The Fannie Mae HomeStyle Renovation Mortgage is intended to assist home buyers in purchasing a home that needs work, often first-time home buyers. Basically, this kind of mortgage allows a home buyer to bundle the costs of buying with the remodeling/renovation expenses and make only a single monthly mortgage payment. These mortgages were also created, according to those in the financial arena, to help “lenders cope ‘with constrained housing supply and evolving borrower needs,’ since they allow buyers to purchase a home they may not be able to buy without additional financial help.” To help you figure out whether this is right for you, here is the Fannie Mae HomeStyle Loan explained for Rochester home buyers.
What Is a Fannie Mae HomeStyle Loan?
The Fannie Mae HomeStyle Loan provides a way for home buyers in Rochester to purchase homes that need work (sometimes a significant amount), and it can be used for almost any kind of renovations project. The only condition is that the improvements must be permanent. This kind of mortgage can also benefit lenders by helping them “save deals that may otherwise fall apart due to repair contingencies.” Just keep in mind that, in most cases, the renovations must be completed within at least 12 months of loan origination.
A Fannie Mae HomeStyle Loan, then, is a renovation loan backed by Fannie Mae and is available to both owner-occupied buyers and smaller buy-and-hold investors. Typically, these loans are used for purchasing owner-occupied residences of between one and four units. The loan is issued by a Fannie Mae approved lender for a period of 15 to 30 years with either fixed or adjustable interest rates. And most commonly the loan amount ranges from 65% to 95% of the purchase price, which means a down of 5% to 35% is required. Certain qualifying people, however, can borrow up to 105% of the combined CLTV ratio with no down payment.
On issuance of the loan, owners typically have 30 days to begin the renovations. In addition, the renovations must be performed by lender-approved professionals. But if the rehab project amounts to no more than 10% of the ARV, then the buyer can perform the work herself.
The buyer/owner can live in the property during the renovation. Or she can live elsewhere after arranging for an escrow account to pay the mortgage and insurance during that period. At the end of the day, though, this is an owner-occupied mortgage and renovation.
Covered Renovations with a Fannie Mae HomeStyle Loan
The renovations covered by a Fannie Mae HomeStyle Loan for Rochester home buyers must be value-adding improvements and include:
- Plumbing and electrical
- Energy efficiency improvements
- Certain cosmetic updates like new flooring
- Structural changes (moving or removing a load-bearing wall, for instance)
These loans do not cover luxury improvements like a pool, but do cover a broad range of improvement expenses, for example:
- Fees for designers, architects, engineers, and contractors
- Materials and labor
Who Is This Loan Best Suited For?
The Fannie Mae HomeStyleLoan is best suited for two kinds of Rochester home buyers: 1) new and existing homeowners who want to buy and renovate a primary residence and 2) smaller buy-and-hold investors seeking to buy and renovate a second home or a single-unit investment property.
The limitations are that these loans are long-term options for financing and investors can buy only one investment property. Other loans are a better option for investors who want to buy more than one investment property.
Pros and Cons of Fannie Mae HomeStyle Loan
The pros of using a Fannie Mae Homestyle Loan for Rochester homebuyers, according to a top financial site, are:
- Allows you to buy and renovate a home with a single loan, which is an advantage for those with little cash
- Is a good option for refinancing when your current mortgage rate is high
- Increases the housing inventory when you’re looking to buy because you aren’t limited to properties in good repair
- Is a good option for investors who intend to live in the property
- Cannot be used for demolition and reconstruction
- Borrowers must submit a construction plan for approval, which can delay the closing
- Not all lenders offer Fannie Mae HomeStyle Loans
- Closing usually takes longer than with a traditional mortgage
Talk To Your Local Real Estate Professional
A Fannie Mae HomeStyle Loan can be a great option for Rochester home buyers. It can also be the wrong avenue for a home loan for many people. This kind of nontraditional loan can certainly be a boon for home buyers who can’t come up with a lot of cash for a down payment and for repairs. But if you’re an investor, there are also definite limitations. Your best course, then, is to talk to your local real estate professional to see if it’s the right option for you.