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Fannie Mae renovates its HomeStyle® mortgages

Gina PogolThe Mortgage Reports Contributor

HomeStyle® gets a makeover

Fannie Mae’s HomeStyle® mortgage, best-known for allowing borrowers to purchase and renovate property with a single home loan, has gotten a remodel of its own. Here are new changes that make it even easier to use.

Verify your new rate (Sep 18th, 2018)

HomeStyle® Renovation

The HomeStyle® Renovation loans underwent several important changes to their maximum loan-to-value, availability for manufactured homes, and qualifying improvements.

Fannie Mae Homestyle® versus FHA 203(k): Which is better?

Loans up to 97 percent

New guidelines have raised the eligible loan-to-value (LTV) ratio to 97 percent. That is even better than that of FHA’s 203(k) rehabilitation loan, which required 3.5 percent down.

To be eligible for this higher LTV, the loan must:

  • Finance a primary residence. Not a vacation or rental
  • Purchase or refinance a single-unit property, not a duplex, triplex or fourplex
  • Finance a purchase or limited cash-out refinance (you can add the cost of refinancing and improvements to the loan amount, but not take cash out)
  • Pass muster with Fannie Mae’s Desktop Underwriter automated underwriting system

Manually underwritten loans will not get an LTV increase.  HomeReady® loans combined with the HomeStyle® Renovation option must meet HomeReady® requirements, including income limits.

HomeReady® loan guidelines for 2018

Manufactured homes eligible

Another update concerns manufactured homes. You can finance improvements to a manufactured home as long as they do not involve structural changes like the addition of a garage. Fannie Mae says:

“Eligible, non-structural improvements include, but are not limited to, updates to kitchens and bathrooms, adding energy-efficient heating and cooling systems, changes to make the home accessible to disabled and older residents, and the installation of new windows, doors, siding, or roofing (changes cannot alter the structure of the unit).”

Getting a mortgage for a manufactured home

Cost of renovations can be up to  50 percent of the “as completed” value or $50,000, whichever is less. Suppose that you buy a manufactured home for $75,000, and want to add improvements costing $50,000. If your improvements would increase the value to $150,000, your loan amount calculation looks like this:

$150,000 / 2 = $75,000

That’s more than $50,000, so you’d use $50,000. You would be able to finance all of your improvements.

But if your improvements cost $60,000, you’d have to come up with $10,000 yourself.

Advantages of HomeStyle® Renovation Mortgage

homestyle mortgage advantages

Amount of eligible renovations is increased

Borrowers financing traditional “stick-built” homes can finance more. Now, the program allows a renovation budget of up to 75 percent of the acquisition plus renovation costs or 75 percent of the “as completed” value, whichever is less.

Suppose that you buy a home for $200,000. You want to finance $100,000 in improvements, and your completed value is $320,000. You calculate your renovation maximum like this:

$300,000 acquisition plus improvements * .75 =  $225,000

$320,000 completed value * .75 = $240,000

Buy and rehab strategy nets buyers serious home equity

Take the lower number, $225,000, and you can finance renovation costs up to that amount. A $100,000 improvement budget falls within that maximum.

Your loan amount is 97 percent of your purchase price plus your renovation costs. So 97 percent of $300,000 is $291,000.

You can finance “accessory units” like guest houses or apartments

As long as an accessory unit fits in with your local zoning laws, HomeStyle® guidelines allow you to finance the construction of separate living quarters. Even better, you can use the prospective income from the property to help qualify for the renovation loan.

Airbnb: Fannie Mae to allow home sharing income

Fannie Mae says, “An accessory unit is a separate dwelling (as identified by the appraisal) with a kitchen and bathroom.”

You can use rental income generated from an accessory unit to qualify under HomeStyle® in
accordance with standard rental income guidelines.

These changes are effective immediately.

What are today’s HomeStyle® Mortgage rates?

Current mortgage rates are higher than they were just a few weeks ago. However, today’s rates fell back slightly. It’s important to pay attention to rates and lock in when you get a break like that. It’s also important to shop among competing mortgage lenders for the best deal available.

Shopping carefully can help offset the recent run-up in interest rates and make your home and renovations more affordable.

Verify your new rate (Sep 18th, 2018)