Making Sense of the FHA 203k and the Fannie Mae HomeStyle Renovation Loan…
We all want options so what’s better than having options when it comes to financing the purchase of your new home or the refinance of your current home? Taking this a step further let’s consider not only financing but also renovating that home! Yes, there are options with respect to the FHA 203k Renovation loan and the Fannie Mae HomeStyle Renovation loan. Both of these have had a lot of press lately so it’s important to understand the options and to pick the loan that best fits your needs. That’s where I come in…Let’s compare the FHA 203k Renovation loan to the Fannie Mae HomeStyle Renovation loan.
For starters the FHA 203k Renovation loan is in fact an FHA loan which means it is designed for those wishing to purchase homes that will be owner occupied. Often the Underwriting process is a bit easier with FHA since historically it’s a loan designed to help people obtain homeownership. The current FICO requirement is only 640 which is less than a conventional loan and the debt-to-income requirement are far less rigid. Finally, the down payment is only 3.5% of the total loan amount.
What’s nice about the FHA 203k loan is that there are two versions. Depending on the scope of the project you may qualify for the FHA 203k streamlined version which eliminates a lot of the paperwork and as the name implies “streamlines” the process. This version is useful for cosmetic updates and less complicated work. Recently roof repairs were classified as minor repairs so they also fall under the streamline classification!
The full 203k is the one to use when you have structural (foundation) issues, wish to add square footage, etc. This one does tend to be the most widely used of the two simply because the options are wide open with the full version. There will also be a 203k Consultant on site to monitor the progress, disburse the draws and perform the final inspection.
After having said so much good about the FHA loan it’s important to note, there will be a limit to how much we can lend on this loan product. This is due to the FHA loan limits in your area. As a good rule of thumb for the areas of Texas, Louisiana, Oklahoma, Arkansas, and New Mexico the limit is $271,050. Also if you have a Condo in mind and it’s not FHA approved this loan could not be used. Finally, if you wish to rehab a home that isn’t completed (no Certificate of Occupancy) once again this loan would not be an option.
Now let’s move onto the cousin to the 203k loan and discuss the Fannie Mae HomeStyle loan because some of its features may come in handy if you are not eligible for an FHA rehab loan. Since this loan is issued by Fannie Mae it’s a conventional loan which means the loan amount may reach $417,000. In some areas, such as California, the High Balance feature of this loan may come into play and you will be allowed to exceed $417,000.
Also keep in mind this is a conventional loan so the down payment may vary depending on the loan itself. Currently the minimum down payment required is 5% and the minimum FICO requirement is 680.
All the same work allowed by both the full 203k and the streamline 203k is allowed under the HomeStyle program however Fannie Mae also allows for extensive landscaping and luxury items including pools. Luxury items such as outdoor kitchens, spas, and pools may either be installed or repaired under this program. Furthermore, Condo projects and homes that are not yet finished (no CO) are also allowed!
Speaking of things that are allowed…this loan program includes an option for someone to not only purchase a primary residence but also a second home or investment property!! Yes, this means that investors may purchase or rehab their properties under this program.
As you can see the options are available. I’m here to consult with you to find the best option. All of the bank foreclosures and HUD owned inventory have potential. It’s just going to take a great rehab loan option to realize that potential! Over the years I’ve seen many great home transformed and I’d love to be a part of your home transformation! Call me today to let me help you make sense of the fha 203k and the Fannie Mae HomeStyle Renovation loan.