What is a Fannie Mae HomeStyle loan?

For buyers interested in a home that needs repairs or renovations, Fannie Mae’s HomeStyle® loan can combine both the cost of your home as well as renovations into a single mortgage. 

The Federal National Mortgage Association, commonly known as Fannie Mae, is a government-aligned corporation designed to increase affordable home financing opportunities for potential homebuyers.   

Funds from a HomeStyle loan can cover a range of renovations, including remodels, room additions and even building accessory dwelling units (ADUs). With no minimum dollar amount on renovations, borrowers can make a wide range of improvements.   

Are you ready to explore how a Fannie Mae HomeStyle could help you fund your home purchase and renovations? Apply now! 

Fannie Mae does not originate mortgage loans itself but guarantees and purchases loans from lenders, so you’ll work with a lender like Rate for this loan. Funds from these transactions allow lenders to offer loans to more borrowers.   

The steps for a HomeStyle loan are relatively straightforward. 

• As a borrower, you will choose a contractor to do the renovation work, then submit your plans to your lender for review. The lender will order an appraisal to determine how much you could borrow for your home purchase and renovation. 

• The amount you could borrow will be based on the estimated value of your home after all renovations are completed. 

• Once you and the lender agree on a loan amount and your loan is funded, you and your contractor can begin renovation work. 

• When the work is completed, the lender will request a final inspection, review other details, then release the final fund draw for your new home. 

Most types of properties are eligible HomeStyle renovation loans. These can include primary residences up to four units, as well as single-unit second homes, investment properties and condos. If you aren’t sure whether the home you are considering is eligible for a HomeStyle renovation loan, your Loan Officer can review the property details and let you know. 

For primary single-family homes, HomeStyle renovation loans usually come with a down payment options from 3% to 5% of the total loan amount, which includes the price of the home and any planned renovations.  

Other property types such as second homes, investment properties and multifamily homes may require a higher down payment. 

Any down payment option less than 20% will require private mortgage insurance (PMI). 

To qualify for a HomeStyle renovation loan, you’ll need to hire a contractor and get your selection approved.  

Fannie Mae does not have a minimum credit score, but some lenders may still have their own credit score requirements. 

Lenders will also likely look at your debt-to-income (DTI) ratio to be sure you can afford to make the payments. 

Applying for a HomeStyle renovation loan is a relatively simple process. Here are some steps to follow. 

HomeStyle loans require you to hire your own contractor, and the lender will have to review and approve your selection. You can also do the work yourself, but you’ll have to be a contractor by trade and be able to show you can complete the work in a safe and timely manner. 

Decide how much you can afford based on your savings and other assets. This will be a critical step in determining how much you’ll need and how much you might qualify to borrow. 

Get credit reports from at least one of the three major credit unions: Experian, TransUnion and Equifax. Review the reports for errors or fraudulent activity, and reach out to clear up any discrepancies. Being aware of your credit score could help you gauge how a lender may view your application. 

Gather financial documents to ensure the application process goes smoothly. You’ll likely need to provide pay stubs, tax returns, bank statements and documentation of any assets you own. 

Self-employed borrowers should expect to provide additional documents, such as profit-and-loss statements, two years of tax returns and possibly a letter from an accountant verifying income. 

Once your documents are in order, you’re ready to complete the loan application. 

With our digital mortgage, this can all be done in about 15 minutes on your phone or computer. 

Once you complete the application, submit it and all the gathered documentation. Rate will use this information to evaluate your financial situation and determine your pre-approval status.