Conventional Renovation Loan vs. other rehab finance options

[Amy Summer]

Hello! First-time homebuyer here. I recently came across the Fannie mae home style loan, which I understand is a conventional renovation mortgage. I want to know what is the benefit to obtaining  a property under this type of mortgage vs. doing a traditional conventional mortgage and financing the renovations by other methods (ex: hard money or personal loan). Is this a strategy that most investors use starting out? What are the pros and cons for the home style loan? 

[Jason Wray]

Hi Amy,

FNMA Homestyle can take a little longer and require a lot of documentation and GC/Builder approvals. Still a great option but you can speed up the process if you simply buy the property and close with a perosnal loan or LOC for the repairs/renovations. Typically you want the property to be either "liveable" or once the first appraisal is done have the "Subject to" be reasonable enough to where it can be done within 30 days to close after repairs.

The way the market is going right now I would for sure be focusing on properties that are not turn key. Unless of course the Cash flow meets your NOI.

[Amy Summer]

Quote from @Jason Wray:

Hi Amy,

FNMA Homestyle can take a little longer and require a lot of documentation and GC/Builder approvals. Still a great option but you can speed up the process if you simply buy the property and close with a perosnal loan or LOC for the repairs/renovations. Typically you want the property to be either "liveable" or once the first appraisal is done have the "Subject to" be reasonable enough to where it can be done within 30 days to close after repairs.

The way the market is going right now I would for sure be focusing on properties that are not turn key. Unless of course the Cash flow meets your NOI

@Jason Wray Thank you for the response! The type of property I am looking for would be a buy and hold with the potential to be a rental much later. In other words, it will be my primary residence for at least a few years. I may also potentially need to use some student loans to acquire my master’s degree. So there is no rush. In this case, would the Fannie may loan be the better option? 

[Robin Simon]

Quote from @Amy Summer:

Hello! First-time homebuyer here. I recently came across the Fannie mae home style loan, which I understand is a conventional renovation mortgage. I want to know what is the benefit to obtaining  a property under this type of mortgage vs. doing a traditional conventional mortgage and financing the renovations by other methods (ex: hard money or personal loan). Is this a strategy that most investors use starting out? What are the pros and cons for the home style loan? 

 Biggest difference is going to be the tradeoffs (which has pros and cons) of lower rates and fees but much more hassle, paperwork, time suck and potential for deals not working with strict requirements (conventional) vs. hard money (higher rates and fees, but much quicker, much less documentation and time and hassle, and a much lower likelihood of deal dying - hard money lenders can be much more flexible)

[Paul Welden]

@Amy Summer

Rehab loans have lower interest rates compared to HML and personal loans and the interest on rehab loans can be tax deductible.

Lots more paperwork and regulations when doing a rehab loan but can be complete worth it if done properly and with the correct team in place. 

[Jay Hurst]

Quote from @Amy Summer:

Hello! First-time homebuyer here. I recently came across the Fannie mae home style loan, which I understand is a conventional renovation mortgage. I want to know what is the benefit to obtaining  a property under this type of mortgage vs. doing a traditional conventional mortgage and financing the renovations by other methods (ex: hard money or personal loan). Is this a strategy that most investors use starting out? What are the pros and cons for the home style loan? 

@Amy Summer If you go the Fannie Mae homestyle or the FHA 203k program on a purchase make sure to build in more time for the closing in the purchase contract. Just a few months ago with the white hot market you would likely not get seller to accept your offer with the timeline it took to close a homestyle or 203k loan. But, depending on your market you might be able to make it happen today but you need to make sure your real estate agent understands the process so they get enough time in the contract.

[Jason Wray]

Quote from @Amy Summer:

Quote from @Jason Wray:

Hi Amy,

FNMA Homestyle can take a little longer and require a lot of documentation and GC/Builder approvals. Still a great option but you can speed up the process if you simply buy the property and close with a perosnal loan or LOC for the repairs/renovations. Typically you want the property to be either "liveable" or once the first appraisal is done have the "Subject to" be reasonable enough to where it can be done within 30 days to close after repairs.

The way the market is going right now I would for sure be focusing on properties that are not turn key. Unless of course the Cash flow meets your NOI

@Jason Wray Thank you for the response! The type of property I am looking for would be a buy and hold with the potential to be a rental much later. In other words, it will be my primary residence for at least a few years. I may also potentially need to use some student loans to acquire my master’s degree. So there is no rush. In this case, would the Fannie may loan be the better option? 

 Amy,

FNMA is a great loan that offers less down and lower mortgage insurance then say an FHA loan. So it would be the better of the choice compared to say FHA. Unless you were buying a Multifamily then FHA would have the lower down payment option. You can also look into DPA- Down Payment assistance in case you need some help with the down payment and closing costs. There area also FED Grants that you can use to help with $10-$15K.

The only thing with DPA is when if you will need to borrower cash you just have to check the seasoning requirement of the DPA payback.