If you are buying a fixer-upper or planning major improvements to your current home, paying for the property and the renovations separately is not your only option. A Fannie Mae HomeStyle Renovation mortgage can combine eligible renovation costs with a home purchase or refinance into one mortgage.
This approach can be useful for borrowers who want to improve a property soon after closing without relying on a separate home equity loan, HELOC, or other financing. Like any renovation mortgage, however, it comes with specific property, contractor, appraisal, and project requirements.
How Does a HomeStyle Renovation Loan Work?
A HomeStyle Renovation mortgage allows eligible borrowers to finance the home and qualifying improvements together. It can be used when purchasing an existing property or completing a limited cash-out refinance of a home you already own.
The renovation funds are managed through the loan process and released for approved project expenses according to program and lender requirements. After the work is finished, the lender must obtain documentation confirming that the renovations were completed according to the approved plans and specifications.
What Improvements Can You Finance?
HomeStyle Renovation offers considerable flexibility. Fannie Mae does not require a particular type of renovation or a minimum renovation dollar amount. Improvements generally need to be permanently attached to the property, with limited exceptions for certain appliances included in a larger remodeling project.
Eligible projects can include:
- Kitchen and bathroom remodeling
- Roof, window, and HVAC replacement
- Energy and water efficiency improvements
- Home additions and additional living space
- Disaster resiliency improvements
- Landscaping and other eligible property improvements
The planned work must comply with applicable state and local laws, permits, and building codes.
What Properties Can Use HomeStyle Renovation?
HomeStyle Renovation can be used with several property and occupancy types when Fannie Mae requirements are satisfied. Depending on the transaction, eligible properties can include one-unit primary residences, two-to-four-unit primary residences, eligible second homes, one-unit investment properties, condos, and certain manufactured homes.
Property type affects allowable financing and other requirements, so eligibility should be confirmed before making an offer based on renovation financing.
How Much Can You Finance for Renovations?
For a purchase transaction, the renovation portion is generally limited to 75 percent of the lesser of the purchase price plus renovation costs or the property's appraised value after the renovations are completed.
For an eligible refinance, renovation financing is generally limited to 75 percent of the property's completed appraised value. Different limitations apply to manufactured homes.
This is why the appraisal is especially important with a renovation mortgage. The lender is considering not only the home's current condition but also its expected value after the approved work is completed.
Can You Buy With as Little as 3 Percent Down?
HomeStyle Renovation can allow financing up to 97 percent loan-to-value for certain one-unit primary residence purchase transactions with a fixed-rate mortgage. This can translate to a down payment as low as 3 percent for eligible first-time homebuyers or when HomeStyle Renovation is combined with an eligible HomeReady mortgage.
A 3 percent down payment is not available for every borrower or property. Occupancy, property type, mortgage structure, underwriting, and other eligibility requirements affect the maximum financing available.
Can You Do the Renovation Work Yourself?
HomeStyle Renovation is designed around an approved renovation plan and contractor process. Fannie Mae allows borrower-performed work in limited circumstances, but restrictions apply and lenders may establish additional requirements.
If you are planning substantial DIY work, discuss it with your lender before choosing this financing. Do not assume the value of your own labor can be counted toward the project budget or reimbursed after completion.
What Should You Consider Before Choosing a Renovation Loan?
A renovation mortgage can simplify financing, but the project requires more planning than purchasing a move-in-ready home. You will need a realistic renovation scope, budget, contractor plan, and timeline that satisfy applicable requirements.
Unexpected repairs can also occur after work begins. Depending on the property and transaction, a contingency reserve may be required or established to address unforeseen renovation expenses.
Florida buyers should also consider insurance, flood exposure, permitting, roof condition, and contractor availability when evaluating a property that requires significant work.
HomeStyle Renovation vs. FHA 203(k)
HomeStyle Renovation is not the only mortgage that can combine real estate and renovation financing. FHA's 203(k) program can also finance the purchase or refinance and rehabilitation of an eligible property through a single FHA-insured mortgage.
FHA offers a Standard 203(k) for major rehabilitation and a Limited 203(k) for smaller repair and improvement projects. The better option depends on the borrower, property, renovation scope, available financing, and applicable program requirements.
Is a HomeStyle Renovation Loan Right for You?
A HomeStyle Renovation mortgage can be a useful option when you find a home with the right location or potential but it needs significant updates. It can also provide existing homeowners with a way to refinance and include qualifying renovation expenses in the new mortgage.
Before choosing this approach, compare the mortgage payment, renovation budget, cash required at closing, project requirements, and alternative financing options.
Loan Wolf Lending can help Florida homebuyers and homeowners determine whether a HomeStyle Renovation mortgage or another renovation financing option fits their plans. Call 754-755-3075 to discuss your project.