How they work
The loan amount is based on the as completed value. Renovation costs are generally capped at a percentage of that value, often up to 75%. At closing, the purchase is funded and the renovation money goes into an escrow account. Your contractor is paid in draws as work is completed and inspected.
What you can renovate
Almost anything that's permanently attached and adds value: kitchens, baths, roofs, additions, pools, accessibility upgrades and energy improvements. A contingency reserve is built in for surprises, and if you can't live in the home during the work, some payments may be included in the loan.
Why choose conventional renovation
Removable PMI. Higher loan limits. Second homes and rentals are eligible. Fewer restrictions on the type of work than FHA 203k. FHA 203k is easier at lower credit scores and smaller down payments. See FHA 203k and VA renovation.
The process
Pick a licensed contractor who has done renovation loan work. Get a detailed bid. The appraiser values the home based on the plans. After closing, work begins, and each draw is inspected. Expect the closing to take longer than a standard purchase, and the work to take longer than the bid says.
What I've learned from my own renovations
I've managed plenty of heavy renovations on my own properties. Three lessons stand out. Budget a real contingency, because something always hides behind the walls. Pick a contractor for reliability and communication, not just price. And plan for delays in permits and materials. A renovation loan protects you with inspections and draws, but the plan still has to be realistic.
The investor angle
For investors, HomeStyle can finance a value add rental in one loan instead of a short term rehab loan followed by a refinance. It's slower, but it can be cheaper money. For fast flips, a short term fix and flip loan usually fits better.
A dated house in a great neighborhood
Megan found a 1980s home in College Park that needed a kitchen, two baths and a roof. With a HomeStyle loan and 5% down, she financed the purchase and the work together. After the renovation, the home appraised well above her total cost.
Frequently asked questions
What is a HomeStyle loan?
A Fannie Mae loan that finances purchase and renovation together, based on the as completed value.
Can I use it on an investment property?
Yes, unlike FHA 203k.
Is it better than FHA 203k?
With strong credit, often. FHA is easier at lower scores.
Can I do the work myself?
Usually only limited work. Licensed contractors are generally required.