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FHA 203K Vs. Homestyle Renovation Loan

How Does Hoemstyle Renovation Stack up Against FHA 203k?

How Does Hoemstyle Renovation Stack up Against FHA 203k?

Orange County, CA – With a strong property market across America and confidence growing daily, Orange County residents have every right to believe that the value of their homes will increase. However, over the past few years housing starts have dropped considerably. The housing supply has been aging. That being said, there are a high proportion of properties for sale that require renovation. Considering this, the popularity of renovation loans has been growing. This is true for current homeowners looking at the possibility of refinancing in order to make home improvements. It’s also the case for new homeowners looking to secure a property and then renovate it before moving in.

There are some great renovation loan options available these days to fit anyone’s needs. Fannie Mae’s Homestyle Renovation Loan is one of them. The FHA 203k is another. Of course these two options are not totally identical. So I’m going to take a minute to give you an idea of the differences between them.

First let’s talk a little about the FHA 203K. This is a loan that comes in two different forms. There’s the streamlined version, which essentially allows for minor updates. The full 203K is more suited to properties where there is a larger scope of work required, such as structural problems or large extensions. An onsite consultant will be on hand to monitor the process. This consultant will make examine the plans, review the contractor bids and then inspect the work to make sure it meets FHA’s requirements. The FHA 203K has a great low down payment option of 3.50%. But the drawback for some is the mortgage insurance. It can be expensive and the terms for dropping it prohibitive. You won’t be getting more than the standard FHA limit in Orange County which is currently $729,750. Also, if the home doesn’t have a certificate of occupancy, you won’t be allowed to use an FHA 203K.

The Homestyle Renovation loan from Fannie Mae is a different animal. It’s a conventional loan. The loan limits are slightly lower with Orange County residents topping out at $625,500. Homeowners are required to invest a minimum of 5%, which is higher than the FHA figure.

Any work that is allowed under the FHA guidelines is also allowed with the Fannie Mae offering, but the advantage on this side of the fence is that you can do more. You can add a dash of luxury to the proceedings if you wish, opting for things like swimming pools, spas or expensively fitted out kitchens. The improvements need to be permanent to the property and add value. You’ll also find that any condo projects or homes that have yet to be finished and signed off are also allowed. In addition, the Homestyle Renovation loan has an important financial benefit working in its favor. It is easier to drop mortgage insurance on a conventional loan than an FHA loan. A conventional loan does not require a minimum 5 year minimum holding period. Therefore, if your equity position shifts dramatically with the renovations that you’ve made then you have a better shot at eliminating the mortgage insurance.

Click here for a side by side narrated comparison of the two programs as compared to traditional financing.



We’re clearly seeing a pattern emerging here, and it is that the Fannie Mae Homestyle loan is a touch more flexible than the FHA 203K offering. This is highlighted again by the fact that you can use the Homestyle loan both for your main residence, but also for second homes and investment properties.

So which program is best largely depends on your personal circumstances. The first step is to understand the work that will be required and the estimated cost to complete it. That information along with your financials will guide us toward the appropriate loan program. Talk it through with me so we can decide together which option is best for the property you are interested in.

Scott Storace

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