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-A HomeStyle loan is a government-backed, permanent mortgage that can be used to purchase and renovate an owner-occupied primary residence between one to four units. Also called Homestyle Renovation (HSR) mortgages, HomeStyle loans can also be used by real estate investors to purchase and renovate a single-unit second home or investment property.
However, HomeStyle loans have no short-term loan options, making them a bad fit for many investors. Certain lenders like LendingHome, have fix-and-flip loan options with rates starting as low as 6.5% and repayment terms of up to three years. Prequalify online in minutes. People often search for this type of information about this subject, it would be better to discuss it via podcast. If you want more exposure, make sure to buy spotify plays for a higher success rate.
What Is a HomeStyle Loan?
A HomeStyle Loan is a long-term renovation loan backed by Fannie Mae and available to owner-occupied homeowners as well as small buy-and-hold investors. HSR mortgages are used to primarily purchase and renovate an owner-occupied residence between one and four units. HomeStyle loans are also available to investors looking to purchase and renovate a single-unit second home or single-unit investment property.
HomeStyle loans combine the purchase and rehab of a property together as a single loan. Fannie Mae-approved lenders issue HSR mortgages. Mortgage terms are 15 to 30 years, and interest rates can be both fixed and adjustable.
Loan amounts typically fund between 65% to 95% of a property’s purchase price and renovations. This means that typical down payments range from 5% to 35% of the loan amount. However, depending on financial circumstances, some people can borrow up to 105% of a property’s combined loan-to-value (CLTV) ratio, which avoids a down payment entirely.
Once an HSR mortgage is issued and a property is purchased, borrowers typically have 30 days to start their renovations and only six months to complete them. Most renovations done under an HSR mortgage must be completed by lender-approved professionals. However, borrowers are allowed to conduct their own do-it-yourself (DIY) rehab projects if the total project is less than 10% of the expected after-repair-value (ARV).
Property owners are allowed to live in the home throughout the renovations. Homeowners can also live elsewhere and arrange for a lender-funded escrow account to pay the mortgage and insurance while the owner is away. However, remember that this is an owner-occupied renovation.
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Who Is a HomeStyle Loan Right For?
HomeStyle loans are right for two types of investors:
- New and existing homeowners looking to purchase and renovate a primary residence
- Buy-and-hold investors looking to finance the purchase and renovation of a single-unit investment property or second home
HomeStyle Renovation mortgages are used for the purchase and renovation of an owner-occupied primary residence between one to four units. HSR mortgages also allow for the purchase and renovations of a single-unit, nonowner-occupied second home or investment property.
However, HomeStyle loans are long-term financing options. Furthermore, investors are only allowed to purchase one investment property, limiting investment options. If you’re interested in financing the purchase and renovations of one or more investment properties, hard money loans are generally a better option.
A hard money loan is a good option for investors who need quick, short-term financing, and who want to purchase more than one investment property. There is no limit to the number of homes you can finance or the number of units, which makes financing multifamily properties an option. Hard money loans offer additional flexibility with interest-only monthly payments and allow an investor to control his or her renovations completely.
Further, these loans are available to both short-term fix and flippers as well as long-term buy-and-hold investors. For more information, check out our articles on hard money loans and the best hard money lender.
What Renovations Are Covered Under a HomeStyle Loan?
HomeStyle loans finance any “value-adding” improvements and can include such renovations as:
- Cosmetic updates like new flooring
- Structural changes like removing a load-bearing wall
- Energy-efficient updates like solar power
- Plumbing and electrical
HomeStyle loans, similar to government-backed FHA 203(k) loans in that they don’t allow for “luxury” improvements. These luxury items include such things as a new pool or something similar.
However, HomeStyle loans can cover a wide range of renovation expenses, such as:
- Architects
- Designers
- Engineers
- Contractors
- Materials and labor
- Inspections
- Permit fees
For short-term fix-and-flip options or options for landlords and portfolio investors, read our section below.
If you’re an investor looking for fix and flip financing, check out LendingHome. They offer loan amounts up to 90% LTV and up to 75% ARV and have interest rates starting as low as 7.5%. Prequalify online in minutes.
