TV shows like Fixer Upper and Rehab Addict can inspire homebuyers to purchase a home in need of renovations or rehab and make it into their own, but they leave out a very crucial part of the process: financing the renovations. Fannie Mae’s HomeStyle® Renovation Mortgage allows borrowers to include financing for home improvements when either purchasing or refinancing an existing home. Here’s what you need to know about this renovation loan.
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What are the benefits?
- Combine with HomeReady® and complete a HomeReady-HomeStyle renovation for as little as 3 percent down for owner-occupied homes.
- Also low down payment for second homes (as low as 10%), as low as 15% for investment properties.
- As-complete appraisal allows no or low equity homeowners to obtain a renovation refinance.
- Cancellable mortgage insurance.
- No up-front mortgage insurance.
- Available in fixed-rate or adjustable-rate mortgages, fully amortizing with terms between 15 and 30 years.
What kind of home is eligible for HomeStyle®?
HomeStyle® is available for financing primary and secondary homes, as well as investment properties.
Financing a primary home with HomeStyle® allows for single family homes, condos, manufactured homes, planned unit developments (PUD) and up to a 4-unit multi-family home.
Eligible properties for second or investment homes include single family, approved condominiums and PUDs. Manufactured homes are eligible second homes but are not for investment financing.
How much do I have to put down?
The chart below explains the equity and minimum down payment requirements. With a HomeStyle® Renovation, equity is based on the value of the home after the renovations are complete.
| HomeStyle® Renovation Mortgage | ||
| Principal Residence | ||
| Transaction Type | Number of Units | Maximum LTV, CLTV, HCLTV1 |
| Purchase Limited Cash-Out Refinance |
1 | FRM2: 97% ARM2: 95% |
| 2 | FRM or ARM: 85% | |
| 3-4 | FRM or ARM: 75% | |
| Second Homes | ||
| Transaction Type | Number of Units | Maximum LTV, CLTV, HCLTV |
| Purchase Limited Cash-Out Refinance |
1 | FRM or ARM: 90% |
| Investment Property | ||
| Transaction Type | Number of Units | Maximum LTV, CLTV, HCLTV |
| Purchase | 1 | FRM or ARM: 85% |
| Limited Cash-Out Refinance | 1 | FRM or ARM: 75% |
| Manufactured Housing3 | ||
| Principal Residence | ||
| Transaction Type | Number of Units | Maximum LTV, CLTV, HCLTV |
| Purchase Limited Cash-Out Refinance |
1 | FRM: 97% ARM: 95% |
| Cash-Out Refinance | 1Term ≤20 years | FRM or ARM: 65% |
| Second Homes | ||
| Transaction Type | Number of Units | Maximum LTV, CLTV, HCLTV |
| Purchase Limited Cash-Out Refinance |
1 | FRM or ARM: 90% |
| HomeReady® Mortgage | ||
| Principal Residence | ||
| Transaction Type | Number of Units | Maximum LTV, CLTV, HCLTV |
| Purchase | 1 | FRM: 97% ARM: 95% |
| Limited Cash-Out Refinance | ||
| Purchase Limited Cash-Out Refinance |
2 | FRM or ARM: 85% |
| 3-4 | FRM or ARM: 75% | |
1LTV (Loan-to-Value Ratio), CLTV (Combined Loan-to-Value Ratio), HCLTV (Home Equity Combined Loan-to-Value Ratio)
(LTV, CLTV and HCLTV higher than 95% not permitted with few exceptions. Contact a Compass Mortgage Loan Officer.)
2FRM (Fixed-Rate Mortgage, fully amortizing), ARM (Adjustable-Rate Mortgage, fully amortizing)
3For single-width manufactured homes, loans are limited to purchase of principal residence and limited cash-out refinance transactions only.
“Do-It-Yourself Option”
The “Do It Yourself” option is available for renovations made to one-unit properties by the borrower. This option is not available for manufactured homes. “Do It Yourself” renovations may not represent more than 10% of the “as completed” value of the property. The lender must review and approve the renovations in advance, and must inspect the completion of all items that cost more than $5,000.
A borrower may request reimbursement for their payments for the cost of materials or for the cost of properly documented contract labor, but not for the cost of their sweat equity (labor). When a borrower chooses this option, the lender must fully budget for the cost of labor and materials related to the renovation so that, should the borrower be unable to complete the work, a contractor can be hired to finish any of the “Do It Yourself” repairs.
When will my rehab/renovation plans need to be completed?
Plans, drawings, specifications and any other pertintent details used for the purpose of your home’s renovation must be completed by a registered, licensed or certified professional, such as a general contractor, renovation consultant or architect.
All plans are needed for your lender to establish necessary financing and help your appraiser determine as completed value prior to renovations.
For more information about rehab and construction loans available, download our free Rehab & Construction Guide.