

Fannie Mae HomeStyle and FHA 203k mortgages both offer the ability to finance improvements in concert with a purchase or refinance of your home. The HomeStyle loan’s minimum down payment is around 5 percent, while FHA 203k’s is only 3.5 percent. While the FHA 203K allows for mortgage amounts up to 110% of the “after improved” value of your home, the Homestyle is capped at only 95%.  The HomeStyle also typically requires higher qualifying credit scores but feature lower closing costs than those commonly charged on FHA 203k loans.

What makes the HomeStyle program so unique is that it allows for the financing of primary residences, second homes as well as 1 unit investment properties. As with a FHA 203K mortgage, the borrower must use approved, licensed professionals to do the renovation work.

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