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I get a lot of questions about this topic. Which is best? What can or can’t I do? Can I do the repairs myself? Many homes on the market need some work. If you want to finance the purchase of a fixer-upper, you can choose from two main renovation mortgages: a Fannie Mae HomeStyle Loan and an FHA 203(k) loan. Both allow you to buy a home and pay for renovations with a single mortgage.
The main difference between the two is that a Fannie Mae HomeStyle Loan is a conventional mortgage, while an FHA 203(k) loan is a government-backed option with more lenient buyt more expensive typically qualifying requirements. To Learn more about how your renovation goals, timeline, and financial status can help you determine which is best for you, I suggest emailing my go to loan officer, Shane Davis at shane.davis@firstunitedbank.com or go to his site at www.shanedavishomeloans.com.
Trying to decide which one works best for your goals? Shane can help with that, but here is a cheat sheet for you to review:
Fannie Mae HomeStyle Loans are a type of conventional mortgage backed by Fannie Mae. 203(k) loans are and FHA loan.
There are advantages and disadvantages to both types of loans. Typically, with the FHA loan, you can qualify with a lower credit score. Additionally, this type of loan allows for a slightly lower down payment.
However, conventional mortgages may not have the requirement to carry mortgage insurance if you put 20% down. If your loan-to-value (LTV) ratio is below a certain amount, 80%, you can remove this coverage. Contact Shane to help you with this. This can help save money on your monthly payments. Because the 203k is an FHA loan, you will be required to carry mortgage insurance for the life of the loan. This can cause 203k mortgages to be more expensive than the Homestyle.
Both the Homestyle and 203k loans have similar qualification requirements but they do have some slight differences, mainly with credit scores. A homestyle requires someone to have at least a 620 score, where a 203(k) only requires a 500 score. Get with Shane on this as there are some extra requirements on 203(k) for lower scores. You will have to put at least 10% down on a 203(k) if your score is below a 580.
The FHA 203(k) must be a primary residence. But you can use it on any property up to 4 units (you must live in one of the units)
You can purchase single-family homes, structures with one- to four- single-family units, condominiums that are FHA approved, and manufactured homes.
The Fannie Mae HomeStyle Loan is more flexible. It can be used for owner-occupied primary residences. But you can also use this type of mortgage for second homes and investment properties. The HomeStyle loan also allows for the purchase of structures with one- to four- single-family units, condominiums, co-ops, and manufactured homes.
You cannot use the 203(k) or the Homestyle for a complete tear down and rebuild. Shane has other construction products for that type of construction. Contact him here.
The homestyle does not have a maximum renovation amount; however, it does have a requirement that you cannot exceed 75% of the homes new value in the renovation.
Example: new appraised value is $400,000…the renovation amount cannot exceed $300,000 400,000 x 75%= 300,000
The 203(k) has a minimum of $5,000 in renovation amount and a maximum of $35,000 on the limited 203(k). If your repairs are going to cost more than $35,000, I highly suggest speaking with Shane about your options and requirements.
Both the 203(k) and Homestyle have different renovation requirements they cover. The 203(k) does allow you to take a home down to the studs for a complete makeover, but you cannot change the footprint. Sorry, no extra primary suite. A Homestyle does not allow this. the 203(k) is more restrictive in what you can and cannot do than a Homestyle. The Homestyle is more flexible. You are allowed to add that primary suite, luxury landscaping, even a swimming pool!
The answer to this question lies solely in the property that you are trying to purchase and what you want to do to it. Shane is an excellent resource for this which is why we send all of our clients to him! I love how he takes the time to sit down with each client to really determine all of their goals and to put a plan of action in place.
The bottom line, whether you are looking at a 203(k), a homestyle, or building from the ground up, you have options!
Contact info for Shane Davis - https://shanedavishomeloans.com
