The Ultimate Guide to the FNMA HomeStyle Renovation Mortgage


As real estate investors, we are always looking for new and better solutions to improve our investments. Most investment properties take money, and often that means cash we don’t want to give up or don’t have to give up. There IS a solution to this problem. Whether you’re an investor who prefers to pay all cash for your real estate investments or one who uses financing to buy the property and pay cash to fix it up, or whether you use hard money lending, there are other options that you should consider.

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What is the HomeStyle Renovation Mortgage and How Does it Work?

The HomeStyle loan is a Fannie Mae (FNMA) loan that basically allows an investor to purchase a property and include the renovation costs into the mortgage. It’s quite similar to a hard money loan, but the significant difference is that the loan is a permanent loan (15 or 30-year fixed). It’s also traditionally a LOT cheaper. Since the loan is FNMA backed, it’s going to conform more to the market interest rates and fees for a conventional mortgage.

Here is the most basic example to wrap your head around the idea of this product:

  • Sale Price: $100,000
  • Renovation Budget: $25,000
  • Total Investment Needed: $125,000
  • 80% LTV, 30-Year Fixed Mortgage*
  • Traditional Mortgage Rate (5% +/- in 2015)
  • Loan Amount (80% of $125k): $100,000
  • Cash Down Payment: $25,000
  • Escrow Account Setup for $25,000 in Renovation
  • Great Property, Fixed, for 20% Cash Investment


  • Hard Money Loan
  • $125,000 Total
  • 70% LTV
  • $37500 Cash Needed
  • 3-5 Points Up Front
  • 10-18% Interest
  • 6-12 Months Payoff

As you can see, you get most of the benefits of a hard money loan wrapped into a single close, long-term financed mortgage without the expense.

Intrigued? You Should Be! Let’s Continue With More Details.

Who? Fannie Mae is America’s largest secondary lender. Many of their tradition guidelines that apply to conventional loans also apply to their HomeStyle product. One thing to keep in mind is that not all FNMA qualified lenders are qualified to also sell their HomeStyle loan product, so you must ask.

What? The HomeStyle loan is designed for investors and owner-occupant buyers as an alternative to the FHA 203(k) loan, as well as for second home buyers. As far as lending limits, most mortgage brokers will tell you that up to an investor’s fourth loan can be a HomeStyle. While we know that some investors can obtain up to 10 FNMA loans with increased qualifications, a borrower can only use the HomeStyle up to their fourth loan. We have not tested this yet, but that’s what we’ve been told.


Many of the same lending guidelines that apply to qualification for a conventional FNMA loan apply to a HomeStyle loan. Most traditional conventional loans allow lending limits of 80% LTV. For investors using a HomeStyle loan, there is a maximum LTV of up to 85% with mortgage insurance, or 80% without. For owner-occupant buyers, the limits are significantly higher (also with MI).

Related: The Five “C’s” of a Perfect Loan Proposal

When? Now! But remember, the HomeStyle mortgage process takes 45 and sometimes up to 60 days to close. Plan accordingly with your contracts. These are more intense than the standard, 30-day conventional mortgages, so make sure that you have the time and personal commitment to work the process.

Where? Most of these are used on single family houses, but there are exceptions allowed. These loans can be used on houses, 2-4 family units, condos and other property types that are “permanently” attached.

Why? To preserve CASH! You can substantially increase your cash on cash return using this product versus other investment scenarios. You can increase your portfolio faster.

The FNMA HomeStyle Renovation Mortgage Lending Process in Detail

First, find a qualified Fannie Mae HomeStyle lender.

As mentioned, not all lenders or mortgage brokers are qualified or set up to provide the HomeStyle mortgage. It takes quite a bit more staff and processes for the lender to be able to provide these. Make sure it is a lender that you feel comfortable working with. This is a process; you need to be comfortable with your lending partner.

I strongly urge you to use a mortgage broker or lender that is in the area of the property. This process involves a few extra people. Having a direct relationship with someone who wants to keep you happy for referral business and repeat business is important. Celebrating with a blender of margaritas when your house is done is even better. Once you have your lender selected, you will need a pre-approval letter to present with offers.

Second, put a house under contract.

Restrictions: Not many. It should need some repairs, at least enough to justify this process and a couple of extra costs. What can it need? Just about anything. Windows, yes. Doors, yes. Bathroom, yes. Kitchen, yes.  Roof, yes. An addition onto the back of the house? Even for this, yes. Free-standing stove, no. Mini-blinds, no. (More on this later.)

