I wanted to take a collective poll as to who has had experience and what the community has heard regarding Fannie Mae's HomeStyle renovation mortgage product -- not to be confused with the HomePath renovation product which is being discontinued next month.
From what I have read, the HomeStyle loan does not require owner occupancy and costs of renovations can be tied into the purchase price. There is no discrimination between owner-occupants and investors while acquisition of the property is possible with as little as 85% LTV. There is PMI involved and many hoops to jump through similar to the FHA 203k, but with no restrictions for investors this seems like a great idea for beginners like myself.
I am curious to hear what the BP family has to say about experiences or hearsay about Fannie Mae Homestyle.
@Evan Manship thanks for posting information about this program.
Here is the official link: HomeStyle Mortgage
Thanks for the link Dawn, but have you had any experience with HomeStyle mortgage, or heard any pros and cons? I've searched through BP and can't find much on the topic, and haven't heard it mentioned in any of the podcast. Very curious about it though!
Thank You Dawn for sharing the link.
I found this article that gives some good info. It's a tutorial designed for the lenders, but it does a pretty good job of explaining the process in detail. If anyone has any experience with this type of loan as Evan and Alex said, I too would be very interested in hearing about it.
I have not yet, but am planning on using either that or a similar product to finance the multifarious I am currently looking for.
I am currently in process of using the Homestyle loan as an investor buying a duplex using hard money to acquire and Homestyle as the takeout refi.
My goal is to have $0 cash into the deal and come out with a cash flow of $500 a month and 100K in equity. Rehab is huge about 75K. Working on hard estimates now.
I am just starting the Homestyle loan process.
I looked through that tutorial and it says that in order to use this option for an investment it must be a single unit. Is this true @Justin Green or will your duplex be eligible?
@Cody Steck Yes it does need to be a SFR not multi-family. My property just happens to be titled as a SFR.
Ahh, very nice
@Justin Green can you explain your example a lil bit more? Wouldn't you need to at least pay closing costs for the hard money or %20 down? My assumption was they want you to have skin in the game. I have not used these methods before so forgive my ignorance.
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@Nathan Paisley I do have holding cost with private money so yes that is out of pocket unless I can defer points and interest till the take out loan closes. I am a broker so my commission kicks in for the majority of "skin in the game". Some private lenders will go 90% of purchase price or more depending on the person. Closing cost for private money is paid by me or deferred.
An investor using homestyle renovation needs 25% down or 75% LTV if you hold title.
@Aaron Hall Its a long process. I am currently closing another homestyle deal and can tell you from a brokers standpoint use 1 contractor not multiple and give 60 days for closing vs 30-45. Appraisers in our area are backed up weeks due to rate drops early in the year.
@Justin Green I know that in my area FHA has few appraisers. Usually from the appraising side it requires more work than usual so it gets shopped around for who willing to do it for how much. Since this isn't a simple appraisal higher fees are being asked and longer turn time.
So on the repairs side you mentioned having 1 contractor. Around here, the owner is usually the general so he can save money on the permit process. What the challenge when there are many contractors?
The new Fannie Mae Homestyle Revo program is a wonderful loan that I'm doing for a couple of clients here in Tampa, FL. It's what I'm calling the mini construction loan and works great for someone looking to at their own personal stamp on a primary residence or just as an investment property. There are a few more steps to it but yes, much less restriction than the FHA 203K. For example, there is not limit in upgrades or remodeling repairs on the Homestyle as opposed to the 203K of $35K cap. Plus, you can add or rehab a pool with the Homestyle. In fact, 50% of the total ARV can be repair/remodeling costs. You just have to add value to the property and need to have it done with no more than 5 draws or less and completed no longer than 6 months after closing. Depending on the borrower scenario, one could still put as little as 5% down. And here is the best part! - A normal cashout refinance to do repairs is restricted to 80% loan to value on a primary home along with higher rate adjustments for the cashout feature. The homestyle allows for up to 95% Loan to Value. So one has more money to work with and probably less in rate. This program has really gotten my phone ringing from those wanting to know more about the loan. Call me 813-732-3155 directly or email [email protected] www.GreenHouseMortgage.com
I actually just posted some highlights about this program in the marketplace a couple of days ago.
My Bank actually has a renovation division that specializes in the 2 loans (FHA and Fannie)
We're getting these loans closed in 45 days on average and this also depends on the scope of work. The Reno loan officers take care of the entire process from start to finish so you don't have to be knee deep in the process if you don't want to be.
If any of you are looking for additional information please let me know and I can forward you to the Reno department so that they can answer any questions that I can't.
