The real estate market is very competitive, and many people struggle to find the perfect move-in-ready home at an affordable price. Potential homebuyers find homes with untapped potential, such as properties that need renovations, that enter the market at affordable prices.
For current homeowners, aging properties often require updates and home improvements to improve functionality and energy efficiency or match evolving lifestyle needs, which is a service not covered by traditional loans. Enter the Fannie Mae (FNMA) HomeStyle Renovation loan, a powerful financing tool that’s perfect for this.
What Is a FNMA HomeStyle Renovation Loan?
The Fannie Mae HomeStyle Renovation loan is a conventional mortgage consumer product that allows borrowers to finance both the home purchase (or refinance) and the cost of renovations with a single loan.
Traditional mortgages only cover the purchase price of a property. The HomeStyle mortgage loan incorporates the home’s projected value after renovations have been completed and lets first-time homebuyers finance more extensive improvements.
As a conventional loan product, the HomeStyle Renovation loan follows Fannie Mae’s guidelines but isn’t directly issued by Fannie Mae. Fannie Mae is a government-sponsored enterprise (GSE) that purchases these mortgages from approved lenders.
How HomeStyle Renovation Loans Work
The Renovation Loan Structure
The loan is structured to cover the property’s purchase (or refinance) and planned renovations. The loan amount is based on the lesser of:
- The purchase price of the home plus renovation costs, or
- The “as-completed” appraised value of the property (the projected value after renovations)
For most owner-occupied, single-family homes, borrowers can finance up to 97% of this value, which means down payment requirements are as low as 3% for qualified borrowers.
The Three-Phase Process
The HomeStyle Renovation loan follows a structured three-phase process:
Phase 1: Preparation
First, the borrower selects a qualified contractor and submits detailed renovation plans to the lender. The lender reviews these documents to verify the project meets all requirements and orders an “as-completed” appraisal to determine the home’s projected value after renovations. This appraisal is necessary as it establishes the maximum mortgage amount and confirms the loan-to-value ratio.
Phase 2: Renovation
Once approved, the loan closes, and renovation funds are placed in a custodial account. The lender and borrower execute a Renovation Loan Agreement outlining the renovation process’s terms and conditions. As work progresses, the contractor submits draw requests, and the lender manages the distribution of funds based on completed work that has passed inspection.
Phase 3: Completion
When renovations are complete, the lender orders a final inspection. The appraiser signs a completion certificate, which the lender provides to Fannie Mae. The lender checks that there are no additional liens on the property, submits required documentation to remove recourse provisions, and closes the renovation escrow account. Any remaining funds are applied to reduce the loan’s principal balance.
Timeframe for Completion
All renovations must be completed within 15 months of loan closing. This timeframe tightens the project’s progress but gives homeowners sufficient time for substantial renovations.
Who Needs a HomeStyle Renovation Mortgage?
Homebuyers Looking at Fixer-Uppers
The HomeStyle loan is a good solution for those looking to purchase a home that needs work. It answers the common dilemma of financing the purchase and renovations without depleting savings or resorting to high-interest financing options.
Current Homeowners Needing Renovations
Existing homeowners can use the HomeStyle Renovation loan to refinance their current mortgage and include funds for renovations, such as updates, repairs, or modernization of the layout and functionalities.
Investors and Property Developers
The HomeStyle Renovation loan can also be used for investment properties and second homes. It’s a good option for purchasing, renovating, renting, or reselling properties. The loan’s competitive interest rates compared to other investment financing options can improve returns on investment.
Multi-Generational Families
Families looking to create spaces for multiple generations under one roof can use the HomeStyle Renovation loan to finance additions such as in-law suites, accessory dwelling units (ADUs), or basement apartments. The loan program offers flexible renovation options to support this growing housing trend.
Requirements for HomeStyle Renovation Loans
Credit Score Requirements
Borrowers need a minimum credit score of 620 to qualify for a HomeStyle Renovation loan. Higher credit scores generally result in better interest rates and more favorable loan terms. This minimum score requirement is higher than some government-backed renovation loans.
Down Payment Requirements
When combining HomeStyle with the HomeReady program, qualified borrowers may be eligible for a down payment as low as 3% on a single-family primary residence. Standard HomeStyle loans require a minimum down payment of 5%.
