Are you thinking of buying a fixer-upper? Perhaps you’re considering improvements to your current home. One unique loan can help you with both scenarios and more.
What is a HomeStyle Renovation Loan?
With a traditional mortgage, one can’t borrow more than a home is worth. And that may mean renovations require a separate loan. With separate closing costs. Not so with Fannie Mae’s HomeStyle® program, which allows borrowers to purchase or refinance a home and roll the renovation expenses and the closing costs into one loan.
This all-in-one loan combines elements of a construction loan and a traditional 30-year mortgage. The lender disburses the money for the home’s cost at closing. The funds for the renovations go to a bank for future disbursement to an approved contractor.
What types of improvements are eligible?
All kinds! Unlike other government-sponsored renovation loans, Fannie Mae’s program has few restrictions.
You could upgrade your kitchen with new appliances, flooring, and cabinets. Maybe you’d like to convert your garage or basement into a recreation room. Put solar panels on the roof and landscape your exterior. Larger projects, such as the construction of an addition or a detached unit to rent, are also permitted. As are luxury features — you can install a swimming pool or an outdoor kitchen with this loan. And so much more!
What can’t you do? Teardowns, defined as removing the shell of a home down to the foundation, are not allowed. Building another residential dwelling on the property is also not permitted.
What types of properties may be eligible?
One could use this loan for a single-family home, a townhome, a condo, an investment property, a property with two to four units, or a second home. Got a serious fixer-upper in mind? It doesn’t need to be habitable. With the HomeStyle Renovation loan, a borrower can finance up to six months of principal, interest, taxes, and insurance payments in the renovation financing. So you can live elsewhere while the work is underway.
What else do I need to know?
Any repairs or improvements you have in mind must add value and be attached to the property. This is a fixed-rate program, and borrowers need to have credit scores of at least 620.
So don’t let some needed work sway you away from that otherwise perfect dream home.