Renovation Mortgages Provide Great Opportunity for Homebuyers/Homeowners

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If you’re planning a renovation project in the coming months and wondering how to cover the cost, consider the advantages of refinancing with a FNMA HomeStyle® Renovation loan.

What is the FNMA HomeStyle® Renovation Loan?

This Conventional home loan allows homeowners to refinance their existing home, or purchase a new home, and include the necessary funds for renovation in the balance of the new loan.

Homeowners use the FNMA HomeStyle® Renovation loan to cover the cost of things like: Adding a 2nd level, upgrading kitchens & bathrooms, finishing a basement, window replacement and other energy efficient upgrades, installing a pool, home additions, makeovers, roof repairs and more.

What are the benefits?

Loan Amount Based on After-Complete Value

The key difference between a HomeStyle Renovation Mortgage compared to other financing options – such as a cash-out refinance or Home Equity Loan – is that the loan amount is based on the “after-completed” value of the home rather than the present value. This makes the FNMA HomeStyle® Renovation loan a very attractive and affordable option for homeowners with limited equity.

Property Condition Not a Problem

On a traditional mortgage, the home appraiser for the lender will use the current property condition as a factor in determining home value. And if a visible concern is noted, such as a leaky roof, the lender will most likely call for the repair prior to closing. However, with a FNMA HomeStyle® Renovation loan, homeowners or homebuyers need not worry as the appraiser will base their opinion on the future after-improved condition and value of the property.

Good for Vacation Homes as well

Looking to raise your beach house to meet current flood zone requirements? The FNMA HomeStyle® Renovation loan is a great option to consider.

What about using a Home Equity Loan or HELOC instead?

For homeowners with plenty of existing equity, a home equity line of credit (HELOC) is a possible option…especially for those looking to finance small repairs of $25,000 or less. However, consider three limiting factors with this type of financing:

  1. HELOC lenders will only lend up to 85% of the current home value, less the existing mortgage. This drops to 80% for a traditional “cash-out” refinance. For many homeowners – especially those that recently purchased their home – this loan-to-value ratio doesn’t leave much room to fund renovation cost.
  2. HELOC or refinance lenders will not lend against a home that needs renovation or repair
  3. HELOC loans are typically tied to an variable index, such as the Prime Rate and subject to interest rate increases.


Buying a Home with a FNMA HomeStyle® Renovation Loan

For those with vision, the FNMA HomeStyle® Renovation loan can create amazing home buying opportunities. It’s not easy to locate the perfect home that has all the upgrades and floor plan you want. Perhaps you find a home in a great neighborhood but its too small, the chopped-up floor plan is unappealing, or the dated kitchen and bathrooms falls short of your standards. With a FNMA HomeStyle® Renovation loan, it’s not necessary to find the perfect home – you just need to have the vision to see past the home’s current flaws knowing you can change things to meet your own wants and desires.

Not Just for Homes in Poor Condition

It is important to note that the FNMA HomeStyle® Renovation loan is not just for homes in poor condition. Property owners or home buyers looking to modernize their home, expand for a growing family, add an apartment for an aging parent, improve landscaping, install a new pool, finish a basement, or improve the homes energy efficiency, are taking advantage of this great product and showing all the reasons why the FNMA HomeStyle® Renovation loan is a very popular choice.

In addition to Fannie Mae’s HomeStyle Renovation loan, the Federal Housing Administration (FHA) also has renovation loan options for those that better qualify under FHA guidelines.  They are the FHA 203(K) Standard and FHA 203(K) Limited programs.  Your American United Lending Professional will help you determine which option is best for you and your project.


This article was provided by Joe Farella, industry expert and author of the award-winning book, “Insider Secrets to Home Buying Success”.  Mr. Farella is also the Executive Vice President of American United Mortgage Corporation, Scotch Plains, NJ.  For questions about your New Jersey home purchase, feel free to call Joe at 908.322.5423 or via email:

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