What Is a HomeStyle Loan?

Definition & Examples of a HomeStyle Loan

Young couple painting a room in their house
••• Alistair Berg / Getty Images

Fannie Mae's HomeStyle loan program offers a low-interest mortgage to purchase or refinance a property and conduct renovations. Buyers or homeowners can finance the purchase price plus renovation costs of up to 97% of the total home value through a lender approved by Fannie Mae.

You may be wondering whether you can afford to renovate your home. Or, you might want to know whether you can afford to buy a house that needs some TLC. In either case, Fannie Mae’s HomeStyle loan could be your answer.

Learn more about how the program works and its pros and cons.

What Is a HomeStyle Loan?

HomeStyle is a mortgage program that is backed by Fannie Mae (FNMA). it's offered through Fannie Mae-approved lenders. The loans are designed to offer homebuyers, real estate investors, and existing homeowners a way to improve or renovate the homes they buy or own.

These loans most often come with lower interest rates than home equity lines of credit (HELOCs) and personal loans. This can make your renovations more affordable in the long term. They also take into account the projected appraised value of the property after the work is complete. This may increase the amount you can borrow.

But these loans do come with some restrictions. They also need additional documentation.

How Does a HomeStyle Loan Work?

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

The terms of these loans can vary; they can include adjustable-rate loans and 15- or 30-year fixed-rate loans. You can finance renovation costs of up to the lesser of 75% of the expected appraised value of the home after the work is complete. Or, you can finance the price of the home plus the cost of renovations.

HomeStyle loans can be used on any improvement project within the home’s current structure. This even includes luxury items such as hot tubs. They can also be combined with the HomeStyle Energy program. That program rewards you for upgrades that improve your home’s water or energy efficiency.

Important

Not all lenders offer HomeStyle loans. Be sure the lender you’re looking at is approved for the program before moving forward.

What Are the Pros and Cons of HomeStyle Loans?

Pros
  • Low interest rates and low down payments

  • Freedom to use any contractor

  • May get rebates through the HomeStyle Energy program

  • Finance construction costs up to 75% of the home’s future appraised value or purchase price plus construction costs

  • 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

  • Work must be completed within 12 months of closing

  • Limits on DIY work

  • Requires more documentation than a conventional mortgage

  • Must have fairly strong credit to qualify

Pros Explained

  • Low interest rates and down payments: HomeStyle loans come with competitive interest rates and lower down payments than other types of loans.
  • Use any contractor: You can use any contractor you like to do the work. Just be sure they carry proper state licenses.
  • Rebates available: Certain energy-efficient upgrades qualify for a $500 credit.
  • Finance significant construction costs: These can be up to 75% of either the home's forecasted appraised value after the project or the purchase price plus construction costs—whichever is less.
  • Use for any home and many types of renovation: You don't have to be the primary resident. You can use these loans for vacation homes and investment properties and for simple or major projects.
  • Cover multiple costs: Use your loan to finance the full project, including inspection, consulting fees, titling, and more.

Cons Explained

  • No structural changes: You can’t use HomeStyle funds for structural changes to the house. You also can't use this money for updates to anything not affixed to the property.
  • Fannie Mae only: These loans must come from a Fannie Mae lender.
  • Time limit: Work must be done within 12 months of closing the loan.
  • DIY limits: You can do some of the work yourself. But your DIY efforts can’t amount to more than 10% of the final appraised value.
  • Strict documentation and qualifications: The qualifications for these loans are also fairly strict. Your contractor will need to have the project plans drawn up and approved by an inspector before work begins.
  • Minimum credit score: You must have a credit score of at least 620 to qualify.

HomeStyle Loan vs. 203(k)

HomeStyle loans aren't the only option for those looking to finance home upgrades into their purchase (or those looking to refinance). The FHA 203(k) improvement loan program is another popular choice. These loans have many similarities; for instance, both have a high loan-to-value ratio and the inclusive buy-and-renovate structure. But there are a few key differences.

Fannie Mae HomeStye Loan FHA 203(k) Loan
Often more flexible about the property Often more flexible about borrower qualifications
Higher credit score threshold (620) Lower credit score threshold (580)
Can be used for multi-unit properties and vacation homes Must be a primary residence
Lower loan costs More expensive overall
Mortgage insurance drops off at 22% LTV Mortgage insurance is permanent

Key Takeaways

  • Fannie Mae's HomeStyle loan offers the option to purchase or refinance a home with renovation costs included in the loan.
  • These can be a good option because they tend to have lower interest rates and down payments compared to other loans.
  • A HomeStyle loan offers flexibility with the type of property and renovations for which you can use it.