HomeStyle Loan Rates, Terms & Qualifications
| HomeStyle Loan | |
| Who Can Use It? | Owner-occupied Persons Nonoccupied Investor |
| Property Type | One- to four-unit Primary Residence Single-unit Second Home Single-unit Investor Property |
| Qualifications | 50% Debt-to-income ratio 640 Minimum credit score |
| Loan Amount | 65% to 95% CLTV; based on lessor of: Purchase price + renovation budget or ARV |
| Down Payment | 5% to 35% of loan amount |
| Loan Term | 15 to 30 years |
| Interest Rates | 5% to 7% |
| Lender Fees | 1.5% supplemental origination fee 2.25% upfront mortgage insurance premium (MIP) 2.5% to 5% closing costs |
| Approval Time | 30 to 45 days |
| Renovation Budget | Up to 50% of LTV |
| Renovation Timeline | 6 months |
1. Use and Availability
HomeStyle loans are best used for the:
- Purchase and renovation of a new primary residence between one and four units
- Purchase and renovation of a one-unit second home
- Purchase and renovation of a one-unit investment property
HomeStyle loans are primarily used for the owner-occupied purchase and renovation of a primary residence between one and four units.
However, HomeStyle loans are also available for small buy-and-hold investors looking for a single-unit investment property as well as those looking for a one-unit second house that is not to be their primary residence. This makes a HomeStyle loan best for situations such as:
- Owner-occupied purchases and renovations
- Investments in rental properties in need of repair
Further, HomeStyle loans can be used to purchase such properties as:
- Short sales
- Foreclosures
- Nondistressed real estate owned (REO) properties
These types of properties can typically be purchased for below fair market value. However, many investors with hard money loans and all-cash buyers often compete for these properties. If you’re an investor interested in competing with hard money loans and all-cash buyers, read our section on alternative financing options below.
If you’re a real estate investor looking to fund your next property purchase, check out our partners at LendingHome. Rates start as low as 7.5%. You can get prequalified in minutes and have your funds in as little as 10 days.
2. Qualifications
HomeStyle loans are issued by Fannie Mae and are therefore subject to general Fannie Mae requirements for approval. When you take out a HomeStyle Renovation (HSR) mortgage, borrowers should expect to provide the following to qualify:
- 640 minimum credit score
- 50% DTI ratio
In addition to these qualifications, borrowers will need to provide the following during the HomeStyle loan application process:
- Two recent pay stubs
- List of total assets
- List of total debts
- Mortgage insurance
- Independent appraisal
For renovation budget approval, borrowers also need to submit the following to their lender:
- A detailed list of repairs
- Two or three licensed contractor bids from approved contractors
- Licensed contractor to oversee the renovations
All renovations above 10% of the purchase price are required to be conducted by licensed professionals. This is a detractor for many property investors as they want to control the renovations themselves. Dylan Dierson, a licensed real estate agent of Fox Cities Properties, tells us that:
“Most investors that are making real estate investing a business want to do the rehab work by themselves. Obviously, this saves money on labor and increases profit. However, HomeStyle loans require that the rehab budget is set aside and held by a title company, and the new homeowners are forced to draw from the fund by submitting invoices from their contractors. It’s therefore best for homeowners looking for a primary residence and not for investors.”
If you’re an investor looking for other financing options, check out our articles on rehab loans, hard money loans, fix-and-flip loans, as well as read the alternative financing section below.
If you’d like to explore the specific qualifications of a hard money lender, visit our partners at LendingHome. They’re an online hard money lender that offers fix-and-flip loans to investors with interest rates between 6.5% and 12% and no prepayment penalty. You can get prequalified in minutes and funded in as soon as 15 days.
3. Loan Amount & Terms
HomeStyle loans have terms of 15 to 30 years and also take between 30 and 45 days for approval. This makes it a great option for owner-occupied renovations but might not be fast enough for investors. If you’re a property investor, read our alternative financing section below.
HomeStyle loan amounts are issued based on the lesser of:
- The property’s purchase price plus its renovation budget
- The property’s ARV
ARV is the expected fair market value (FMV) of a property after renovations are complete. ARV is typically higher than the combined purchase price and renovation budget; lenders usually issue loans based on a percentage of the purchase price and its renovation budget, known as its CLTV ratio.
Lenders usually lend between 65% and 95% of a project’s CLTV. This means that borrowers should expect to cover between 5% and 35% of the CLTV as a down payment. Fannie Mae sets maximum loan limits, which vary from state to state, but range from:
- One-unit property: $424,100 to $636,150
- Two-unit property: $543,000 to $814,500
- Three-unit property: $656,350 to $984,525
- Four-unit property: $815,650 to $1,223,475
HSR mortgages, like FHA 203(k) loans, can finance the purchase and renovations of a primary residence between one to four units. However, unlike FHA 203(k) loans, HSR mortgages can also finance the purchase and repairs of a one-unit second home or investment property.