Third, get a Contractor and an inspection (required by most HomeStyle lenders).

Most contracts permit a 10-day inspection period or other amount of time that is negotiated to have a professional inspection. This can be money well spent to make sure that you have located all or most of the necessary renovation items that you will need to take care of during the process. A qualified inspector can make reasonable suggestions on what and how to repair certain items.

FHA Home Inspection Checklist

But the important part of this process is to have a renovation contractor develop a Scope Of Work (SOW) with you. The contractor will also need to complete a contractor profile. These are required parts of the loan paperwork. The lender needs a SOW, also called the Scope Of Repairs (SOR), to know what you plan to do to the house and that those items will actually bring it to a livable condition. Here are some items that you will be required to provide to your lender:

  • Scope of Work with itemized repair budget
    • The cost of the renovation cannot exceed 50% of the purchase price of the property
  • Copy of contractor’s license from the jurisdiction of the property
  • Copy of contractor’s insurance (general liability and workman’s comp usually)
  • Contractor profile form from Fannie Mae
  • Copy of contract between you and your contractor (here is an example from FNMA)
  • Notification of work needing permits (can’t moonlight these; permit work must be permitted)

*Note: Fannie Mae does permit limited “self help” or DIY renovations, but most lenders do not. Typically, you must hire a qualified, licensed contractor for your entire renovation project. Some may make arrangements to work with the contractor, but they must be responsible for the entire project. FNMA may also frown on this practice, but we haven’t tested it.

Fourth, you will need to provide your lender with documents.

These will simply entail the traditional documents needed for a conventional loan and a few other items related to the renovation.

Fifth, your hard part is done. It’s a time process now.

Some of the next steps include an appraisal that is ordered and managed by the lender or mortgage broker. Rather than a traditional appraisal, they are going to appraise the property based upon “subject to repairs” or the “After Repaired Value” (ARV). This is important to the lender and to you in order to justify that the cost plus renovation do not exceed the value of the property repaired. The lending process is going to maximize the loan at either 80% of the ARV, or 80% of the cost of the property and renovations. (If you have another LTV, i.e. 85%, substitute as needed.)

Sixth, you’ll get the Feasibility Study performed.

Usually the appraiser is qualified for this step and can do this process, but it can also be done by another party chosen by the lender. These inspectors are usually HUD consultants. The validation of the SOW/SOR is done by the consultant. This is called the Feasibility Study.  As mentioned, the appraiser or other party will review the SOW/SOR while at the property to justify that this set of repairs will bring the property to a livable and safe condition. They will also validate the cost of each of the items being repaired in accordance with market prices.

Seventh, underwriting takes place.

Once all of the documents have been received for the loan, the lender will underwrite the loan for final approval. Additional questions are regularly made at this point, and then the loan is set for approval. The underwriter, under FNMA guidelines, WILL add a contingency budget of usually 10% of the total cost of the renovation and sometimes up to 20%.

Eighth, you’re ready to close.

Once everything has been done with this process, which typically takes 45 days and sometimes longer, you are ready to close on the sale. The closing will take place as usually set up in the state of the property. An escrow account is set aside with the renovation proceeds, usually with the lender. Instructions will be given, and additional contacts will be presented for the duration of the process.


Ninth, you are ready to begin renovations.

It’s up to you and/or your contractor to start the renovations as outlined. Initial funding must come from other resources. The lender will NOT give you starter funds for the renovation. Typically, the owner will need to provide the contractor with starter funds to fund materials and initial labor. Once formidable progress is completed on certain tasks of the SOW, a draw request can be made for reimbursement. Most renovation loans come with a limit of up to five draws.

A form is submitted to the lender, and an inspection is made by typically the same consultant who validated the SOW. The reimbursement process can take a few days on each draw, so be prepared. Ask the lender in advance how long these take with them. Continue this process to completion. Most draws are written to the borrower and the contractor, and almost always the final draw is written to both. You may be able to work with your lender to advance the draws to one or the other with special instructions. Once the renovation is complete, the final draw will be released upon receipt of the following: a HomeStyle Completion Certificate, a Project Inspectors Final Report, and a Release of Lien and Title Update.

Tenth, congrats — your house is renovated and ready to move into, sell or rent.

I’m sure that there are investors who use these loans to flip with, but most investors are using them to keep the property as a rental.

If you are building a portfolio of rental properties, this can be a great way to impact your cash on cash returns, minimize the number of loans taken out on the property, and maximize your buying power.

