An Alternative to the FHA 203k Loan for 2nd Homes and Investment Properties

Mortgage and Lending

An alternative to the FHA 203k renovation loan for 2nd homes and investment properties

I'm sure many of us are familiar with the FHA 203k renovation loan, a fantastic mortgage product for purchases and refinances but from what I'm hearing not many real estate professionals are aware of Fannie Mae's renovation loan product called the Fannie Mae HomeStyle loan. In this market there is a growing amount of people who are thinking about buying that "fixer upper", but they don't want it to be their primary home. Instead, they want to buy a "fixer upper" for a second home or investment property. So how can these clients get financing? I thought 203k loans where only for primary residences, you are correct, but Fannie Mae has a good alternative for your cliental.


Eligible Improvements

There is no minimum amount of repairs required on a HomeStyle loan. Any repair is acceptable as long as it is supported in the "after-improved" value. The project is looked at in its entirety as opposed to a line-by-line comparison of contribution to value.

  1.           Structural repairs and alterations. (Also includes additions to the structure.)
  2.           Improvement in the functionality or modernization includes updating kitchens and bathrooms.
  3.           New exterior siding and new doors.
  4.           Repair or replacement of plumbing, heat, air conditioning or electrical
  5.           Installation of well and/or septic system.
  6.           Replacement of flooring, carpeting or tile.
  7.           Energy conservation improvements
  8.           Major landscape work and site improvement.
  9.           Improvements for easier accessibility to the handicapped.
  10.           New stoves, refrigerators and other free-standing appliances.
  11.           Painting and other cosmetic repairs.

NOTE: Items that will not become a permanent part of the property are not eligible.

Here is a standard grid to use as a guideline for the max. Loan To Value Ratios

Property Type




1 Unit Primary




2-4 Unit Primary




Second Home




1 Unit Investment




2 Unit Investmentuv





Here are some standard bullet points on the rehab amount


There is no minimum rehab amount.

The maximum renovation costs can be as much as 50% of the as-completed value.

If the borrowers are unable to occupy the property during the rehab, owner-occupants may finance PITI for any payments due during the time that property is expected to be vacant due to construction (with a maximum of six monthly payments).

A Contingency Reserve equal to 10% of the cost of the rehabilitation is required.

All rehab funds, including contingency reserve, are placed in the escrow.

Unused contingency funds must be applied to reduce the balance of the mortgage unless the contingency reserve was provided from the borrower's own funds; or the borrower may elect to pay for any additional elective repairs or improvements to the


This is just another mortgage product to put in your real estate tool belt. There are so many products out there that sometimes it can get overwhelming and we look for the path of least resistance instead to the path most service. I try and focus my attention on a product a week and then recycle through for better understanding. I think for agents if you can get a little understanding of these product talking points it will give you a chance to build your business in areas that you thought were obsolete.


Good luck everyone.....

Posted by


John B. Saari


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Sondra Meyer:
Star View Real Estate - Colorado Springs, CO
See It. Experience It. Live It.

Interesting sounding product

Feb 20, 2011 02:51 PM #1
Keith Pentz
RE/MAX ADVANTAGE 1 - Shrewsbury, MA
Keith Pentz

Great post..very few out there doing these loans and even fewer that do them as well as you do John!

Feb 21, 2011 11:16 AM #2
Mike Young, covering the USA - Las Vegas, NV
FHA 203k Consultant 916-758-1809

I don't see where you idenfity the HomeStyle product. There are many times we refer people to his alternative if it is a better fit for the client.

Jul 29, 2012 03:27 PM #3

Is there a max loan amount? How many existing  mortgages can the borrower have and still be eligible?

May 22, 2013 06:11 AM #4
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