Home Purchase Financing Options in Case you want to Know

HomeStyle® Renovation - The Conventional Alternative to an FHA 203k

With all of the foreclosures, there has definitely been a demand for rehabilitation loans to help homeowners not only purchase but make improvements to the home they are purchasing. Many have turned to the FHA 203k program which can include the amount of the repairs in the total loan amount. Your payment is based on the total loan amount,for example: you buy a home and your loan is for for $100,000, and there are $50,000 in repairs. Under this program you can finance the $50,000 and your payment is based on the $150,00 loan amount. However, the 203k program has limitations not found with Fannie Mae's Homestyle Renovation loan.

What types of properties qualify for a Homestyle Renovation Loan?

Owner Occupied, Second Homes and Investment Properties are all eligible. Manufactured Homes are not eligible for this product. Owner Occupied properties are for 1-4 units. Second Homes and Investment Properties are for 1-unit properties only.

How much of a down payment is required?

1-2 unit Owner Occupied and 1 unit Second Homes are eligible for a 5% down payment. 3-4 unit Owner Occupied and Investment Properties require a 20% down payment. Down payments less than 20% are subject to mortgage insurance availability.

Are there any limitations to the amount of improvements that can be financed into the loan?

The maximum amount of improvements allowed is 50% of the estimated value of the home taking into account the improvements to be made.

Are the types of repairs allowed restricted to only certain items?

No. Fannie Mae does not limit what the renovations can be. However, the renovations must increase the value of the home to be eligible.

How are costs of renovations determined and is a contractor required?

Costs of renovations are documented via the contractors’ itemized bid for the work to be completed and by the plans and specifications provided by the contractor. "Do it yourself" projects are allowed provided the cost of improvements does not exceed 10% of the as completed value of the property and the homeowner is able to show they are reasonably qualified to do the work. Not all lenders will allow "Do it yourself".

How are the construction funds disbursed and what are my payments during the rehab?

At the time of closing, the loan is fully advanced with construction funds being held by the lender. The funds are distributed by the lender upon completion of the work and are subject to inspection and title update. Payments are full P&I(principal & interest) payments from day one. Unlike a traditional construction loan, there are no “interest only” payments during construction; clients begin making the complete payment even though the entire loan may not be disbursed yet. Clients who cannot immediately occupy the home can in some cases, finance a payment reserve to cover mortgage payments while they are unable to occupy the home.