HomeStyle Renovation Loan Eligibility and Requirements

Roll in the rehabilitation money into a purchase or refinance mortgage!

Home renovation before and afterAre you in the market for a new home, but find that your current budget won't quite cover everything you need? Have no fear – the Fannie Mae HomeStyle renovation loan may be just what you're looking for. This loan allows you to finance both the purchase of a new home and the costs of renovating it, all in one loan. This can be a great option if your budget doesn't allow for both buying a new home and renovating it yourself.

The Fannie Mae HomeStyle renovation loan comes with some key benefits. First, it offers a lower interest rate than most other renovation loans. Second, it allows you to borrow up to 95% (possibly 97%) of the cost of the renovation, which can be helpful if your budget is tight.

What is a HomeStyle Renovation Loan?

A HomeStyle Renovation Loan is a type of mortgage loan that can be used to finance a home renovation. This loan can be used to finance a variety of home renovation projects, including repairs, additions, and remodels. HomeStyle Renovation Loans are available through Fannie Mae lenders, and they offer a number of benefits compared to other home renovation loans.

One of the biggest benefits of a HomeStyle Renovation Loan is that it can be used to finance both the purchase of a home and the renovation project. This means that you can use one loan to finance both the purchase of your home and the renovation project. This can save you money on closing costs and other fees.

Another benefit of a HomeStyle Renovation Loan is that it offers a competitive interest rate. This means that you can save money on your monthly mortgage payments.

Finally, a HomeStyle Renovation Loan is a government-backed loan. This means that you can be assured of a high level of customer service and support.

HomeStyle Renovation Loan Requirements

Borrowers must meet the traditional approval requirements for a conventional home loan:

  • Borrower must meet all other Conventional program requirements
  • Minimum 5% down payment
  • Minimum credit score of 620
  • Debt to Income ratio of 45%
  • Property must meet eligibility requirements

Eligible Properties Types for a HomeStyle Loan

To qualify for a HomeStyle mortgage, the subject property must be a one- to two-unit principal dwelling, a single-family second home, or a single-family investment property. According to municipal zoning regulations, the number of dwelling units on the property must be appropriate. All newly built units are required to be joined to an existing structure. Cooperative units are not eligible.

In addition to standard home restoration projects, the renovation can be utilized to turn a single-family home into a multifamily home. Alternately, a multifamily dwelling might be transformed into a single-family housing. See the complete list of qualifying property types listed below:

  • 1-2 Unit Primary Residences
  • FNMA Approved Condominiums
  • Foreclosure Properties
  • PUD's and Site Condominiums
  • REO
  • Short Sale
  • Single Unit Investment Property
  • Single Unit Second Home

The HomeStyle Renovation loan is an innovative mortgage product that can be utilized for both house purchases and refinancing. Whether you are planning to acquire a new home or renovate your present one, this lending option may be ideal for you. Uses for home improvement mortgage loans include:

  • To acquire a home and the property on which it is situated, and then restore it.
  • To refinance existing liens secured by the subject property and to repair the property.

How is the Value of a Property Determined?

Property appraisalThe value used to determine the loan-to-value ratio (LTV) for a conventional mortgage (purchase or refinance) is obtained from the appraisal, which is based on the selling prices of comparable properties in the region. This is known as a "as-is" evaluation. An appraiser determines the property's value for a HomeStyle renovation loan, factoring in the property's value once the changes have been made. The value within a HomeStyle program is therefore known as the "as-completed" value.

What are the Steps of a HomeStyle Renovation Loan?

Here are the steps to purchase or renovate your home.

Step 1. Pre-approval: Prior to commencing your home search, it is prudent to speak with a mortgage professional to discover the maximum loan amount and terms for which you qualify. Choosing a mortgage expert familiar with the HomeStyle (or FHA 203(k)) financing program is crucial while shopping for a home to repair. Your mortgage specialist will discuss with your real estate agent the maximum purchase price and loan amount for which you qualify.

Step 2. Property Analysis:
Once you and your agent locate a prospective property, your agent will do a comparative market study of the subject property and similar sales. This study will consider the scope and expected expenditures of the rehabilitation work, as well as the as-completed worth of the property. The purpose of the analysis is to decide how much to offer the seller. Once the seller accepts your offer, the purchase agreement is formalized.

Step 3. Contractor Work Up: Find a skilled contractor with whom you can develop the Contractor's Estimate, which outlines the scope and cost of the proposed remodeling work.

Step 4. Loan Application: After delivering the required loan paperwork (such as W-2s and bank statements) to your loan officer, he or she will send the sales contract and Contractor's Estimate to the underwriter along with the underwriting documentation. The insurer will then order the evaluation. Again, the appraiser will evaluate the current condition of the property and the planned scope of improvements to determine the official, as-completed value that will be used to calculate the LTV and other important loan parameters.

