In my work helping people finance and plan home renovations I’m asked what types of loans are available. Many times the first loan option that is known would be the FHA 203K. Previously I have written the top questions and answers on 203K at https://perryfarella.com/2014/09/top-20-questions-buyers-owners-ask-fha-203k-renovation-loans/ .
There is another rehab loan option called HomeStyle. Here I will answer the top 10 questions clients have asked me about HomeStyle. This option is a conventional loan guaranteed by Fannie Mae. It has nothing to do with FHA.
- Is mortgage insurance required with Homestyle as it always is with FHA 203K
- With a 20% down payment no mortgage insurance is required with Homestyle. With down payments less than 20% then private mortgage insurance is required.
- Can HomeStyle be used by an owner doing a home remodel where a mortgage is already present
- A HomeStyle loan can be used to fund a renovation for a home owner with an existing mortgage. The current mortgage would be rolled into the new HomeStyle mortgage along with the necessary funds for renovation. In other words, one new mortgage would be present, large enough to both pay off the previous mortgage(s) and add in funds for renovation. This is possible due to HomeStyle allowing the use of the final, “as completed” value of the home with all rehab work considered used as a basis for loan approval.
- Can a buyer or owner of a rental house use HomeStyle to secure funds for repairs and updates
- A real estate investor who does not live in a single unit property (single family house, condo or townhome) but leases it to tenants can use Homestyle for funds to renovate. This can occur at purchase time or later as a refinance HomeStyle mortgage.
- Can a buyer or owner of a vacation home or condo use a HomeStyle mortgage for repairs and updates
- A buyer or owner of a vacation home or condo, also known as a second home, can use a HomeStyle mortgage for renovation. In this case the down payment must be at least 10% of the purchase price and rehab funds taken together.
- Is HomeStyle allowed to be used for renovation of a high rise condominium unit
- HomeStyle can be used to renovate any Fannie Mae warrantable condominium unit or eligible PUD. When the property is a condominium, the rehab project must be one for which the proposed renovation work is permissible under the bylaws of the homeowners association or one for which the homeowners association has given written approval for the renovation work. The renovation work for a condominium unit must be limited to the interior of the unit.
- Can HomeStyle be used to purchase and renovate a multi-unit apartment building
- HomeStyle can be used for the purchase or refinance of a multi-unit building up to 4 units only if the owner will live in one of the units. Down payment for a 2 unit building is minimum 20% and for a 3 or 4 unit building 25% is required as a down payment. Real estate investors who lease out multi-unit buildings not occupying them cannot use a HomeStyle mortgage on these types of buildings.
- With HomeStyle can a buyer or owner add a few months of mortgage payments into the rehab portion of the loan to cover the monthly payments while the property cannot be occupied during rehab ?
- With HomeStyle a borrower may finance up to 6 months of mortgage payments, including escrows for taxes, homeowners insurance and any mortgage insurance, into the loan for a principal residence. This is only during the period the property cannot be safely occupied by the owner. In this way a borrower does not have to pay for double housing expenses during the rehab period when safe occupancy is not possible.
- Is it possible to use a HomeStyle mortgage to buy a 2 unit property and convert it to a single family home
- HomeStyle can be used to de-convert a multi-unit building of up to 4 units down to a lesser number of units or into a one unit single family home.
- What is a Contingency Reserve
- HomeStyle always requires a contingency reserve amount equal to 10% of the total costs of repairs and renovation to be established and funded to cover required unforeseen repairs or deficiencies discovered during the renovation. This contingency reserve may be financed into the loan or paid separately by the borrower. Any unused contingency reserve funds, unless received directly from the borrower, must be used to reduce the outstanding balance of the HomeStyle mortgage after all renovation work has been completed. An example is a $50,000 renovation cost will then have a $5000 contingency reserve requirement.
- What renovation costs can be included in the HomeStyle loan
- The renovation costs that can be financed into a HomeStyle mortgage include property inspection fees; costs and fees for title updates; architectural plans and Engineering fees; independent construction consultant fees; costs for required building Permits; fees for energy reports; appraisals; review of renovation plans; fees charged for renovation draw funds to be processed.
HomeStyle is a great and little known alternative to FHA 203K.
I hope this post has been helpful and encouraging to those that may have thought a Renovation project was too complex or beyond their ability to manage. My intent is always to inform, educate, and generate discussion. Please call me or email me directly or visit my website for more information on renovation loans. I welcome your comments and questions!