An Overview of Fannie Mae’s HomeStyle Program
Finding a home in the right location often means compromising on its condition. Many buyers see the potential in a fixer-upper but are stopped by a major hurdle: how to finance both the purchase and the necessary renovations.
The Fannie Mae HomeStyle Renovation Loan offers a practical solution. It allows qualified buyers to combine the cost of buying a home and the cost of improving it into a single mortgage.
What is the Fannie Mae HomeStyle Loan?
The HomeStyle loan is a single, first-lien mortgage that covers both the home’s purchase price and the funds for approved renovation projects. This differs from other financing methods, such as taking out a separate construction loan or a home equity line of credit after the purchase.
With one application and one closing, you secure the financing for the house you’re buying and the future home you plan to create.
Key Features and Benefits
The structure of the HomeStyle loan offers several distinct advantages for buyers with renovation plans.
- Streamlined Financing: Instead of managing a mortgage plus a separate loan for renovations, you have one loan with one monthly payment. This simplifies your budget and can often result in a more favorable interest rate compared to personal loans or credit cards.
- Loan Based on Future Value: The loan amount isn’t based on the home’s current, “as-is” condition. Instead, it’s calculated based on the home’s projected appraised value after the renovations are complete. This gives you greater borrowing power for properties that need significant work.
- Flexible Renovation Options: The program covers a wide range of improvements. The key requirement is that the renovations must be permanently affixed to the property and add value. This includes:
- Kitchen and bathroom remodels
- Room additions or structural alterations
- Roofing, plumbing, and electrical updates
- Energy-efficiency improvements like new windows or solar panels
- Landscaping or outdoor living spaces
- Building an Accessory Dwelling Unit (ADU) for rental income or multi-generational living.
- Consolidated Costs: By rolling the cost of improvements into the mortgage, you can reduce the amount of cash you need to have on hand for the project. This allows you to start your renovations immediately after closing without having to save for them separately.
A Practical Example: Building an Accessory Dwelling Unit (ADU)
The flexibility of the HomeStyle loan is especially useful for larger projects like constructing an ADU. Building a backyard cottage, an in-law suite, or a garage apartment can add significant value and utility to a property.
Traditionally, financing such a project would require a separate, and often costly, construction loan. The HomeStyle program allows you to include the cost of designing and building the ADU in your primary mortgage from day one, making the entire process more accessible and financially manageable.
Who Should Consider a HomeStyle Loan?
This loan is well-suited for buyers who:
- Are interested in purchasing a fixer-upper that requires immediate repairs or updates.
- Have a clear vision and cost estimate for their renovation project.
- Want to add significant features, like an ADU or a major addition, to a property they are buying.
- Prefer the simplicity of a single mortgage payment for both the home and its improvements.
