The Fannie Mae HomeStyle Loan stands out as a favored financial choice for prospective homebuyers and current homeowners alike. Much like the versatile 203(k) loan, it can cover the costs of purchasing a home or refinancing your current home as well as the renovation costs. While the loan process is not complicated, it is a good idea to understand how it works if you are planning a HomeStyle renovation. Stay with us as we break down the steps of a HomeStyle renovation. Let’s get started!
Why Choose the Fannie Mae HomeStyle Loan?!
First, let’s highlight the reasons for choosing a HomeStyle loan. The Fannie Mae HomeStyle Loan offers several advantages making it a great choice for financing your home purchase and renovations. Here are some of the key benefits:
- You can use this loan to purchase various types of properties, such as a primary residence, second home, or investment property.
- You will not need a large down payment to get started.
- The interest rates on a HomeStyle Loan are often lower compared to other options like getting a home equity loan or using a home equity line of credit (HELOC).
- You may be eligible for financing more renovation projects with a HomeStyle loan compared to an FHA 203(k) loan, such as luxury or landscape updates.
- Fannie Mae also offers the option to combine a HomeStyle Renovation with other programs, such as HomeStyle® Energy, HomeReady®, and Accessory Dwelling Units (ADUs).
The Fannie Mae HomeStyle Loan Process
Now, let’s go over the steps involved in a HomeStyle renovation process:
1. Find a House
If you want to purchase and renovate a home, this step involves searching for a property that suits your needs. Consider factors like location, size, and potential for improvements. If you own a house and plan a HomeStyle renovation only, skip this step.
2. Define the Renovation Plan
Before starting any renovation work, determine what you want to achieve with the project. Discuss your renovation goals with your family to create a clear plan that outlines the changes you want to make to the property.
3. Find a Lender
This step involves researching and selecting a lender who offers the Fannie Mae HomeStyle Loan. Lenders play a critical role in navigating the loan process. Therefore, it is important to find one you are comfortable working with.
4. Choose a Contractor
Collaborate with a licensed contractor who specializes in the type of renovations you have in mind and has experience with a HomeStyle loan. Work closely with the contractor to create detailed plans, including the scope of work and a schedule for completing the renovations.
5. Submit Plans to the Lender
Together with your contractor, submit the renovation plans to your lender. These plans will detail the improvements you intend to make.
6. Appraisal
The lender will share the renovation plans with an appraiser. The appraiser’s job is to evaluate the property and the proposed renovations to estimate the home’s value once all the work is completed. This appraisal helps the lender determine the loan amount they can provide.
7. Loan Approval
After the appraisal, the lender will inform you of the maximum loan amount for which you are eligible. This amount is based on the as-completed value of the home, determined by the appraiser, along with the maximum loan limit.
8. Funds Management
After the lender approves your loan, they may sell it to Fannie Mae but continue to manage it during construction. The funds will then be placed in a custodial account. This is a bank account the lender creates to hold money belonging to the borrower and Fannie Mae. This money does not belong to the lender’s company. The funds will be used to pay for the renovation work as it progresses.
9. Construction Begins
Your contractor can begin the renovation project using the available funds in the custodial account. Throughout the project, the contractor will request draws to cover their costs as they reach various milestones.
10. Progress Checks
For each draw, an inspection takes place to ensure that the contractor has done the job according to plan and that it meets the required quality standards. If everything is satisfactory, the lender releases the appropriate funds to your contractor.
11. Final Inspection and Appraisal
Once the contractor finishes all the required renovation work, the lender will initiate a final inspection and appraisal process to verify that the project has been completed as per the planned design. After the successful completion of the inspection process, if everything looks good, the lender will release any remaining funds from the custodial account.
12. Title Update
The title company updates the property’s title policy to reflect the completed renovations, ensuring that the title accurately reflects the property’s new condition.
13. Loan Finalization
The lender finalizes the necessary paperwork, including submitting a certificate of occupancy, and sends these documents to Fannie Mae. This step helps close out the loan process. The lender either sells the loan to Fannie Mae or removes recourse if the loan was sold before the renovation’s completion.
14. Enjoy Your Renovated Home
With the mortgage and renovation costs combined into a single loan, you will make one monthly payment to your mortgage lender. Now, you can enjoy your newly renovated home, knowing that the financial aspects of the project have been successfully managed.
Tips and Considerations
- Make sure to choose the right lender and contractor. Pick a lender specializing in HomeStyle Loans and a contractor with experience in HomeStyle renovations. They will be your key partners in this journey.
- Consider the closing costs. When applying for a HomeStyle Loan, it’s important to consider the associated closing costs and budget for them accordingly.
- When planning a renovation project, it’s important to consider the completion timeline. Ask your contractor for an estimated timeline to help you plan your living situation and make necessary arrangements during the renovation process.
- It is crucial to fully comprehend the terms and conditions of your HomeStyle Loan. Make sure to read and understand all the details, including interest rates, repayment schedules, and any specific requirements set by the lender. Knowing what you are signing up for is essential for a successful loan experience.
Conclusion
Navigating the Fannie Mae HomeStyle loan process may seem complicated but it is quite straightforward. With proper guidance and some research, anyone can do it. However, it is important to make wise choices every step of the way, especially when choosing a contractor. The contractor you choose can make all the difference between a successful HomeStyle renovation and a disappointing one.
If you live in the Philadelphia area or New Jersey, Matrix Company Solutions Corp is here to assist with your HomeStyle renovation project. We have the knowledge and experience to ensure your home renovation goes smoothly. Don’t hesitate to contact us for a FREE Consultation and Estimate.
0 Comments