Other Items Learned Along the Way From Experience

If you are buying a Fannie Mae property (and other sellers with deed restrictions), you have likely noticed a deed restriction in the contract that prohibits you from encumbering the property for more than 120% of the purchase price within three months. Many listing agents do not know about the HomeStyle loan and do not understand it. If you are going to do a renovation that will exceed this requirement, which isn’t hard to do, you must realize that this will make an impact. Fannie Mae may have the option to change this restriction. Sometimes, it isn’t realized that this limit is exceeded until the closing company reviews. Remember the contingency budget that was added so this doesn’t put you over.

Most appraisers and consultants are swamped. This process will sometimes take more than 45 days. Open communication with all parties will solve many issues during the contract to close process. Keep everyone on task and informed.

FHA also has a renovation mortgage that is very similar to this, with some exceptions. They are for owner-occupied houses only. There are different restrictions on what can and cannot be included in the renovation. There is currently a $35,000 limit on the renovations. The LTV will be enhanced by the use of the FHA 203(k) product versus the HomeStyle.


Using this process instead of a traditional turnkey investment property typically yields a better equity position. The purpose of going through the renovation process on your own instead of having someone else do it is to save equity. If you can renovate the property to be worth $135,000 for the cost of $125,000, you just made $10,000 in equity. This is where our clients have shined.

Related: Your First Investment: How to Use Future Rental Income to Qualify for a Duplex Loan

If you use the 80% LTV mortgage on a single family, or the 75% LTV on a 2-4 unit property, you will avoid mortgage insurance. If you have an LTV of 85%, which is allowed even for an investor, you will have mortgage insurance premium (MI).

Use this worksheet, Form 1035, to determine maximum eligibility or work with a qualified lender on the process.

What is considered to be a permanent improvement to the property? Since the mortgage is designed to carry for the extent of typically 30 years, the lender wants to know that the improvements made to the property have “shelf-life” and stay with the property. Therefore, things like appliances are considered personal property and cannot be financed into a HomeStyle. The same goes for items that typically have a short life, like mini-blinds, etc. Consult with your professionals when developing the SOW/SOR on these items.

The use of other subcontractors for things like the roof or electric can be used, but should be managed by a single general contractor. I believe that there are exceptions to this rule, but I would imagine that it would become much more difficult to process.

If your renovations are going to exceed the original cost, you can use the contingency budget with the contractor completing a Change Order Request Form.

As previously mentioned, the contractor must be licensed in the jurisdiction of the property. Even if they are licensed in the jurisdiction of their business, they must also be licensed where the property is located. This will also be necessary for them to pull necessary permits for the renovation.

You also may be eligible to use a renovation mortgage as a part of a refinance. Seek the expert advice of a qualified lender.

The balance of the contingency budget will be applied back to the borrower’s loan balance if not used during the renovation process.

The fewer draws needed to complete the renovation, typically the faster the project will go. Even though lenders should be able to process these in a few days, you are waiting on the consultant to check on status each and every time that you request a draw, which usually comes at a fee of approximately $150.

When making your draw requests, the consultant usually wants to see that the entire portion of a line item on the SOW/SOR has been completed. If you are requesting money for the painting of the property, make sure it is complete and that you aren’t requesting just part of it. For the paint example, some contractors may work on a main level of the house, then the finished basement.  If both get painted, both need to be done if that is how it is charged on the invoice.

In searching for your lender, be sure to find one that not only has this product available, but also has experience working with them. There are several more forms and processes to be completed, and experience is critical.

You can also review the HomeStyle Renovation Consumer Tips page or their Product Matrix.

Investors: Have you used the HomeStyle loan for your real estate business? Any questions about how it works?

Leave all your comments below!

About Author

William Robison

Real Estate professional dedicated to the success of investors through a suite of turnkey services for buy/hold investors and flippers. Experienced real estate flipper. Worked in real estate since 2003. Aiming to work with clients to build long-term investments and take advantage of continuing market improvements.


  1. Bryce Cutler

    Great article! As someone who started the process on this loan, finding a qualified contractor that gets approved was a challenging step. I found the lender to be extremely picky and could not get over this step and stay in budget for my purchase. I was informed that it is an owner occupied option only as well??