Down payment requirements increase for other property types. For example, the down payment for second homes is 10% and reaches 15% for investment properties. Lenders can request higher down payments for multi-unit properties (2-4 units).
Debt-to-Income Ratio (DTI)
Lenders require borrowers to have a debt-to-income ratio of 45% or lower. Your monthly debt payments, including the new mortgage payment, should not exceed 45% of your gross monthly income. Some flexibility may exist for borrowers with strong compensating factors such as an excellent line of credit or substantial cash reserves.
Loan Limits
HomeStyle Renovation loans are subject to the same conforming loan limits as other Fannie Mae mortgages. For 2025, these limits are $806,500 for single-family homes in most areas and up to $1,209,750 in high-cost areas. Loan limits are higher for multi-family properties (2-4 units).
The total loan amount, including home purchase/refinance and renovation costs, must fall within these limits.
Contractor Requirements
Most HomeStyle Renovation projects require work to be completed by licensed, insured contractors approved by the lender. Contractors must provide detailed plans, specifications, and cost estimates that the lender will review. DIY work is permitted on one-unit properties for qualified borrowers, but it cannot exceed 10% of the “as-completed” value, and the lender must review and approve all plans.
Property Eligibility
Eligible property types include single-family homes, condominiums (with certain restrictions), PUDs (Planned Unit Developments), 1-4 unit properties, and manufactured homes (with limitations). These loans can also finance second homes and investment properties.
Benefits of HomeStyle Renovation Loans
One Loan, One Closing
The most significant benefit is that borrowers can finance home purchases and renovations with a single loan. They pay closing costs once and make one monthly payment for their mortgage. This streamlined process results in overall cost savings compared to getting separate loans.
Competitive Interest Rates
As a conventional loan product, HomeStyle Renovation loans generally offer more competitive interest rates than alternatives like FHA 203(k) loans, personal loans, or credit cards.
Flexible Renovation Options
The HomeStyle program allows for various renovation projects, from basic repairs and cosmetic updates to significant structural changes. Unlike some government-backed renovation loans, HomeStyle permits “luxury” improvements such as swimming pools, outdoor kitchens, and landscaping, provided they are permanently affixed to the property and add value.
Higher Loan Limits
The conforming loan limits applicable to HomeStyle Renovation loans are usually higher than those for FHA loans. Thus, borrowers can finance more expensive properties or more extensive renovation projects.
Property Type Flexibility
The program accommodates different property types, including investment properties and second homes.
Potential for Increased Home Value
An FNMA loan can boost a property’s functionality, energy efficiency, or look. Borrowers can potentially increase their home’s value beyond the cost of renovations and build equity more quickly than with a standard mortgage.
Potential Drawbacks and Considerations
More Complex Application Process
The application process is more complex than that of a standard mortgage. It requires detailed renovation plans, contractor approvals, and multiple appraisals and inspections, which can extend the time from application to closing.
Higher Credit Score Requirements
The 620 minimum credit score requirement is higher than some government-backed alternatives. Thus, it may limit access for borrowers with lower credit scores.
Stricter Contractor Oversight
The lender must approve all contractors, and the renovation process involves significant oversight, including draw inspections before payments are released. Borrowers who prefer more control over the renovation processes may find the oversight challenging.
Potential for Delays and Complications
Renovation projects are inherently prone to unforeseen issues that can cause delays or increase costs. The structured nature of the HomeStyle program may create additional challenges if changes to the original renovation plan become necessary.
Limited DIY Options
While some DIY work is permitted, the restrictions (maximum 10% of as-completed value) and lender oversight requirements may frustrate homeowners who want to perform significant portions of the work themselves.
Potentially Higher Closing Costs
The specialized nature of renovation loans, including the need for as-completed appraisals and additional documentation, can result in higher closing costs than standard mortgages.
