Rehab Loan Options: HUD 203(k) vs. Fannie Mae Homestyle Loan

With today’s dwindling housing supply, many homebuyers are considering “fixer-uppers.” However, after closing on a traditional loan, many people–especially first-time homebuyers–lack the funds needed to make to make the required renovations. But thanks to the HUD 203(k) and Fannie Mae Homestyle rehab loans, the dream of owning a home is becoming a reality for more people. But which is the best option for you? In this month’s blog, the experts at Advanced Home Inspection compare the HUD 203(k) and Fannie Mae HomeStyle rehab loan.

Both  HUD 203(k) and Fannie Mae HomeStyle rehab loans are available for purchase and refinance transactions. And while both are essentially “one time close construction loans,” each allows for different repairs and carries different requirements.

This guide will help you find the best rehab loan for your needs.

HUD 203(k) Loan

The HUD 203(k) rehab loan is a specialized renovation or construction loan that’s backed by the Federal Housing Administration. These loans are designed for borrowers who are unable to make down payments. Below are some important characteristics of this type of loan:

• It is unique in that people can borrow money equal to the estimated appraised value of their home after the repair work is completed.
• The underwriting process involved is frequently easier than that of a Fannie Mae Homestyle loan.
• The current FICO score requirement is only 640, which is less than a conventional loan.
• The down payment is only 3.5%

Types of HUD 203(k) Loans

There are two types of HUD 203(k) loans:  Standard and Streamlined. Selection and qualification is determined by the scope of work you are doing.

1. A Standard HUD 203(k) loan is used when one wishes to add square footage or repair structural issues in a home. This type is most widely used. A HUD 203(k) loan consultant will monitor the progress onsite, disburse the draws, and provide the final inspection.
2. A Streamlined HUD 203(k) loan is used for cosmetic updates and less complicated work. This type option is easier for your lender to approve and has an easier draw schedule.

HUD 203(k) Loan Limitations and Restrictions

• The amount one can borrow varies by the type of housing and region. For example, the loan limit for a single family home in Laconia, NH is $275,665 and $598,000 in Boston,  MA. Whereas, the loan limits for duplex home in Laconia and Boston are $352,950 and $765,550, respectively.
• If the home you want to buy is not FHA-approved, you cannot use this type of loan.
• Likewise, if you wish to rehab a home that does not have a Certificate of Occupancy, you cannot use this type of loan.

Fannie Mae HomeStyle Loan

A Fannie Mae HomeStyle loan may be a good option if you are not eligible for a HUD 203(k). This conventional loan provides a convenient and economical way for borrowers to finance moderate home improvements with a single-close first mortgage–rather than a second mortgage, home equity line of credit, or other more costly methods of financing.

In addition to allowing financing for all of the refabs included in the Standard and Streamlined HUD 203(k) loans, HomeStyle loans can provide financing for:

• extensive landscaping
• installation and repair of luxury items such as pools, spas, and outdoor kitchens
• purchase and rehab of homes or condos that are not yet finished (without a Certificate of Occupancy)
• purchase and rehab of a second home or investment property

Note that, because this is a conventional loan, a down payment is required.

HUD 203(k) and Fannie Mae HomeStyle Loan Consultants in NH, MA

When it comes to home rehab loans, there are many options available. The professionals at Advanced Home Inspection are here to help you find the type of home rehab loan that is best for you. Contact us today to learn more!