I hope this helps and have a great day all.
Yeah, as @Aaron Hall mentioned, I just bought a place with this loan. Just getting started on the renovation part, but so far I'm very happy about this loan option, and looking at doing more deals with it. The mortgage guy I used was new to it as well, and pretty excited about it. Seems many lenders recently added it to their options.
We are doing this one owner occupy, so, purchase price of 200k, 20k (5% down) at closing, 65k renovation funds, appraised (after repairs) at 305k.
Like I said, so far so good. I'll report back once we've completed the renovation process.
Could anyone please recommend a good lender or broker in NJ who does Homestyle loans?
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More about the HomeStyle renovation loan. As a broker and project manager, we have used a variety of methods to get funding for renovations. During this process, we have quite a bit of experience with these loans, working with investors.
Some of our clients have had pretty decent success, but I would encourage anyone to work with a lender that really understands these loans and has experience with them. If they dont, you may have some hiccups along the way. It is a much lengthier process that requires diligence, etc.
I concur that 45-60 days is necessary to underwrite these loans.
I also strongly encourage the use of a local lender, preferably relationship developed. There enough more moving parts that this will become an advantage.
You contractor working on the renovations should be a single, licensed and insured contractor. This will keep things simpler. Their bid needs to be itemized and able to pass scrutiny.
The renovation bid cannot/shouldnt include non-real estate items. Things such as appliances and other items that have less than long term life will probably be dis-allowed.
There are still lenders willing to work on these with 85% LTV with PMI.
Find a way to finance renovation carefully and minimize draws. Draws are an important piece of the loan, but they add time to the process. We find a way to manage to a single draw at the end, when possible.
The appraiser is a specialized appraiser, typically an FHA renovation appraiser, that reviews the bid with the house originally, and also completes draw inspections. Be friendly.
Far cheaper than a hard money loan, with many similar processes. its also a traditional, single loan, 30 yr fixed term mortgage.
In conclusion, these loans are valuable at preserving Cash on Cash returns. Used intelligently, they are a good product for investment properties.
I did this loan back in 2012. The renovation was around $100K. I'm a big fan of it ... I mean, VERY big fan of it. Having a clear understanding of this loan will allow you to bid on properties that you otherwise wouldn't be able to even think about buying. If a property needs repair, you can't get financing without using a rehab loan, and I really do NOT like the FHA options, for many, many reasons. I suspect the Homepath program was canceled because the Homestyle program is so much better, there wasn't a point to having both.
Here are a few lists of things to consider ... it's a long list, but also very incomplete. To be honest, tomorrow I'm probably going to think of 100 more things I could have added to the lists:
So, here's a list of pros:
1 - You can buy a run-down property with this loan that you otherwise couldn't buy with standard loan options
2 - It's one loan, not a bridge loan, not a hard money loan, not something you have to re-fi later (although you can re-fi later if you want, of course).
3 - Rates are close to the same as comparable rates for non-rehab loans, maybe sometimes exactly the same
4 - You can purchase as primary or secondary or investment property with similar down payments as non-rehab properties
- For instance, 5% down for owner-occupied, single family home
- When you get a duplex, triplex or quadplex, your down payment goes up (or your LTV goes down, same thing)
- Investors can use this loan, although the downpayments are higher, but that's the same for investor loans on non-rehab properties anyway
- Here's a link to an August 2015 update sheet that gives you all your purchasing options and down payments for each option: https://www.fanniemae.com/content/fact_sheet/homes...
5 - Because you are purchasing a property that needs repair in the first place, you will probably end up with higher equity in the home than the rehab money that was required to repair it. That's the whole game with flips, right? Whatever you spend on repair should be worth (hopefully) 2x in equity when you're done.
- Of course, you should be able to get the home that is in disrepair at a discount BECAUSE it is in disrepair, but that's already a given, right?
6 - There's less competition for you when you can use this loan
- Less people know about it
- Many people self-eliminate from this type of purchase for multiple reasons - they want their dream home, and therefore aren't interested in a fixer, or they don't know enough about fixing homes or are intimidated by doing repair work, etc. ... you've just taken out all of those buyers from even looking at homes that would require a rehab loan
- This also means you can get even better deals, not just because the home is in disrepair, but because fewer buyers are looking for this type of home
Most of the above is just advantages of rehab loans to begin with. The advantages over FHA are the same advantages as a non-rehab loan gives you ...
1 - FHA loans add 1.75% mortgage insurance premium to the loan (sure, it's amortized over the whole loan, but if you re-fi, you just lost that money for no reason, as you still have to pay that extra amount off).
