What Is a HomeStyle Loan?

A Good Option for Homes That Need Work

contractor laying tile
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If you’re wondering whether you can afford to renovate your home—or purchase a house that needs some TLC—Fannie Mae’s HomeStyle loan could be your answer.

What Is a HomeStyle Loan?

HomeStyle is a mortgage program that is backed by Fannie Mae and offered through Fannie Mae-approved lenders. The loans are designed to offer homebuyers, real estate investors and existing homeowners a way to make improvements and renovations to the properties they purchase or already own.

These loans typically come with lower interest rates than home equity lines of credit and personal loans, making your renovations more affordable in the long-term. They also take into account the projected appraised value of the renovated property, which may increase the amount you can borrow.

However, these loans come with some restrictions, and require additional documentation. Here’s how to figure out if a HomeStyle loan is the right choice for you.

How to Use a HomeStyle Loan

A HomeStyle loan allows you to take a single loan to fund both a purchase and renovation, or to refinance your current mortgage to include the cost of your renovations.

These terms of these loans can vary, from adjustable-rate loans or 15- or 30-year fixed-rate loans. You can borrow up to 75% of the expected appraised value of the home once renovations are complete. 

HomeStyle loans can be used on any improvement project within the home’s current structure--even on luxury items like a hot tub. They can also be combined with the HomeStyle Energy program, which rewards you for upgrades that improve your home’s water or energy efficiency.

Important

Not all lenders offer HomeStyle loans, so make sure the lender you’re considering is approved for the program before moving forward.

HomeStyle Loans: Pros and Cons

HomeStyle loans come with competitive interest rates and low down payments. If you’re a first-time homebuyer purchasing a new, principal residence, down payments go as low as 3%.

You can use any contractor you like to do the work, as long as they carry proper state licenses. And you don’t have to be the primary resident of the home—you can use these loans for vacation homes and investment properties.

On the downside, you can’t use HomeStyle funds for structural changes to the house, or for updates to anything not affixed to the property. There is also a time limit on when your renovations must be completed. And although you can do some of the work yourself, your DIY efforts can’t amount to more than 10% of the final appraised value.

The qualifications for these loans are also fairly strict. You need a minimum credit score of 620 to qualify.

Finally, your contractor will need to have the project plans drawn up and approved by an inspector ahead of beginning the work .

Pros

  • Low interest rates and low down payments

  • Use any contractor you want

  • May get rebates through the HomeStyle Energy program

  • Use up to 50% of the loan to buy construction materials

  • Finance up to 75% of the home’s future appraised value

  • Use on multi-unit properties and vacation homes

  • Use on any type of renovation

  • Covers inspection and consulting fees, title costs, and more

Cons

  • No structural changes to the home are allowed

  • Only available through Fannie Mae lenders

  • Renovations must be completed within 12 months of closing

  • Allows for limited DIY work

  • Requires more documentation than a conventional mortgage

  • Must have fairly strong credit to qualify

Once you’ve found a lender that offers these loans, discuss your goals and renovation plans with a loan officer. They can let you know whether you qualify for a HomeStyle loan, and help you navigate the process.