This means that HomeStyle loans can only finance a second home or investment property up to $636,150. This makes it a good option for smaller buy-and-hold investors. For those flipping houses and larger portfolio investors, it might be best to explore a hard money rehab loan, which we discuss in the section below.
If you’re looking for a loan that can compete with all-cash buyers, check out our partners at LendingHome. They prequalify borrowers in as little as three minutes and the time to funding can take as little as 10 days.
4. Renovations
HomeStyle loans package the purchase and renovations of a house into a single loan. Rehabs are required to commence within 30 days of purchasing the property and must be completed within six months. HSR mortgages can finance almost any type of renovations, including:
- Cosmetic updates like new flooring
- Structural changes like removing a load-bearing wall
- Energy-efficient updates like solar power
- Plumbing and electrical
HomeStyle loans don’t cover luxury items like a pool.
For most rehab projects, Fannie Mae requires that borrowers use licensed professionals to complete the work. These professionals include:
- Architects
- Designers
- Engineers
- Contractors
For smaller renovation projects up to 10% of a property’s ARV, borrowers can complete the work themselves. However, lenders typically require that a licensed inspector approves the renovations prior to releasing the rehab loans.
Prior to starting the renovations, borrowers must submit the following documents, to be prepared by a certified general contractor or renovation consultant:
- A detailed list of repairs
- Two or three licensed contractor bids from approved contractors
- Licensed contractor to oversee the renovations
Lenders will typically fund the initial purchase price and then release funds for the approved rehab once work is fully completed. Fannie Mae offers a HomeStyle completion certificate as proof of the project’s completion. Borrowers submit this certificate to the lender to receive reimbursement for the renovations.
For these reasons and more, many investors seek other renovation financing options when buying REO properties that need renovations or when buying investment properties at a real estate auction.
5. Interest Rates and Lender Fees
HomeStyle loans charge interest rates that are slightly higher than conventional mortgages between 5% to 7%. Interest rates vary based on the borrower, and you can check your credit score for free here. However, HSR mortgages can have either a fixed interest rate or a variable interest rate, depending on both the borrower and the lender.
When it comes to lender fees, borrowers should expect to cover specific expenses, such as:
- 1.5%: Supplemental origination fee
- 2.25%: Upfront mortgage insurance premium (MIP)
- 0.5% to 1.0%: Monthly mortgage insurance
- 2.5% to 5%: Closing costs
And similar still to FHA 203(k) loans, HSR mortgage borrowers will also need to cover the following as part of the renovation approval:
- $300 to $400 independent appraisal
Other lenders, such as hard money lenders, have in-house appraisers and also don’t require mortgage insurance, making them a potentially cheaper option for investors. For more information, read the section below.
Where Can You Find HomeStyle Loans?
HomeStyle loans are backed by the federal government and are therefore available from all approved lenders. When you’re searching for a HomeStyle Renovation (HSR) mortgage, it’s important to look at all Fannie Mae-approved lenders.
Like FHA-approved lenders, lenders approved by Fannie Mae include both national lenders as well as local mortgage brokers. Similarly, each lender’s application process is different, but HSR mortgage borrower should expect the same three steps when dealing with lenders:
- Prequalification: Borrowers receive a prequalification letter with rough loan estimates.
- Preapproval: Borrowers supply all necessary documents to verify the information given during prequalification.
- Closing: Lenders assess the documents given during preapproval, finalize the loan approval, and issue the loan.
Fannie Mae provides borrowers with a list of approved lenders known as Delegated Underwriting and Service (DUS) lenders. However, unlike FHA 203(k) loans, Fannie Mae-approved lenders are a much smaller subset of the lending community.
To help, Fannie Mae has a list of the limited number of DUS providers, which can help you obtain a HomeStyle loan:
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HomeStyle Loan vs Hard Money Loan
HomeStyle loans aren’t always best for rehab investors. This is because Fannie Mae puts investment restrictions on an investor. For example, investors can only use a HomeStyle loan to purchase a one-unit investment property or second home. This is why many property investors turn to hard money loans as hard money loans are more flexible than HomeStyle loans.
