Renovation

Renovation Loans

Renovation Loans enable home buyers to borrow both the purchase price of the potential home and any renovation costs, and wrap it up into one mortgage loan amount. Renovation loans include Fannie Mae's HomeStyle®, Freddie Mac's CHOICERenovation® and FHA 203K programs.

How does a Renovation loan work?

The money is dispersed to pay for the home purchase or refinance the existing lender at closing, but in order to use the funds for renovation, an approved contractor must submit plans to the bank for a “draw” to get paid. Then after inspections to ensure the work is done, the bank sends the money to the contractor. This limits fraud (homeowners and contractors using renovation loans for other things), but it is more of an administrative headache than simply using cash for home improvements.

Conventional Renovation Property Types

You can use a HomeStyle loan to buy and renovate pretty much any type of property – including multifamily homes, second homes and investment properties. Below is a full list of the types of properties eligible:

○ Single-family detached home

○ Townhome

○ Condo unit/co-op unit

○ Duplex, triplex or quadplex

○ One-unit second home

○ One-unit investment home

○ One-unit manufactured home

What Renovation loans cover

These loans have many restrictions on what you can use the renovation funds for as long as the changes are permanent to the home and provide value. From small projects like paint and floors to large scale rehabs or additions, as long as repairs are completed within 12 months of the loan origination. This means you can use the loan for projects like:

○ New floors

○ A second, smaller home on the property

○ New landscaping

○ Kitchen remodel

○ Bathroom remodel

○ Mechanical upgrades and improvements (such as upgrading electrical or HVAC)

○ HomeStyle loans can also be used to build accessory dwelling units, like a carriage house or garage apartment or to finish a basement for an in-law suite.

Fannie Mae HomeStyle renovation loans allow you to make changes to your property, but they do have their limits. Here are a few examples of what is not covered by the Fannie Mae HomeStyle loan:

Tearing down a home

Making structural changes to more than 50% of a manufactured home

Building a second home on a new property

Improvements that are not permanent to the property like furniture, certain types of landscaping, light fixtures, or a moveable storage shed or unit

FHA 203(k) Loan

The Federal Housing Administration (FHA) is another government agency that serves to act in the best interest of the American consumer. The big difference between the FHA 203(k) loan and the Fannie Mae HomeStyle loan is that with the FHA 203(k), you can demolish an existing structure, provided you rebuild the home back on the existing foundation.

With any type of renovation loan, you are using bank money for the rehab, so they are the ones who oversee the project and payment. The borrower never receives cash upfront with this type of loan.

To see what types of financing you’ll qualify for, start your application online and find the right way to pay for your home renovation project.

What are Fix & Flip Loans?

Fix and flip loans are short-term, real estate loans designed to help an investor purchase and renovate a property in order to sell it at a profit—generally within 12 to 18 months.

Fix & Flip typically include:

○ Up to 90% Acquisition LTV
○ Up to 100% LTV of Rehab Budget
○ Advance Draws
○ 18-25 month terms
○ Multi-Family 1-50 Units and Mixed Use

Loans are collateral-based, and Interest rates are typically higher than conventional renovation loans.