Real Estate Realities Newsletter
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Consider a Fannie Mae HomeStyle Renovation Loan
A Fannie Mae HomeStyle loan lets you wrap both the price of the home you are buying and its estimated repair costs into a single mortgage. Say you are buying a home that costs $235,000 and you are putting a down payment of $23,500 on it. Say, too, that a contractor estimates that it will cost an additional $50,000 to renovate this property.
You would take out a Fannie Mae HomeStyle loan for $211,500 — the amount you need to finance after subtracting your down payment from the home’s purchase price — plus the $50,000 you’ll need for renovations and repairs. That will leave you with a total mortgage of $261,500. You would use the $50,000 from this loan to fund the cost of your home repairs.
Know the requirements
The HomeStyle loan is quite flexible. You can use it to buy just about any type of property, including single-family homes, multifamily properties with up to four units, condominium units, second homes, investment properties and manufactured homes.
The down payment requirements do vary, though. You’ll typically need to come up with a down payment of at least 5% of the home’s purchase price. But if you are buying a second home, you’ll need a down payment of at least 10% of the property’s price, or 15% if you are buying an investment property or a duplex. You might need a down payment of 25% if you are buying a multifamily property with three or four units.
There are few restrictions on what you can use the money from one of these loans for. But you must use it to finance improvements or renovations that will increase your home’s value. You could use a HomeStyle loan, then, to fund a roof replacement, new floors, repairs to a property’s foundation, a kitchen remodel or a master bathroom addition.
Remember, too, that Fannie Mae is not a lender. To qualify for a HomeStyle loan, you’ll need to apply with a mortgage lender. Lenders’ requirements will vary, but you’ll usually need a FICO credit score of at least 620 to qualify for a HomeStyle loan. Your monthly debts, including your new mortgage payment, also should not equal more than 43% of your gross monthly income, your income before taxes are removed.
Consideration of all the angles
If you are interested in buying a fixer-upper, make sure to do your research. Hire a home inspector to tour the property before you buy it. This inspector can tell you whether the home has serious problems. If it does, you might want to pass on buying it, even if the initial price tag is low.
It’s smart, too, to hire a contractor to tour the home you are interested in buying. This professional can help you determine how much you’ll need to spend to renovate your fixer-upper, giving you a better idea of how large a HomeStyle loan you’ll need.