A mortgage renovation loan comes in many flavors. Two of them are FHA 203(k) and FNMA HomeStyle®. When it’s time to make changes to your home, the speed of the funding process for either is similar to their purchase loan counterparts and depends on several factors. They include the kind of improvements you’ll be making, the contractor you’ll be working with and the overall cost of those improvements.
Let’s look at these two loan programs, their differences and the issues that may slow down or speed up the lending process.
What is an FNMA HomeStyle® loan?
The Federal National Mortgage Association (FNMA), commonly called Fannie Mae, offers the HomeStyle® program. Fannie Mae is a government-sponsored enterprise (GSA), so its loans are backed by private lenders, not a federal government agency.
Borrowers can fund what might be called "luxury" home improvements with examples including:
• Permanent landscaping features
• A remolded bathroom
• Room additions
• A backyard deck
You can use a HomeStyle® loan for almost any type of home, including single-family houses, condos and manufactured homes. If you’re buying a home, you can get a less expensive fixer-upper and use a HomeStyle® loan to pay for repairs.
What might delay an FNMA HomeStyle® loan?
Like a conventional purchase loan, FNMA HomeStyle® requires certain documentation at different steps to ensure a smooth process. These may include:
• W2s
• Tax returns
• Pay stubs
• Bank statements
These documents will be required during pre-approval and processing. When your loan arrives at underwriting, you may be asked to provide new documentation to confirm your eligibility.
If at any point you’re unable to provide the proper paperwork, you risk delaying your loan.
What is an FHA 203(k) rehab mortgage loan?
FHA 203(k) loans are part of the larger Federal Housing Administration (FHA) mortgage program. They’re federally backed and designed to help borrowers who would benefit from flexible credit and debt-toincome ratio requirements. There are, however, some requirements you’ll want to consider.
FHA 203(k) loans focus on repairs and structural changes. In addition, they establish an escrow account that holds the money for your renovation contractor.
What might delay an FHA 203(k) rehab mortgage loan?
In addition to the paperwork issues that may arise with any mortgage loan, FHA 203(k) loans may require a HUD consultant to oversee the renovation. This may actually speed up the process as a consultant can handle renovation issues that add extra time to construction.
A consultant is a requirement for a certain type of FHA loan. There are two kinds: The limited (formerly known as the streamline 203(k)) and the standard. As the name may suggest, the 203(k) limited caps its funding at $35,000 and will help fund cosmetic changes.
The 203(k) standard loan funds major renovations or structural changes that cost at least $5,000. For this kind of loan, you’re required to have a consultant.
What are the main differences between FHA 203(k) and FNMA HomeStyle®
FHA 203(k) loans work for borrowers making structural repairs such as plumbing or even an upgraded kitchen to improve functionality. HomeStyle® requires a stronger credit score and provides funding power for homeowners to make improvements like a new pool or a modernized bathroom.
The right renovation option is the one that fits your renovation goals and your timeline. The speed of funding and construction relies on your needs and your lender.
As a top-rated mortgage professional,* I understand how to deliver service with the personal touch that your unique goals require. My mission is to provide a simple, easy, and affordable renovation loan process.
To learn more, contact me today!
HomeStyle® is a registered trademark of Fannie Mae.
*Leesa Sandoval has been listed as a Top 200 Mortgage Originator by Mortgage Executive Magazine, named one of D Magazine's Best Mortgage Professionals and Top 100 Mortgage Loan Originator in Units by the National Association of Minority Mortgage Bankers of America (NAMMBA).