Fannie Mae administers various single-family mortgage programs. The HomeStyle program is the primary program for the rehabilitation and repair of single-family properties, second homes and investment properties. As such, it is an important tool for community and neighborhood revitalization and expanding homeownership opportunities.
The HomeStyle loan is an all-in-one loan used for homes the need repairs. It allows borrowers to finance the purchase of an existing home and make improvements or upgrades from a minimum of $10,000 up to 50% of the after improved value. The total loan amount, sale price plus improvements less down payment, may not exceed the Fannie Mae maximum.
Most mortgage financing plans provide only permanent financing. That is, the lender will not usually close the loan unless the condition and value of the property provides adequate loan security. When rehabilitation is involved, this means that a lender typically requires the improvements to be finished before a long-term mortgage is made.
When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often interim financing (the acquisition and construction loan) involves relatively high interest rates and short amortization periods. The HomeStyle Loan program was designed to address this situation.
With this program, the borrower can get just one mortgage loan, at a loan-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work.