What Is A Home-style Loan?
When homeowners are planning to make improvements on their home, they focus on the home equity loan to finance their process. However, most people are not aware that home equity loans are not the only available options. If thinking or looking to buy a home that requires more remodeling, or maybe a complete renovation, have an open mind on the best available loan for your course. Consult form Colorado Mortgage Pros and have the best possible loan. With the above two examples, there is another loan that is specifically designed to cover home improvement on a new or refinanced property. This is referred to as the Fannie Mae’s Home-style Renovation Mortgage. Therefore, a home-style renovation mortgage can be described as a loan that is backed by the government and allows qualified borrowers to add additional funding to their loan, mortgage for home remodeling or improvements, or mortgage refinancing. These loans are supposed to provide a much economic and convenient option for homeowners, investors, and home buyers to finance moderate to minor home improvements. All this is done through a single refinance or single mortgage instead of having to apply for a second mortgage or home equity credit line, or other expensive options, based on Fannie Mae. The loan amount is reliant upon the ‘as-completed’ future property value after the repairs or renovations have been done, instead of the ‘present value’ of the home.
Main Advantages of a Home-style Loan
The main factor that makes this type of loan more attractive to many is the fact that it can help make equity in the property almost immediately. These renovation loans can help take care of the energy efficiency improvements, inspection cost, builder and contractor costs, design upgrades and much more.
Home-style renovation loans are typically 15 or 30 year fixed rate mortgages or an adjustable rate, ARM mortgages. This system is flexible and very low priced. The borrower can avoid extra fees and the closing costs that are associated with taking other mortgages. On top of this, the first payment is mostly around 5% and the loans have a much lower rate of interest which can be as low as 5-7%.
It is worth noting that not all banks can offer home-style mortgages and lenders must be accepted by Fannie Mae, and meet all the operational and financial requirements. Borrowers must also have a minimum of 2 or more years’ experience in originating mortgages and renovation loans in the last five years.
Requirements of a Home-style Loan
The borrowers eligible for this loan are:
- Individual home buyers
- Local government agency
- Nonprofit organizations
Properties eligible for the loan include:
- Manufactured housing
- 2 to 4 unit primary residences
- Single-family residences
- Single unit investment properties such as FNMA and Co-Ops approved condos
It is imperative to note that nonprofit organizations have to produce extra documents proving they are capable of paying the loan. The respective recipients that are considering the home-style loan must have a debt to income, DTI ratio of 50% and a credit score of 620 or higher.
These loans require that the renovations and repairs are done by approved architects and contractors. Therefore, they might be asked to present their suggestions and plans before the approval of the loan. The main aim is to ensure that home improvements are convenient, economical and documentation assists lenders in computing the property’s value ‘as completed’. If the financing for the DIY projects for the project is significantly less than 10% of the ‘as completed’ property value, the lending company can allow borrowers using the owner-occupied homes that are single unit dwellings to complete some of the work.
Also worth noting is the fact that the exact timeline of the project must be specifically indicated by the general contractors when submitting the plans to the lenders. All energy efficient improvements must be performed within 100 days and the renovations within 6 months. After everything is done, the lending company will then get an appraiser to inspect and report back to Fannie Mae before paying the contractors. For more information on the home-style loans, Colorado Mortgage Pros are always ready to assist.