How HomeStyle Loans Compare to Alternatives
FHA 203(k) Loan
The Federal Housing Administration 203(k) loan is a government-backed renovation loan program that, like HomeStyle, allows borrowers to finance both purchase and renovations with one loan. Key differences include:
| FNMA Homestyle | FHA |
Credit score | Ideally above 620 | FHA 203(k) has lower credit score requirements (minimum 580)
|
Mortgage insurance | Mortgage insurance is required until LTV falls below 80% | FHA loans require mortgage insurance for the life of the loan in many cases
|
Loan limits | Higher loan limits | FHA has lower loan limits in most areas
|
Upfront costs | Lower upfront costs | FHA loans have higher upfront costs due to the mortgage insurance premium
|
Restrictions | More open, can include second homes and investment properties | FHA has more restrictions on eligible renovation projects
|
Home Equity Loans or HELOCs
For existing homeowners with substantial equity, home equity loans or lines of credit provide alternative financing for renovations:
| FNMA Homestyle | HELOCs |
Equity | Mortgage used for new homes or existing ones | Requires existing home equity
|
Process | Slower application process because of paperwork and contractor coordination | Generally faster and more straightforward application process
|
Interest rates | Lower interest rates, similar to conventional loans | May have higher interest rates than first mortgages
|
All in one | One monthly payment only | Creates a second payment in addition to the primary mortgage
|
Closing costs | Higher closing costs because of renovation requirements | Typically has lower closing costs
|
Personal Loans or Credit Cards
| FNMA Homestyle | Personal loans or credit cards |
Home collateral | Home collateral required | No home collateral required
|
Approval | Slower approval and funding because of coordination with contractors | Faster approval and funding
|
Interest rate | Competitive interest rates, especially for high credit scores | Significantly higher interest rates
|
Borrowing limits | High loan limits | Lower borrowing limits |
Tax benefits | Potential tax benefits | No potential tax benefits |
The Application Process
1. Find an Approved Mortgage Lender
Not all mortgage lenders offer HomeStyle Renovation loans. Find a lender in your area who is an approved FNMA lender, provides this specialized loan product, and has experience with renovation financing.
2. Get Pre-Approved
Before shopping for properties or finalizing renovation plans, get pre-approved to get a good idea about your borrowing power and ‘how much home’ you can afford.
3. Select a Property or Plan Your Renovation
If purchasing, find a property that meets your needs and has renovation potential within your budget. If refinancing, determine the scope of renovations for your existing home.
4. Choose a Qualified Contractor
Select a licensed, insured contractor who can provide detailed renovation plans and cost estimates to meet the lender’s requirements. The lender must approve the contractor. The constructor may need to complete specific documentation.
5. Obtain Detailed Plans and Cost Estimates
Work with your contractor to develop comprehensive renovation plans, specifications, and itemized cost estimates. The plans should be detailed enough for the appraiser to determine the as-completed value.
6. Apply for the Loan
Submit your formal loan application and all required documentation, including the renovation plans and contractor information.
7. Property Appraisal
The lender will order an as-completed appraisal to determine the projected value of the manufactured home after renovations.
8. Loan Processing and Underwriting
The lender reviews all documentation, verifies the project meets Fannie Mae guidelines, and decides on loan approval.
9. Closing
If approved, you will close on the loan, execute the renovation agreement, and other required documents. Renovation funds will be placed in a custodial account.
10. Renovation Phase
Work begins according to the approved plans. As portions of the work are completed, the contractor requests draws, which the lender disburses after confirming the work meets requirements.
11. Final Inspection and Completion
After all work is finished, a final inspection confirms compliance with plans and quality standards. The renovation account is closed, and any remaining funds are applied to the loan principal.
FNMA Homestyle Renovation for Fixer-Uppers
The Fannie Mae HomeStyle Renovation loan is a helpful financing tool for people looking to purchase and renovate a home or update their current property. This renovation mortgage combines purchase and renovation costs into a single loan with competitive interest rates.
While the application process is more complex than for standard mortgages and requires careful planning and contractor coordination, the benefits often outweigh these challenges. Borrowers must understand the program requirements and have realistic expectations for the renovation process.
FNMA homestyle renovation loans are ideal for homebuyers struggling to find affordable, move-in-ready homes, current homeowners with aging properties, or investors looking to maximize property values.
If you want to buy and renovate your home, consult with experienced loan officers specializing in renovation financing to determine if the HomeStyle Renovation loan fits your needs, goals, and financial situation. Society Mortgage is a professional and experienced in FNMA HomeStyle Revovation loans. Call us today, and our experts will be happy to answer all your questions about FNMA loans!
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