    • William Robison

      Bryce. Thank You for your comments. I am sorry to hear that you had the struggles. It sounds as though you may have had a lender that wasnt very well versed in the HomeStyle mortgage. These loans are designed for investors, owner occupants and second home buyers. Depending upon your market, you may shop for another lender with some experience. As for the contractor, it should just be a process of finding a licensed and insured contractor. Yes, legitimate guys can cost more, but developing a relationship with them has led us back to wholesale pricing. Let us know if we can give you more advice for a more successful experience next time.

  2. Curt Smith

    I did a few of these through Fidelity as their “home style” renovation loan as an investor loan. I’ve heard Fidelity stopped doing home style. We’ve left the stick built SFR market so don’;t know what banks are willing to do today?

    This post is detailed but not that useful if investor home style loans are not available!!!

    • William Robison

      Hello Curt,
      Im not certain if Fidelity still uses these FNMA products any longer. As suggested, the local lenders are often the best solution for these loan products because they do require a bit more personal service. The HomeStyle loan is still available through many lenders nationwide. We continue to close on them regularly.

  3. Jay Martinez

    Hello William,

    Very interesting article. Thanks for writing it. I have a question. I just recently bought 2 properties, all cash, from the sheriffs sale. Haven’t done a thing yet to the properties. They are actually not that bad and reno on both should be under 35K each. Can I use a HomeStyle mortgage on these 2 properties to free up my cash? Only difference is that I’m the owner. Or is there a better product out there for me in my position?

  4. William,

    Excellent description of the HomeStyle loan product and to address Curt’s concern, yes, this loan is alive and well. The Kansas City area continues to be an excellent location for investors that are buying, renovating and holding rental property which is one of the best uses for this loan product.

    With your permission, and a few minor tweaks, I would like to use this article to educate my customers about the HomeStyle loan.

  5. Jeff Onofrio

    Hi William-

    Your article is a good one and it is filled with a lot of good information. I run the renovation department for a top 15 national lender and I wanted to explain a few things.

    1- I have never heard of exceptions being made for multi unit on the investor portion and trust me I have done a ton of these loans. Fannie Mae specifically has it on there product matrix that it is for 1 unit properties. You can check that here:

    2- Lenders do not want property flippers to use this program. This is more for the buy and hold investor. The reason for this is that lenders are required to pay back any premiums earned if the loan is paid off within 180 days of purchase and flippers, as you know, want to be in and out!

    I speak with investors all the time and we always go through deciding what is the best program for them. Homestyle works sometimes- however- it is not an end all solution for all and each situation must be analyzed.

    I am currently working with a few investors/house hackers on BP right now so I understand the mind set and enjoy it because I myself am an investor. I appreciate you taking time to write this article and helping to get the word out.

    • William Robison

      Hello Jeff,

      Thanks for chiming in and providing some great points and advice. If I may, I will point to a November 3, 2015 posting from FNMA that shows that they will use the HomeStyle loan on multi-family, IF it is owner-occupied.
      However, you are correct to point out that they will not provide the HomeStyle on a investor owned multi.

      As for the flipper investors, I concur. This product is best suited for the buy and hold investor. Starting my real estate career partially in lending, I recognize that the mortgage brokers prefer to work with buy and hold investors to remove themselves from flipper charge-backs.

      There are very good opportunities for the HomeStyle to be used, but I agree, they do not work for every situation. If the renovation is costlier than allowed with this program, a different option may be available. If the owner is wanting to do most of the work themselves, or use non-qualified contractors, this product wouldnt suit their needs. And if they need a quick closing, this certainly wont help them in that sense.

      Thanks again for the comments.

  6. Chris Payne

    Great article. The one challenge I see is that the GC will likely inflate his/her pricing if they know that the bank is financing the renovations and also because of the hassle of submitting paperwork and waiting to be paid.

    In my experience, finding contractors that can get good work done for less money is pivotal to consistently flipping properties for the right margins.

    The HomeStyle loan is a good option nonetheless.

    • William Robison

      Hello Chris,
      Thank you for reading and being a part of the conversation. The HomeStyle loan can add a few quirks to the renovation, but its our experience that the contractor involvement is minimized. We take a pro-active approach to this however, and see to it that the contractors are paid timely and receive reimbursements from the loan escrow account. This keeps the timeline fluid. As for pricing, beyond a couple of additional pieces of paperwork, they have very little additional requirements, and therefore, we don’t give our contractors the knowledge in advance of bid that it is a HomeStyle. We do present it to them when we are making contract with them, but it hasnt been an issue in our experience.

      Yes, having consistent work for the contractors help them survive the ebb and flow of the seasons. Our contractor teams stay busy throughout the year on dozens of renovations, so we are able to maintain that pricing.

