Battling between the 203K and HomeStyle rehab loans?

by Heather Turner06 Feb 2017
Modern mortgage programs make it easier than ever for borrowers to purchase and finance a home renovation with one single loan. Both Fannie Mae’s HomeStyle mortgage and the FHA’s 203K mortgage serve as “one-time-close” mortgages with distinct similarities and differences that can make choosing between the two difficult to decide.
“Fannie Mae’s HomeStyle loan is one that many buyers and most Realtors, may not have heard of,” says Perry Farella, writer of the blog “Rehab Dollars & Sense,” and loan officer with AmeriFirst Home Mortgage. “It is a conventional renovation loan that can be used at purchase time or as a refinance loan for those wanting to update a home they already own.”
Offering a higher loan limit than most FHA loans, homebuyers and investors can use HomeStyle to purchase a one-unit dwelling, such as a condo or single-family home, renovate it and then rent it out or flip for a profit.  For owners who will occupy a HomeStyle loan may be used for 1 to 4 unit properties.  “HomeStyle is designed to allow investors to participate in renovation lending versus FHA 203K, which is only for those that will actually live in the property,” he says. Buyers and investors can also use the loan to purchase and renovate vacation homes that can then be rented out for a portion of the year with a 10% down payment.
On the other hand, buyers can use a 203K mortgage to buy a one to four-unit dwelling, borrowing up to 110% of the home value with only a 3.5% down payment on the combined purchase and rehab dollar price. The only caveat: the borrower must live in the property for at least 12 months. “I always say that the 203K loan is the entry loan to becoming a property investor because FHA requires you live in the home for one year. But then it can be turned into a rental or sold for a return, and the owner can move on to another property,” he says. Additionally an FHA 203K is assumable by the next buyer, which can be attractive when selling the property in times of increasing interest rates.

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More first time homebuyers’ open to renovation loans