Home Renovation Loans: Fannie Mae HomeStyle and FHA 2013k
If you own a home or are planning on owning a home in the near future, there’s a chance that you might want to perform some home renovations. Or you could be planning on purchasing a "fixer-upper." Luckily, there are specific loans for these exact purposes called renovation loans. The two most popular renovation loans are FHA 203k Rehab Loans and Fannie Mae HomeStyle Loans. While similar, the two loans have several main differences:
FHA 203k Rehab Loans
FHA 203k Rehab Loans have an easier underwriting process and are made up of two variations: streamlined and full. Streamlined FHA 203k Rehab Loans are generally used for cosmetic repairs that are neither complicated nor expensive.Full FHA 203k Rehab Loans are usually used for more complicated repairs that require adding or changing anything major in the house. They require buyers to speak with a HUD FHA 203k consultant in order to evaluate budget and understand the renovation loan process in detail. This loan falls under the FHA umbrella, so you will have to make sure the home you are purchasing or refinancing is an FHA property. The minimum credit score for this type of loan is often 640, and the minimum down payment is 3.5%. They require mortgage insurance in case of borrower default, and insurance payments last for the life of the loan.
Fannie Mae HomeStyle Loans
Fannie Mae HomeStyle Loans have a much more complicated underwriting process as they fall under the conventional loan umbrella. Fannie Mae HomeStyle Loans can be used with any property you are purchasing or refinancing, so the loan qualifications are much more stringent. The minimum credit score requirement for this type of loan is often 680, and the minimum down payment for this type of loan is 5%. With this type of loan, you will be able to do extensive repairs and modifications such as building a pool, or changing the square footage of the house. As with other conforming conventional loans, private mortgage insurance (PMI) is required for HomeStyle loans with less than 20% down. However, PMI is cancelled after the borrower reaches 78% loan-to-value (LTV) on the house.
If you want to do repairs or modify a home you are purchasing or refinancing, a renovation loan is one of the simplest routes. You will need to meet with your lender to determine what loan you will qualify for and be eligible for with your property.