      Thank You again.

        • William Robison

          Getting multiple contractor bids for yourself is a great idea. You just want to make sure that the bid is complete, typically with line item costs, and that it satisfy the rule for being occupiable when fixed. This is easy to determine. Make sure that the contractors are licensed in the jurisdiction of the property and that they are insured. Beyond that, getting the final, chosen bid to the lender in a timely manner that they will request will be key to a successful HomeStyle experience. All the best. Let us know about your successes and challenges so we can all learn from them.

    • William Robison

      Thanks for the comments Glen,
      The HomeStyle loan could be used for a traditional BRRRR strategy. However, as mentioned earlier, your lender would prefer that you remain in the loan for a longer period to recoup their costs to write the loan. In the traditional FNMA re-finance that typically requires a seasoning period of 12 months, this strategy would work very well, and help preserve the cash for the wait period.

  7. Thanks for this post, William. I’m currently in the process of getting a loan commitment from Wells Fargo on an FHA 203(k). But the home style loan is intriguing. Do you know off hand what the loan maximums are for high priced markets like NYC? The FHA goes up to 800k loan amount on a 2-family, which is actually not enough in NYC. You’d have to be in a pretty suspect neighborhood to find a 2-fam in the 800s.

    Also I’d like to correct one point you made about the FHA product. You can absolutely spend more than 35k on renovations. You can actually spend as much as you want on renovations as long as the total loan balance is under the prescribed loan caps. There’s a separate product called a streamline 203k which is capped at 35k for smaller reno jobs.

  8. William Robison

    Hello Eric,
    With the HomeStyle, you are at nearly the same limits as what you are finding with FHA. Here is the 1,2,3,and 4 unit maximum loan limits, as I read them, for NYC.
    $625,500 $800,775 $967,950 $1,202,925

    These are loan limits, which means that sales price could be well over $1M and still work.

    Thank you for pointing out the $35k streamline limits versus standard. We dont do any “retail” sales, so I asked our LO. He must only do Streamlines and gave us that answer.

    Best wishes with your investments.

  9. Victor Alvarado

    Thanks for writing this. Very helpful and insightful. I’m wondering if anyone would like to share how they are coming up with the 20% down payment and initial rehab funding to get the project started? Are most people saving up from their job? Wholesaling? Syndicating?

    • Victor, I can tell you that I used my own funds saved that I saved up from my day job. The down payment needs to be seasoned in your account for 2 months and can’t be borrowed funds. You’ll need to explain any large deposits within those 2 months of bank statements that you provide to your lender.

  10. Albert w.

    Great article. You commented a bit on a reply to Jeff above, but I’m wondering if you could elaborate on using this loan for flipping. What are the terms for a homestyle loan? Do you have to hold the property for a period of time, similar to other FHA loans? Seems odd though if the program is being marketed to investors, that they would have terms that are really meant for owner-occupied buyers. Thanks!

    • William Robison

      I havent heard of any specifics for not using this loan for a flip. Its not their ideal case, but I havent specifically sought the rules for such. FHA is tough to flip with, partly because of the upfront fees, and more stringent property restrictions. The Homestyle loan was structured for both investors and owner occupant buyers, with very specific differences between the two products in their guidelines.

  11. ilyas Gunesebakan

    Excellent article William, I bookmarked this page for my future reference. I recently applied for a Home Equity Loan on my house in order to finance the down payment of my future investment property. My goal is not to spend any of my own cash. However you mentioned that the owner will need to provide the contractor with starter funds to fund materials and initial labor. Is there any way around this? I thought the contractor don’t get paid until the line item is completed. Please advice.

    • William Robison

      It depends upon your relationship with the contractor. Most contractors rely on the starter funds to get supplies necessary. For all of my projects, I front the contractor starter funds as I dont expect them to be the finance company and finance these costs. As mentioned, it ultimately boils down to the relationship with the contractor. They do not want to do a bunch of work and not get paid, so its a negotiation in any event.
      And yes, the mortgage company only pays for items that have been completed.
      You will just be hard pressed to find a good contractor that doesnt require money up front.

  12. Analyn Hilgard

    Yes most contractors will not do this if you don’t have a starter funds. Our loan officer told us that as long as the reno budget is less than $28,500 and no structural issues, it is considered a limited, 50% of the escrow money will be released a couple weeks after closing. The contractor will have money that they can use to get going. We are going through this loan right now but stuck because we have a house to sell first.

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