The amount of home renovation loans are based upon the “after improved value” which is established by a certified appraiser that considers the types and cost of planned renovations. In addition to owner-occupied properties, Homestyle mortgages can be used to improve second homes and investment properties.
The maximum mortgage amounts are based upon a combination of borrower’s credit score, occupancy type, cost of renovation, existing mortgage or acquisition cost, and the fannie mae conforming loan maximum loan amounts. HomeStyle mortgage guidelines allow for a wider variety of acceptable repairs and improvements than with FHA 203K loans, and there no required improvements. Similar to FHA 203K loans, if the cost of repairs exceeds $35,000, the lender may require the use of a Project Consultant to help manage the approval process and disperse funds.
Fannie mae homestyle mortgages are primarily available as 15-year or 30-year Fixed Rate mortgages, and in some circumstances with low loan-to-values (LTV’s) as Adjustable Rate or 5/1 Hybrid ARM’s. With Fixed rate loans, the interest rate and payments are fixed over the life the loan. Each month the borrower makes the same principal and interest payment amount so that by the end of the loan term, the loan is paid off in full.
The advantage of fixed rate loan is that the payments are set and do not change over time. The most popular fixed rate term is the 30-Year because the monthly payments are less than the shorter term 15-year fixed since the repayment is spread over 30 years. The HomeStyle Adjustable Rate Mortgage (ARM) is a 30-year loan that has an interest rate and payments that adjust periodically. This ARM has a low starting rate the first year, then the rate and payment adjusts annually based upon the movement of the underlying 1-Year T-Bill index. The advantage of an ARM is that the initial starting payments are often less than fixed rate loans thus making the loan initially more affordable. The Homestyle loan is also available as a 5/1 Hybrid ARM which has an initial fixed rate period for 5 years, and then rolls into a 1-year adjustable rate for the remaining 25 years. After the first 5 years, the rate and monthly principal and interest payment will change annually. The advantage of 5/1 Hybrid ARM is that the interest rate and monthly payment for the initial fixed period is typically lower than the 30-year fixed rate.
Borrower qualification requirements are based upon fannie mae homestyle mortgage loan underwriting guidelines, and are therefore considered more stringent than government loans. In most cases borrowers need to have above average credit scores, good consistent income, and cash reserves. While purchase transaction can have down payments as low as 5%, and refinances can have a minimum of a 10% equity position, the rate and payment terms are available on transaction with at least 20% down payment/equity.
Home Renovation projects can be financed and provide a great return on your investment. Not only you could be adding equity to your home but you will have many options to remodel your home. Whether it is fannie mae homestyle renovation, fha 203k loan, cash outs or personal loans. Check the appropriate home remodel loans for your situation and let Kukun match you with the right loan and right lender.