Homeowners planning on making home improvements may look at a home equity loan to help fund their renovation, but home equity loans are not the only loan options available.
You may be asking, “What if I’m looking to purchase a home that happens to need a little love, remodeling, or a complete rehab, what loan may be best for me”?
In both of these examples, there is another type of loan that is specifically crafted to cover home improvement on a refinanced or new property. This type of loan is known as “Fannie Mae’s HomeStyle Renovation Mortgage”.
A home-style renovation mortgage is a loan that is backed by the federal government, which allows borrowers that are qualified to add additional funding to their loan, mortgage refinancing, or mortgage for home improvements or remodeling.
The loans are supposed to provide a “convenient and economic” method for home buyers, homeowners, and investors to fund moderate or minor home improvements through a single close mortgage or refinance, rather than having to apply for another mortgage, or home equity credit line or alternative more expensive finance choices, based on Fannie Mae. The amount of the loan is contingent upon the “as-completed” future value of the property after the renovations or repairs have been completed, rather than the “present value” of the property.
Key Advantages of a HomeStyle Loan
Perhaps one of the elements that make these loans so attractive is that they can help make equity in the property almost instantly. Homestyle renovation loans may help cover energy efficiency improvements and design upgrades, the cost of inspection, contractor and builder expenses and so much more.
The loans are usually 15 or 30-year fixed rate mortgages or an ARM (adjustable rate) mortgages. This system’s benefits include flexibility and very low priced payments, the borrower’s availability to avoid extra fees and closing costs associated with carrying out another mortgage, and the initial payment is often around 5 percent. Homestyle loans usually have much lower interest rates, that can be as low as 5 to 7 percent, unlike other loan counterparts…..
Not all banks are capable to offer homestyle mortgages. Lenders have to be accepted by Fannie Mae, and meet financial and operational requirements and have a minimum of 2 years or more experience in originating renovation loans and mortgages in the last 5 years.
Exactly What Are The Requirements Of A Homestyle Loans?
Properties that are eligible for homestyle loans include the following:
- Single Family Residences
- 2 to 4 Unit Primary Residences
- Single Unit Investment Properties Such As Co-Ops and FNMA Approved Condos
- Manufactured Housing
Borrowers that are eligible for a homestyle loan are:
- Nonprofit organizations
- A Local Government Agency
- Individual Home Buyers
Nonprofit organizations must provide additional documents that prove their ability to pay back the loan. Respective recipients considering a homestyle loan should have a credit score of 620 or higher and have DTI (debt to income) ratio of 50%.
These type of homestyle loans require any renovations be done by contractors and architects that are approved, and might possibly be asked to present plans and suggestions before the loan is to be approved. The goal is to make certain that the home advances are economical, and all documentation helps lenders compute the value of the property value “as completed”. Borrowers using owner-occupied homes that are “single unit dwellings” are allowed to complete some work if it is allowed by the lending company as long as the financing for the “do it yourself” part of their job is significantly less than ten percent of the “as completed” value of the property.
When you are submitting the plans to any lenders, general contractors have to be specific in regards to the exact timeline of the project. Renovations must be done within 6 months of closure and any energy efficient improvements need to be performed inside one hundred days. Once the task has been finished, the lending company will seek the services of an appraiser to inspect and report back to Fannie Mae before contractors are all paid.
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All loans are subject to underwriting or investor approval. Other restrictions may apply. This is not an offer of credit or a commitment to lend. Guidelines and products subject to change.