5 Reasons Why You Shouldn’t Use A HomeStyle Loan (& Consider A RenoFi Loan Instead)
Looking for the best loan to finance your home renovation project? These are the biggest reasons why you should consider a RenoFi Loan rather than a Fannie Mae Homestyle Renovation Loan.Oct 4, 2021 • Rich Garner
If you’re looking for a loan to fund your home remodel - you may be considering a variety of different options: home equity loans, renovation loans, construction loans, and more.
Why should you consider a RenoFi Loan rather than a Fannie Mae HomeStyle renovation loan to finance your renovation?
Here are five reasons:
1. A long process that commonly causes delays
With any type of construction loan, including Homestyle loans, there’s a whole load of extra steps that are required both of you and your contractor throughout the process.
If you’re using a Fannie Mae HomeStyle renovation loan to purchase a property, you could find yourself at a disadvantage in a competitive market as a result of the extra steps you’ll take up front.
Before qualifying for a Homestyle loan, your contractor will have to create detailed plans and construction schedules, and you’ll have to order the “as-completed” appraisal required for renovation loans - all before you can put an offer in on a house.
After all, if another buyer is using a traditional mortgage, rather than the renovation mortgage that you’re using, chances are they’ll be able to secure their loan quicker than you can.
The alternative option, of course, is to use a traditional mortgage yourself and use a RenoFi Loan to finance your renovation after closing.
2. Big decisions must be made under time constraints
If you’re using this type of loan to purchase and renovate, you’ll find yourself needing to make big decisions under tight time constraints and deadlines. And this isn’t ideal for anyone.
You’re forced to rush the process of everything - from planning the renovation to finding the right contractor, leaving you little time to carefully think about what you truly want to get out of your project and those little extras that turn a house into a home.
On the other hand, buying with a traditional mortgage then renovating with a RenoFi Loan lets you take your time to do your renovation your way, without time constraints.
3. Higher fees and costs
HomeStyle loans typically come with higher fees and closing costs than other types of financing.
Let’s also not forget that, when combined with higher rates, many homeowners choose to refinance after the renovation is completed, meaning a second set of closing costs will have to be paid.
4. You’re forced to refinance if using to pay for renovations on your current home
If you’re using a HomeStyle to renovate your current home, you’ll need to refinance your existing mortgage.
And this means you might end up having to refinance onto a higher rate, further increasing your monthly payments.
In comparison, a RenoFi Loan doesn’t require you to refinance, while still allowing you to benefit from your home’s after renovation value.
5. You won’t get your money right away
Homestyle loans require a lot of complexities that traditional home equity loans don’t. Unlike with a RenoFi Loan or other types of financing, these loans don’t give you the funds right away. Rather, they involve a complicated draw process and give it to your contractor in installments.
Your loan funds, instead of going straight to you, will be placed in a custodial account. To access the money, your contractor will have to submit requests at certain project milestones to prove that the project is continuing as planned.
After each request is submitted, an inspector will come to the project site and determine if everything is according to plan. If the inspector signs off on it, the lender will release the next sum of money.
The last thing you want during a renovation is to make things more complicated for your contractor.
To see how much you can borrow with a RenoFi Loan, try the RenoFi Loan Calculator .