Why are Fannie Mae Homestyle loans better than FHA 203Ks when renovating?
Before RenoFi came along, the two most common options for buyers looking to buy and renovate a home all in one loan were Fannie Mae Homestyle Renovation and FHA 203K loans. And while they both allow you to borrow money for both the purchase and rehab of a home, there are a few notable differences that make Fannie Mae Homestyle Renovation loans the better choice over an FHA 203K for many homeowners.
Before you decide which is right for you, here’s what Fannie Mae Homestyle loans have to offer versus 203Ks:
- No Upfront Mortgage Premium - Unlike an FHA 203k, Fannie Mae Homestyle loans don’t require an upfront Mortgage Insurance Premium, or MIP. And at 1.75% of the loan amount, the more money you need to borrow, the more this will cost you. For example, let’s say you have a loan for $400K. That’s $7,000 you’ll save with Fannie Mae Homestyle.
- Lower Monthly Mortgage Insurance - These premiums are half of most loan alternatives, including FHA (.40% vs .80%). So again, with that loan of $400K, you’ll save yourself $1,600 each month with Fannie Mae.
- Mortgage Insurance Costs Will Go Away - This .04% MIP is automatically removed after 12 years, or even sooner with proof of 20% equity in the product. Unlike 203K, which has a Lifetime Mortgage Insurance requirement, so you’re stuck paying these rates no matter what the status of your equity may be.
- Lower Interest Rates - In most cases, Fannie Mae offers lower interest rates compared to FHA 203Ks.
- Greater Flexibility - Fannie Mae has less stringent appraisal conditions, so there are less hurdles to jump with minor safety issues. Not to mention, you can’t use a 203K for improvements that FHA considers “luxuries.” Fannie Mae simply requires the improvements be “permanently fixed to the real property,” meaning it may cover that new swimming pool or landscape addition, unlike a 203K.
- Second Homes Qualify - When purchasing or renovating a second home or investment property, FHA isn’t even an option.
- Higher Loan Amounts - If you need to borrow more money, Fannie Mae Homestyle can get you up to $484,350 for your renovation versus 402,500 with an FHA.
If you can qualify for a Fannie Mae Homestyle Renovation loan, it’s always the better option over a 203K. But RenoFi’s Renovation Home Equity loan can offer the same benefits of Fannie Mae without the need to refinance, plus even lower insurance and interest rates. Contact us to discuss your renovation loan options and see if a RenoFi loan is right for you.
Other information you may be interested in...
- 3 Reasons Why You Shouldn’t Rely On An FHA 203K Loan for Purchasing & Then Renovating - Before you jump into an FHA 203K loan to finance the purchase and renovations of your new home, you should hear how this once very popular option actually kinda sucks in today’s market. We’ve got three reasons for you.
- Are Home Equity Loans Still Tax Deductible? - The Tax Cuts and Jobs Act has impacted tax deductions for many homeowners. Find out what the new tax reform will mean for home equity loans and your future renovation project.
- Home Equity Loan Requirement Checklist - Realizing that it’s possible to turn your current home into a home you love is a great feeling. Discovering the smartest way to do it through a renovation home equity loan is even better. We'll help you gather everything you need to apply.
- How to Qualify for a Home Renovation Loan - Did you recently discover that a renovation home equity loan is the best way to fund your renovations? We’ll walk you through the key factors that lenders consider, so you know what to expect when you apply.
- 3 Reasons Why You Shouldn't Use a Construction Loan for Your Renovation - Has someone told you the best way to finance your home renovation is with a construction loan? Well, if so, you’ve been given bad advice! You have options - options that enable you to borrow based on what your home will be worth after the renovation!