HOMESTYLE® RENOVATION MORTGAGE
The HomeStyle Renovation mortgage enables a borrower to obtain a purchase transaction mortgage or a limited cash-out refinance mortgage and receive funds to cover the costs of repairs, remodeling, renovations, or energy improvements to the property. The mortgage may be delivered to Fannie Mae prior to completion of the renovation, subject to limited recourse as described below.
There are no required improvements or restrictions on the types of renovations allowed or a minimum dollar amount for the renovations. Renovations, however, must be permanently affixed to the real property and add value to the property.
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.
The HomeStyle Renovation is a single-close loan that enables borrowers to purchase a home that needs repairs, or refinance the mortgage on their existing home and include the necessary funds for renovation in the loan balance. The loan amount is based on the “as-completed” value of the home rather than the present value.
Renovation-related costs considered as part of the total renovation costs include:
property inspection fees;
costs and fees for the title update;
architectural and engineering fees;
independent consultant fees;
costs for required permits; and
other documented charges, such as fees for energy reports, appraisals,
review of renovation plans, and fees charged for processing renovation draws.
a one- to four-unit principal residence,
a one-unit second home, or
a one-unit investment property.
The property type for securing a HomeStyle Renovation mortgage may be a unit in an eligible PUD, condo, or co-op project. Manufactured homes are not permitted. When the security property is a unit in a condo or co-op project, the project must be one for which the proposed renovation work is permissible under the bylaws of the homeowners’ association or co-op corporation or one for which the homeowners’ association or co-op corporation has given written approval for the renovation work. The renovation work for a condo or co-op unit must be limited to the interior of the unit, including the installation of firewalls in the attic.
HomeReady Eligibility. HomeReady mortgage loans are eligible in combination with HomeStyle Renovation; however, the more restrictive requirements of HomeReady or HomeStyle Renovation apply when these two products are combined on a loan. For example, a HomeReady HomeStyle Renovation mortgage must be a principal residence transaction, whereas standard HomeStyle Renovation permits second homes and investment properties.
Mortgage Terms. A HomeStyle Renovation mortgage may be either a fixed-rate mortgage or an ARM loan. The original principal amount of the mortgage may not exceed Fannie Mae’s maximum allowable mortgage amount for a conventional first mortgage. Fannie Mae provides HomeStyle Renovation Maximum Mortgage Worksheet (Form 1035), to assist lenders in calculating the maximum loan amount. The cost of renovations is limited to 50% of the “as completed” appraised value of the property.
Limited Cash-out Transactions. When a HomeStyle Renovation mortgage loan is originated as a limited cash-out refinance transaction, the mortgage amount may include the amount required to satisfy the existing first mortgage, the amount required to satisfy any outstanding subordinate mortgage liens that were used to acquire the property, closing costs, prepaids, points, and the total renovation costs, including allowable renovation-related costs for the home improvements up to the maximum permitted LTV and CLTV ratios. However, the borrower may not obtain any other funds from the transaction, including those that are generally allowed for a limited cash-out refinance transaction. Excess funds, if any, after renovations are completed, may be applied to the loan balance as a curtailment or may be reimbursed to the borrower for the cost of actual supplies or additional renovations for which paid receipts are provided. The value of sweat equity may not be reimbursed.
Getting Approved For A HomeStyle® Mortgage. The HomeStyle® mortgage is available via any Fannie Mae-approved mortgage lender, which means that you can get a HomeStyle® loan just about anywhere. However, you'll want to be sure that you meet the program's minimum standards. Fannie Mae's guidelines specify that mortgage borrowers must show a minimum credit score of 620 in order to be approved for a HomeStyle® loan. However, that minimum requirement applies to loans for primary residences only. For borrowers using HomeStyle® on a second home or investment property, the minimum credit score required is 700. You'll also want to make sure you meet minimum down payment requirements. For borrowers with good credit, the HomeStyle® mortgage allows a downpayment of just five percent, which is just short of the FHA 203k minimum downpayment requirement of 3.5 percent. However, this applies to 1-unit homes only. Down payment minimums for second homes and investment properties are slightly higher.
HomeStyle®: A Single-Close Home Construction Loan. Planning some home construction? Rather than pay by cash, consider Fannie Mae's HomeStyle® loan -- a quick and simple construction loan to help finance your home improvements.
The HomeStyle® Mortgage is Fannie Mae’s version of the FHA 203k rehab loan. It's a convenient and economical way to make moderate repairs and renovations to your home via a "single-close" mortgage. With the HomeStyle® loan, there's no second mortgage involved, no lingering home equity line of credit (HELOC), and no need to pay a second set of closing costs. There's also no need to occupy the home you're rehabbing. Fannie Mae allows the use of HomeStyle® Renovation loan for vacation homes and investment properties.