Let’s take a moment to compare and contrast the two loan products:
HomeStyle Loan vs Hard Money Loan
| HomeStyle Loan | Hard Money Loan | |
| Who Can Use It? | Owner-occupied persons Nonoccupied investor | Owner-occupied persons Nonoccupied investor |
| Property Type | One- to four-unit primary One-unit second home Unit investor property | No property limitations |
| Qualifications | 50% DITR 640 minimum credit score (check your credit score here for free) | 660 minimum credit score (check your credit score here for free) |
| Loan Amount | 65% to 95% CLTV based on lessor of: purchase price + renovation budget or ARV | Up to 90% of LTV Up to 80% of ARV |
| Down Payment | 5% to 35% of loan amount | 10%+ of LTV 20%+ of ARV |
| Loan Term | 15 to 30 years | One to three years (typically one year) |
| Interest Rates | 5% to 7% | 6.95% to 12% |
| Lender Fees | 1.5% supplemental origination fee 2.25% upfront mortgage insurance premium (MIP) 2.5% to 5% closing costs | 0% to 10% loan origination Fee 2.5% to 5% closing costs |
| Approval Time | 30 to 45 days | 10 to 15 days |
| Renovation Budget & Restrictions | Renovation budgets up to 50% of LTV Cannot finance luxury improvement DIY projects only under 10% of ARV
| Renovation budgets up to 75% of ARV and up to 90% of LTV Able to finance luxury improvements All rehab projects can be DIY projects |
When it comes to rehab financing, there are always cases when a person needs a renovation option other than a HomeStyle loan. Hard money loans, for example, are a great alternative for:
- Any investors who need to purchase and renovate a rehab project
- Long-term buy-and-hold investors looking for quick, alternative financing
- Long-term buy-and-hold investors who can’t qualify for a HomeStyle loan
- Long-term portfolio investors who purchase more than one investment property
- Short-term fix-and-flippers who need a short-term rehab financing option
This is because hard money loans are short-term financing options made specifically to fund a short-term fix-and-flip project as well as fund the purchase and renovations of a long-term rental property.
For rental properties, buy-and-hold investors typically use hard money loans when they need quick financing. When this is the case, investors refinance to a conventional mortgage after the hard money loan’s term is up, and the loan is repaid.
Another case is when buy-and-hold investors can’t qualify for a HomeStyle loan or conventional mortgage. When this happens, investors use a hard money loan and then refinance to a long-term mortgage once they qualify.
Investors looking for a hard money loan should typically expect to find loans with the following terms:
- 7% to 12% interest rates
- 1.5% to 5% lender fees
- Three-minute prequalification
- 10- to 15-day approval time
- Loan amounts up to 90% LTV and up to 80% ARV
Just like with HomeStyle loans, hard money loans can fund the purchase and renovations of a property. Specifically, there are two types of hard money loans:
- Conventional hard money loans
- Hard money rehab loans
Conventional hard money loans are used to purchase houses in good condition and are issued based on a percentage of a property’s LTV. Buy-and-hold investors typically use a conventional hard money loan when they need quick funding and/or don’t qualify for the stricter Fannie Mae or conventional mortgage loans.
When this is the case, buy-and-hold investors purchase a property, fill it with tenants, and then refinance to a HomeStyle loan or conventional mortgage when the loan expires or when they meet the stricter requirements.
Hard money rehab loans, like HomeStyle loans, fund the purchase and renovations of a property together as a single loan. Rehab loans are used by short-term fix-and-flippers looking to purchase, renovate, and sell a property within a year. They’re also used by buy-and-hold investors looking to rehab a property before renting it out to tenants and refinancing with a conventional mortgage.
All hard money loans typically charge interest-only payments throughout the life of the loan and require that the loan be paid in full at the end of its term. This makes the monthly payments typically lower than the payments of a HomeStyle loan. Watch out, however, because some hard money loans have prepayment penalties.
For more information on the best hard money lenders, check out:
- Hard money lender directory
- Hard money lender buyer’s guide
For specific information on hard money loans and how to use them, check out our ultimate guides on rehab loans and conventional hard money loans. If you’re interested in fix-and-flip projects, don’t hesitate to read our articles on the four types of fix-and-flip loans and multifamily financing for investors.
However, if you’re ready to explore specific hard money loan options, check out our partners at LendingHome. LendingHome issues both conventional fix and flip loans as well as refinancing options. Rates start at 6.5%, and prequalification takes as soon as three minutes.
Bottom Line
HomeStyle loans are a great renovation financing option for owner-occupied homeowners and those investing in a small number of single-unit properties. HomeStyle loans finance the purchase and renovation of an owner-occupied primary residence between one and four units. Further, HomeStyle loans can be useful for investors searching for a single-unit second home or investment property.
If these loans aren’t right for you, it’s best to check out a hard money loan alternative, like LendingHome. LendingHome can get you funded within 10 days with rates as low as 6.5%. Prequalify in minutes to see loan amounts and rates.