Have you ever watched HGTV’s show Property Brothers, or any other similar show on flipping properties? You must have thought to yourself at least once: “I wish I had the money to purchase a fixer upper for that cheap, and renovate it into an awesome home!” Good news, you actually can.
The loan program that can help you do this is called the Fannie Mae HomeStyle Renovation Loan, and it is equally friendly to owner occupied homes as well as investment properties.
The HomeStyle Renovation Loan is essentially like any other Conventional mortgage, except it will allow you to purchase a property AND roll renovation costs into the loan amount. Instead of financing based on the current property value, the loan amount is based on the “after improved” future value.
Intrigued? I know I was.
Every home in need of TLC that you will be looking at now has the potential to become your dream home, or even your dream investment property.
Not only can you upgrade the kitchen and bathrooms, but repair contingencies that used to prevent regular financing will no longer ruin a good deal (no more “cash-only” offers on foreclosed properties!). Best of all, you will get a great deal when offering any seller the convenience of not having to pay for required repairs.
Here are some examples of home improvements allowed by the HomeStyle Renovation Loan:
- Kitchen and Bath remodel
- Roof repair
- New permanently affixed appliances
- Structural alterations or additions
- Upgrades to central air/heat, plumbing and electrical systems
- Moisture or termite damage repair
- Addition or replacement of exterior decks, patios and porches
- Improvements for energy conservation purposes
- Major landscaping and permanent hardscape such as walkways, driveways, retaining walls and fences
The home improvements not allowed by the HomeStyle Renovation Loan are essentially:
- Items that will not increase the value of the subject property
- Improvements that are not permanently attached to the property
- Improvements for business or commercial purposes
- Energy efficient repairs which would require additional inspections (there are specific “energy efficient mortgages” for that purpose).
As for the process of purchasing a home with the Fannie Mae HomeStyle Renovation Loan – it is not that complicated. Here are the steps you will need to take:
- Make sure you have at least the minimum down payment required: 5% on a primary residence (can be gifted, or come from a city grant), 10% on a second home and 15% on an investment property.
- Submit your application to the lender, along with any other required documentation (income, assets etc.)
- Get a General Contractor and have him prepare a bid. You will need your real estate agent’s help in identifying which home improvements will increase the home value the most. For example, adding a pool if the home is located in a modest neighborhood will not give you the boost in property value that you are looking for.
- Pay for an appraisal, and keep your fingers crossed. As long as the “after improved” value of the home supports the contractor bid, you are good to go.
- Close on your loan, and let the General Contract do his thing.
- Move in, or rent it out – depending on what your goals are.
Don’t work with any real estate agent. Work with someone that knows what are the available options and how to create more opportunities for you.
Contact a real estate agent familiar with the Fannie Mae HomeStyle Renovation Loan, and move into your dream home sooner rather than later.