HomeStyle Renovation Loans: Buy, Renovate With One Mortgage

If you’ve been house hunting but haven’t found a place that's affordable and move-in ready, you may consider broadening your search to include fixer-uppers.

A HomeStyle renovation loan from Fannie Mae combines the home’s purchase price with the cost of improvements. This loan covers a wide range of projects, and the home isn’t required to be habitable at the time of purchase. However, all work must be completed within 15 months after the loan closes.

How does a HomeStyle renovation loan work?

Fannie Mae is a government enterprise that designs the guidelines for conventional mortgages, including HomeStyle loans. Fannie Mae doesn’t issue loans; instead, lenders like banks and credit unions finance home loans based on Fannie Mae’s guidelines, then Fannie Mae purchases them from the lenders. This helps the mortgage industry by freeing up capital for lenders to generate more loans. While you can choose among lenders that offer HomeStyle, these requirements and guidelines will be the same.

» MORE: Fannie Mae, explained

Eligible projects and properties

Fannie Mae designed HomeStyle to expand borrowers’ purchasing options to homes that require any number of repairs or renovations. Examples of projects that a borrower might finance with a HomeStyle loan include:

• Kitchen or bathroom remodel.

• New flooring.

• New roof.

• Landscaping.

• Building an addition.

• Adding an accessory dwelling unit.

Types of homes that are eligible for HomeStyle loans:

• One-to-four unit primary residences.

• One-unit second homes or investment properties.

• Manufactured homes.

• A unit in an eligible planned development, condo or co-op.

Ineligible projects and expenses

Some costs and projects cannot be funded with a HomeStyle renovation loan.

• Teardowns — removing everything but the foundation of a building. 

• Building another residence on the property.

• Financing special assessments.

• Paying off existing projects or property debts.

Down payment requirements and borrowing limits

Borrowers must have a down payment of at least 3%. While you can finance the remaining 97% of the purchase and project costs, the portion of the loan that covers renovation expenses cannot be more than 75% of the projected value of the home after work is completed. For example, if the home will have an estimated value of $240,000 after renovations, you cannot borrow more than $180,000 (0.75 x 240,000) for those costs. DIY projects can constitute just 10% or less of the as-completed value.

Borrowers purchasing a manufactured house cannot finance more than $50,000 or 50% of the as-completed appraised value with a HomeStyle loan. DIY projects are not allowed for manufactured homes.

HomeStyle loans are subject to conforming loan limits. For a one-unit home, this is $766,550 in most areas and $1,149,825 in high-cost areas.

How to qualify for a HomeStyle renovation loan

In order to qualify for a HomeStyle loan, you’ll need the following:

• A credit score of at least 620, which is required for all Fannie Mae fixed-rate loans. 

• A debt-to-income ratio under 50%, meaning that your monthly debts don’t add up to more than 50% of your pre-tax income. Borrowers with less debt will often have an easier time qualifying for a loan and may receive better rate offers. 

Pros and cons of HomeStyle renovation loans

Pros

• Low down payment requirements. The minimum down payment for qualified borrowers is 3%. 

• Project flexibility. You can finance most projects with a HomeStyle loan (up to 75% of the as-completed appraised value), and these projects are not required to increase the home’s value. 

• No obligation to live in the home right away. If your home is not habitable, you can finance up to six months of principal, interest, tax and insurance payments while the property is being renovated. 

Cons

• Renovation deadline. Work must be completed on the home within 15 months of getting the loan. If your projects are estimated to take longer, you may not be able to finance them with a HomeStyle loan. 

• Financing limits. The portion of your loan reserved for your projects cannot exceed 75% of the as-completed value of the home. 

• Limits on what you can do yourself. DIY renovations cannot exceed 10% of the home’s as-completed value. 

Where to get a HomeStyle loan

HomeStyle loans are something of a niche product, and not every lender offers them. Four lenders that appear on our list of best mortgage lenders for first-time home buyers also offer HomeStyle loans:

• Guaranteed Rate

• Flagstar Bank

• Network Capital

• Movement Mortgage

It’s smart to shop around with at least three lenders to compare rate offers and select the deal that’s best for you.

Other ways to finance a purchase and renovation

HomeStyle is not your only option for financing the costs of buying and renovating a fixer-upper with one loan, and you may consider one of these alternatives.

FHA 203(k) loan

FHA 203(k) loans are insured by the Federal Housing Administration. Compared to HomeStyle loans, FHA 203(k) loans have more lenient credit requirements but are more strict about the renovation work that can be done.

For example, borrowers with credit scores of 500 or higher may qualify for FHA 203(k) loans. For HomeStyle loans, the minimum credit score is 620. The minimum down payment for a 203(k) loan is 3.25% if your credit score is 580 or higher; it's 10% if your credit score is 500 to 579.

203(k) loans can't be used to pay for work that the FHA deems luxuries. Examples include installing a swimming pool, adding an outdoor hot tub or sauna or building an outdoor barbecue pit or fireplace, although repairing an existing swimming pool is allowed.

Comparatively, HomeStyle loans have few restrictions on improvements, other than that most "should be permanently affixed to the real property (either dwelling or land)," according to Fannie Mae guidelines.

203(k) loans are exclusively for primary residences. The home may be a single-family house, a condo or other home in a one- to four-unit structure or a qualified manufactured home. Vacation homes and investment properties are not eligible. You may use a 203(k) standard mortgage to reconstruct a house on its original foundation.

» MORE: Best FHA 203(k) mortgage lenders

Freddie Mac CHOICERenovation

Like Fannie Mae, Freddie Mac is a government enterprise that designs and purchases mortgages from lenders. Freddie Mac has a program similar to HomeStyle called CHOICERenovation. An “express” option called CHOICEReno eXPress finances smaller-scale projects.

Like HomeStyle loans, CHOICERenovation loans require a credit score of 620 or higher and can be used to finance most projects that cost 75% or less of the home’s as-completed appraised value. Two main features differentiate CHOICERenovation from HomeStyle:

• CHOICERenovation loans can be used for renovations to prevent or repair damage from a disaster.

• Among lenders surveyed by NerdWallet, CHOICERenovation loans were less commonly available than HomeStyle loans.