It is important to assess all options when looking for a rehab loan. You have multiple options. This can be for purchasing a new home, or doing a refinance of your current residence. Your two options are very different. The key is to find the loan that meets your needs. It’s my goal to make that selection easier. Today, I’d like to compare and contrast the FHA 203k Rehab loan vs the Fannie Mae HomeStyle Rehab loan. Both loans are essentially “one time close construction loans” but they carry different requirements and have different restrictions on what can be repaired or renovated.
FHA 203k Rehab Loan
The FHA 203k Rehab Loan is only for those wishing to purchase homes that will beowner occupied. This is a traditional requirement of FHA loans. Underwriting is a bit easier with FHA, typically. The current FICO score requirement is less than a conventional loan (only 640). Finally, the down payment necessary is only 3.5%.
There is a normal FHA 203k loan and a streamlined version. Depending on the scope of the project you may qualify for the FHA 203k streamlined version, which eliminates some of the paperwork and “streamlines” the process. This version is useful for less complicated work or basic cosmetic updates.
The full 203k is the one to use when you wish to add square footage, complete foundation repairs, or make other major changes. This one does tend to be the most widely used of the two, simply because the options are wide open with the full version. There will also be a 203k Consultant on site to monitor the progress, disburse the draws and perform the final inspection.
The FHA loan limit is dependent on your area. As a good rule of thumb for the areas of Texas, Louisiana, Oklahoma, Arkansas, and New Mexico the limit is $271,050. Finally, if you wish to rehab a home that isn’t completed (no CO) this loan would not be an option. Due to the different restrictions, feel free to contact me and we can see what works best for your situation.
Fannie Mae HomeStyle Loan
If you are no eligible for an FHA rehab loan, you may still be able to qualify for the Fannie Mae HomeStyle Loan. Fannie Mae issues this loan and it is a conventional loan, which means the loan amount may reach $417,000. In some areas, such as California, the High Balance feature of this loan may come into play and you will be allowed to exceed $417,000.
Because this is a conventional loan, the down payment may vary depending on the loan itself. Currently, the minimum down payment required is 5% with a minimum FICO score of 680.
Fannie Mae also allows for extensive landscaping and luxury items including pools, under the HomeStyle program. Luxury items such as outdoor kitchens, spas, and pools can also be repaired. All Condo projects and homes that are not yet finished are also allowed!
This program allows for purchases of a secondary residence or even investment properties.
Because each loan and home is different, please consult with a loan officer. I’m here to help you find the option that fits your goals and lifestyle. All of the bank foreclosures and HUD owned inventory have potential, it’s just going to take a great rehab loan option to realize that potential! Over the years I’ve seen many great homes transformed and I’d love to be a part of your home renovation!