2 - FHA has restrictions to what you can use the money for, Homestyle is less restricted.
3 - FHA is more bureaucratic, they take longer to approve of draws, longer to pay back the contractors, and are generally a pain to deal with. I say this out of the research I did, not experience, because I chose to go with Homestyle over FHA. Homestyle depends on the bank you work with, and should be a smoother process.
4 - FHA requires MI for the duration of the loan, Homestyle drops automatically at 78% LTV (or I should say, Conventional drops at 78% LTV). Not to mention, the PMI on conventional loans is less than the MI on FHA loans to begin with.
5 - FHA is restricted to owner occupied, I believe ... say you want to turn it into a rental later on, you can do that with conventional, but not with FHA. You'd have to refinance. And this also means investors can't use FHA.
Things you should do BEFORE you look for a property to use this loan on:
1 - Shop around for lenders that offer this loan - shop around a lot, get rate quotes and compare fees. Every lender says they're great. I say prove it. I prefer no points, I've studied points and in the long run I don't think it's worthwhile, it takes something like 10 years to pay off ... you'll probably re-fi before then anyway. Just find a good lender you can rely on, in fact get two just in case you run into a problem with the first one (delay in financing could hurt your financing contingency in your purchase and sale agreement with the seller).
2 - Study the Homestyle loan. The rehab portion of the loan can not exceed 50% of the ARV (After Repair Value). There is a ceiling to the loan amount that is allowed. There is also a ceiling to the loan amount you can qualify for. Figure out all of these numbers so you know what you are playing with when you look at properties. Ask questions to lenders, do research online, etc. etc.
3 - Find a contractor that you can work with. It's required. Fannie Mae won't let you do this loan without a licensed, bonded, insured, etc. contractor that will give them a bid that they approve, etc. etc. One contractor is required on the paperwork, although they can sub-contract to whoever they want, just like any contracting job.
- This is extremely important, and it might be one of the trickier aspects of this loan - you have to get your bids together quickly so you can submit them to get approval for financing, and if you have to wait a week or two for your contractor, your financing contingency deadline could expire and you lose the deal.
- Ideally, you should be working with a contractor that has experience with projects using rehab loans. The way it works is that they do the work, then request a draw. A 3rd party inspector comes out and checks the work and decides how much of the requested draw is valid based on the work that is done. Then they submit their paperwork to the bank, who then takes however long they take to send a check (should just be 1-3 days if the bank has any experience with rehab loans - stay away from any bank that will take a week or two or longer - just ask them). This is a problem for contractors' cash flow, and that can impact your project if the contractor constantly has problems making ends meet.
- If you want to do any of the work yourself, you just have to be up front with your contractor. I did this, and it worked out fine. I even explained to the bank that I'd be working a bit with the contractor, and it was no problem so long as the contractor still took responsibility for the overall project - the bank will hold the contractor ultimately responsible, and they won't risk a large project with someone who isn't a contractor, but the contractor can use their judgment in working with you.
4 - When looking for homes, it's nice to be able to have a contractor go with you to check the home out. It might be hard to get one to spend that time helping you out, though. Any help from someone that has some rehab experience can help you understand the potential of a house that needs rehab work. Otherwise, you can always bid on a property and get out of it during your 10-day inspection period if you find out the repairs are more expensive than you thought they would be. Either way, i would use the 10-day inspection contingency to bring your contractor out - you can still do an inspection, but since you'll be rehabbing the house, it seems like that's less helpful than having your contractor going through the house, they should be able to call out most of the same issues anyway.
5 - Get ahold of a rehab list from the bank - or from a contractor that has done these loans. It's an eye opening list that will help you understand how rehab bids work. It may help you when you are looking at a house as well, it will remind you of all the things that you should be looking at for repairs.
One thing to know about during your bid process - give 45 days at least. But really, ask your lender. If they have experience with these loans, they should know how long it will take, and use that as your closing period. You can always ask for an extension with the seller, and they usually would want to give it to you, they DO want to sell the property. That being said, WASTE NO TIME. Get on top of everything, and QUICK.
Like I said, I'll probably think of 100 more things to add to this tomorrow. This is all I've got for now. I can't imagine looking for properties without being armed with this loan - it's my favorite real estate weapon!
Originally posted by @Dennis S. :
Could anyone please recommend a good lender or broker in NJ who does Homestyle loans?
Anthony Cagno at Prospect Mortgage - Fairfield, NJ (862) 268-0465
FHA 203K and Fannie Mae Homestyle - Very knowledgeable - Always available
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