How to Finance Your Renovation with Fannie Mae Homestyle?

 How to Finance Your Renovation with Fannie Mae Homestyle? 

Fannie Mae Homestyle gives you the option to purchase and renovate the property through a single loan structure. It is an ideal option for investors and homeowners looking to rehab a property requiring work. 

We will discuss: 

• Why should you choose a Fannie Mae Homestyle loan? 
• Qualification and approval process
• Timeline
• Required documents

How Long Does It Take to Get Approved for a Fannie Mae HomeStyle Loan?

The approval process for a Fannie Mae HomeStyle loan typically takes 30-60 days, depending on your lender and how quickly you can gather the required documents. Here are the steps: 

1. Prequalification: Your lender will review your credit score, income, and debt-to-income ratio. After the pre-qualification phase, you will need to select a licensed and insured contractor to prepare a detailed scope of work and cost estimate. 
2. Appraisal: Lenders want to see your credit history, income, debt-to-income ratio, and projected value of the property after renovation. These figures give them an estimate of your ability to pay back the mortgage. 
3. Underwriting: Once a loan amount is determined, the lender will review the payment schedule. The lender will verify all documents to ensure the loan complies with Fannie Mae’s guidelines. 
4. Closing: Once approved, you’ll gain access to renovation funds held in escrow. The renovation work must be completed within 15 months after the loan is issued. 

How Much Down Payment Do I Need for This Loan?

The minimum down payment is 5% if you’re renovating your primary residence. For second homes or investment properties, the down payment can range from 10% to 20%, depending on the property type.

Which Documents are Required for a Homestyle Renovation Loan? 

Some of the required documents include: 

• Proof of income (pay stubs, tax returns, W-2s/1099s)
• Credit report
• Renovation plans and contractor bids
• Home purchase agreement (if applicable)
• Appraisal report estimating the property’s post-renovation value

Eligibility Requirements for Acquiring a HomeStyle Loan

Why Should I Choose a Homestyle Loan? 

If you’re tackling major renovations, especially for an investment or second property, the HomeStyle loan is ideal. It offers higher loan limits and more flexibility regarding renovation plans. You can even make luxury updates to the property without worrying about restrictions. 

Pros and Cons of Homestyle Loans

Pros: 

• You can finance luxury renovations like adding a swimming pool or barbecue area. 
• You receive a single loan with better terms compared to personal loans, credit cards, and even HELOCs. 

Cons:

• A homestyle loan has certain limitations. You cannot demolish a structure and reconstruct from scratch. You cannot make structural changes to create another unit. It’s not possible to turn a single-unit into a 2-unit property. 
• There is a small monthly mortgage insurance required, which can be removed if you have 20% equity in the house. There is no upfront mortgage insurance premium. 
• An HUD consultant will oversee the project if the total value of renovation exceeds $35,000. It takes longer to close on a Fannie Mae Homestyle loan because of the checks involved. 
• You need to act quickly if you want to use the Fannie Mae Homestyle loan. You will need to submit renovation proposal as soon as you file for the loan application along with the property information. All the renovation work must begin within 30 days of getting the loan amount. 

Can You Renovate Your Current Residence with a Homestyle Loan? 

A homestyle loan covers both the purchase and renovation. You must refinance your current mortgage if you want to qualify for the homestyle renovation program. Refinancing can come with high interest rates. If you have equity in the house, you can consider other financing options like a HELOC.