Step 5. Underwriting: The Consultant will analyze the property and proposed scope of work to confirm that the home will be habitable and safe, and that the work is required and suitable according to HomeStyle product requirements. A lender's loan specialist will speak with you and the contractor on the scope and cost of the work during underwriting.

Step 6. Settlement: You will sign your loan documents and get the loan money at closing. The lender will open an escrow account and assign your case to one of its in-house renovation Loan Specialists. This Specialist will be your primary point of contact for all work and communication between you, the lender, the HUD Consultant, and the contractor, including payments made to the contractor during the renovation.

Step 7. Renovation Work: After closing, the Loan Specialist, the HUD Consultant, the contractor, and you will coordinate the work being completed, as well as any changes that may emerge during the renovation process.

Step 8. Completion: Upon completion of the modifications, the appraiser and HUD Consultant will conduct a final inspection of the house to ensure that the project is complete and that local inspectors have granted the necessary Use and Occupancy permits. Upon completion, the final draw will be handed to the contractor. Any remaining funds in the remodeling escrow account will be moved to the principal balance.

Rotating question markFAQs About the HomeStyle Renovation Loan

Q. Can the Work Be Done by the Borrower?

A. With the lender's consent, the borrower may make the renovations, subject to the following three restrictions:

  • the DIY work does not exceed 10 percent of the property's worth after completion;
  • only single-family, owner-occupied properties; and
    the borrower may only be compensated for the cost of supplies and/or contract labor that has been documented. The borrower MAY NOT get compensation for his or her efforts.
  • Labor and material costs associated with the renovation must be adequately budgeted by the lender so that, if the borrower is unable to complete the project, a contractor can be engaged to complete any “Do It Yourself” repairs. 

Q. Can a Borrower Receive Cash Back at Closing?

A. Upon completion of the renovation, any extra funds are applied straight to the loan's principal balance. This does not cut the monthly loan payment, but it will reduce the interest paid on the loan over time.

Q. Is a Second Mortgage Allowed?

A. Yes, standard subordinate financing and Community Seconds are permissible, according to Fannie Mae.

Q. Is There a Limit on the Amount That Can Be Borrowed?

A. Yes, HomeStyle loan amounts are subject to Federal Housing Finance Agency established maximum loan restrictions (FHFA). In places where property values vary widely, loan restrictions vary by state and, in some cases, even by county. Current loan limitations are available here.

Q. What are the Requirements for the Down Payment?

A. For a single-unit, owner-occupied property, the minimum down payment is 5% plus closing expenses. Qualified HomeReady home buyers are allowed a 3% down payment. Community Seconds and subordinate financing are permitted, which might obviate the requirement for a down payment. As with any conventional/conforming loan, a 20 percent down payment is necessary to avoid mortgage insurance.
If you are purchasing a multifamily property or another sort of real estate, the minimum down payment is somewhat higher:

  • Duplex: 15% (or 85% LTV)
  • Investment property: 15% to purchase, 25% to refinance
  • Second home: 10% (90% LTV)
  • Triplex/fourplex: 25% (or 75% LTV)

Q. What are the Credit and Underwriting Requirements?

A. There are a few key things that a bank looks at when considering a loan request. The first is the credit history of the borrower. Banks will want to make sure that the borrower has a history of paying their debts on time. They will also look at the current debt-to-income ratio of the borrower to make sure they can afford the new loan. The bank will also want to make sure that the property being purchased has enough equity, and that the property is in a good location.

Q. What Can You Do with a HomeStyle Loan?

A. There are many things that you can do with a HomeStyle loan. With a HomeStyle loan, you can purchase a new home, refinance an existing home, or renovate your current home. With a HomeStyle loan, you can also take advantage of the convenient features, such as no up-front mortgage insurance and a low down payment.

Q. What Is Not Covered By A Fannie Mae HomeStyle Loan?

  • New house construction.
  • Non-permanent improvements to the property, such as furniture, some types of landscaping, or a portable storage shed or unit.
  • Demolishing a dwelling

Q. What Is Included with a Fannie Mae HomeStyle Loan?

  • Closing costs
  • Expenses for a rental while the property is undergoing renovations
  • Permits and license fees
  • Project contingency reserves
  • Up to 10% of ARV can be utilized for building supplies for DIY projects.

Read more questions and answers about conventional loans


In conclusion, the Homestyle Renovation loan requirements are not as complicated as they may seem. As long as the borrower has a clear understanding of what is required, the process should go smoothly. borrowers who are still unsure of what is required should consult with a loan officer to get a better understanding of the process.

Fannie Mae 203K and HomeStyle comparison chart
Homestyle Renovation
Homestyle Renovation Mortgages

Recommended Reading

  1. How Much Down Payment is Needed for a Conventional Loan?
  2. Mortgage Escrow: How It Works and What You Need to Know
  3. What is PMI and How Does It Affect My Mortgage?